Mexico is fast becoming a large importer of refined fuels from north of the border. So much so that rail and port energy infrastructure is woefully behind the times.

Mexico’s automotive fuel refining, storage and distribution systems were designed to balance 80% domestic production with 20% imports. However, in 2016 Mexico imported 60% and produced domestically only 40% of its total fuel consumption, according to César Cadena, president of energy marketing company Grupo Energéticos. And the trend is only getting steeper, he told attendees at the recent Mexico Infrastructure Projects Forum in Monterrey.

The vast majority of imports come from the U.S. Gulf Coast and are shipped in, but the Mexican ports of Tampico, in Tamaulipas; and Coatzacoalcos, in Veracruz, where Petróleos Mexicanos (Pemex) refineries are located, do not have the storage capacity to accommodate the deliveries. Therefore, Pemex hires ships to deliver fuels to coastal storage depots along the Gulf of Mexico and the Pacific.

Although this is inefficient, Cadena said it is still cheaper to buy fuels in Louisiana to deliver by ship at Tijuana, than it is to import from California refineries. This system translates into scarce supply conditions across wide swaths of the country and higher end-user prices, he said.

In an opening, free market for fuels, transportation of imports via rail or truck makes economic sense along Mexico’s northern border, Cadena said. For other regions, the expense and time needed to expand storage capacity at Gulf of Mexico ports, such as Tuxpan, and build pipelines to transport fuels inland, plus the losses and insecurity posed by illegal pipeline tapping, make the existing rail network worth a second look, he said.

“Many private-sector suppliers are still looking at Pemex’s transportation infrastructure as the mainstay, but I think this is a mistake,” Cadena said. “Marketers should develop their own transportation and storage infrastructure, according to market conditions.”

José Zozaya, president of Kansas City Southern (KCS) Mexico, said energy reform offers railroads opportunities to capitalize on a growing trend. Not only have rail companies increased the volume of energy products they can transport, they have also diversified the number of markets they can service, he said. Zozaya expressed hope that North American economic integration would keep pace, buttressed by a growing energy trade.

Opportunities for rail services Zozaya identified in Mexico include transporting steel pipe for oil fields and natural gas pipelines, importing liquefied petroleum gas and refined oil products, transporting fuel oil from Mexican refineries for maritime export and, further ahead, importing sand for hydraulic fracturing and exporting Mexican shale oil production.

“Indeed, on Feb. 4, Mexico received its first diesel fuel unit train shipment from the United States,” Zozaya noted.

Zozaya emphasized the safety of rail transportation compared with tanker trucks. In Mexico’s case, trucking is more secure than oil products pipelines, which are vulnerable to illegal tapping and theft. Managing product quality is easier when transport is by rail he said. “The infrastructure delivers the same quality going out as the quality that went in,” he said.

KCS Mexico, Zozaya said, has rail assets near large shale deposits in the United States and Mexico. Operations are integrated across the border and interconnected with other Class 1 railroads in North America, he said.

The railroad is working to complete a fluids and cargo terminal in San Luis Potosí. This city, he said, could become a hub for distribution of imported liquid petroleum gas and refined products for north-central Mexico. Also, the fact that there are no refined products pipelines between San Luis and Saltillo, to the north, gives the railroad network a bonus. “If we are competitive transporting fuels, there might not be a need to build additional pipelines in this region,” Zozaya said.