Tariffs unlikely to impact VH Global's Brownsville fuel terminals
The Facts -
- Tariffs won't disrupt VH Global's Brownsville fuel terminal operations.
- Minimum volume agreements mitigate risks from tariff impacts.
- Uncertainty persists due to unclear tariff details and a moratorium.
Tariffs on Mexican Oil Slurry Imports: Implications for Brownsville Terminal
Amid shifting trade policies, VH Global Energy Infrastructure has addressed concerns regarding new tariffs targeting its fuel terminals in Brownsville, Texas. This facility plays a crucial role in refining oil slurry imported from Mexico, transforming it into valuable outputs.
Recently, on February 1, 2025, President Trump enacted three executive orders introducing tariffs on imports from Canada, Mexico, and China, which were set to take effect on February 4, 2025. The tariffs impose an additional 25% charge on imports from Canada and Mexico and 10% on those from China. The company’s investment manager, Victory Hill Capital Partners LLP, is still examining the comprehensive details associated with these tariffs.
Initial evaluations by Victory Hill Capital Partners and collaborator Motus Energy in Texas suggest that the 25% tariff on Mexican imports will not significantly impact the flow of the oil slurry into the Port of Brownsville’s Foreign Trade Zone. This assessment stems from the unique pricing and strategic geographical position of Brownsville, which enables continued slurry movements.
The U.S. government's strong ties with the energy sector hint at a favorable outlook for domestic refineries that could be potentially affected by the tariffs. Current data implies a minimal risk of adverse financial impact on revenue and business operations for the Brownsville terminal assets.
Contracts with customers have been strategically designed to mitigate risks, incorporating minimum volume commitments irrespective of throughput at the terminals. The slurry, once imported, is transported to refinery coking facilities in Texas and Louisiana at a substantial discount compared to crude oil prices. Thus, the tariff on such low-value commodities is unlikely to discourage its flow, assuming Mexican refineries maintain their exporting impetus.
Proximity to the Cadereyta refinery in Mexico, which continues to generate excess slurry needing export, solidifies Brownsville as a key transit hub. Even if PEMEX, through its trading arm PMI, redirects slurry to coking facilities beyond U.S. borders, the terminal assets at Brownsville would still be utilized for transshipment.
Despite the extensive announcements, the full ramifications of the tariffs remain undefined, with crucial details pending publication. These specifics are crucial for assessing the tariff’s impact on the Mexico-U.S. border trade in crude and oil products. This uncertainty is heightened by a recent one-month moratorium on the tariffs proclaimed on February 3, 2025.
The investment manager, in collaboration with Motus Energy, is continuing to monitor these developments closely.
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