Ricardo Diogo
Director of Business Development
View from the Top

Tank Giant Eyes Central Region

Wed, 12/13/2017 - 08:49

Q: How will the liberalization of gasoline prices and imports impact the demand for Oiltanking’s services?

A: This liberalization caused private players to look at this market and to see the opportunities for new storage facilities. Since logistics are normally necessary between production and distribution, logistics and storage are required to close the cycle between the imports and the retailers. The liberalization sparked huge momentum in the storage and logistics business. 
Q: What services is Oiltanking providing under the current market conditions?

A: We are the second-largest liquid storage operator in the world. Often, we own our infrastructure and operate it to sell capacity to oil and chemical companies, traders and retailers; that is the principal expertise Oiltanking brings to the market. 
We can also partner up with existing facilities. PEMEX, of course, could be an option for the latter service. But we also have other lines of business in which we do not own the facility. If someone has a facility but does not have the expertise to build or operate it, and even may not want to have that responsibility, we have O&M services in which we operate the facilities. If the facility still needs to be built we can jump in with support at the engineering phase or assist with the construction and then operate the storage facility.
A final option we offer is for companies that want to have a facility but are unable to invest at a first. Fortunately, we have a very strong balance sheet that allows us to also offer a Build, Own, Operate and Transfer (BOOT) business model, in which we charge a fee during the duration of the contract to get our return on investment. The facilities, which we have managed according to international standards, are then transferred to our clients at the end of the BOOT contract. 

Q: How aggressively do you expect demand to be driven by the length of permits granted?

A: First of all, retailers need two permits for this new business model. One is the commercialization permit, which as far as we understand, demands a longer application period and is more difficult to acquire. That permit allows companies to sell products in Mexico. The import permit is pretty straightforward, which is probably one of the reasons the number of import permits granted are much higher than what the market needs. Of course, if a trader is in Mexico and knows that the permit is easy to get, it is better to have it ready in case an opportunity presents itself. So many permits were requested and approved. But I do not think that all these permits will be used since there is not enough demand or even projections of demand for all of them to be used. If everyone committed to importing the volumes they are permitted then the country would be overflowing with gasoline. Therefore, I do not think import permits are an accurate reference for what is going to come regarding volumes of imports.
Demand in Mexico is expected to grow 2-3 percent per year and PEMEX is still here. PEMEX will have to lose part of its market share to make room for others and create some growth in imports. The market will not grow 50 percent just because it is an open market. 

Q: Where do you see imbalances between storage capacity and demand?

A: The greatest imbalances are definitely in the central regions, such as the State of Mexico and Valley of Mexico. That is where the highest consumption is and the other large regions are closer to the border, making it is easier to ship cargo by rail. At distances of more than 800-1,000km from the border, it becomes more difficult to bring in large shipments for high-consumption areas by truck. Rail might be complementary at that distance but the largest volume will inevitably be supplied by pipeline or vessel. Therefore, the central region from the Valley of Mexico up to Guadalajara is where we see the largest imbalances.