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Mexico to invest in refining ahead of tougher marine fuel sulfur standards

The Mexican government is planning to build new catalytic units at Petróleos Mexicanos SA de CV's refineries to overcome changes in international marine fuel market next year, Energy Secretary Rocio Nahle said March 13.

The Mexican Petroleum Institute is developing catalytic units to enhance Pemex's existing refining plants to lower sulfur contents in its refined products, Nahle said while answering a question from S&P Global Platts in a news conference at the sideline of CERAWeek by IHS Markit.

In 2020, the International Maritime Organization's will start cutting emissions limits in bunker fuel to 0.5% sulfur from 3.5% sulfur, which will be problematic for Pemex which produces high levels of high-sulfur fuel oil.

Currently, 30% of total Mexican refining output is high-sulfur fuel oil, which reached 160,000 barrels per day in the last week of February. This is mainly a challenge for Pemex's 220,000-bbl/d Salamanca, 315,000-bbl/d Tula and 330,000-bbl/d Salina Cruz refineries, which have a simple configuration that prevents them from efficiently processing domestic heavy Maya crude oil.

The Mexican government has been concerned with the country's high reliance on gasoline imports, which fulfills 80% of the country's demand, Nahle said. It is a priority for Mexico to increase refinery utilization as Pemex refineries operated under 40% of their capacity in 2018, she added.

New refinery tender rules out next week

The secretary said that after maintenance is completed in refineries this year, they will be able to reach a utilization rate of 70%. "The orders of President Lopez Obrador is to increase fuel production across our six refineries and build a new one," she added.

Mexico has a total crude processing capacity of 1.6 million bbl/d across six refiners. At this utilization rate, Mexico would process 1.12 million bbl/d.

President Andres Manuel Lopez Obrador will probably announce next week the auction participation rules for the construction of the new 340,000 bbl/d Dos Bocas refinery, she added. Pemex previously said it expected to begin construction of this facility by the end of the year.

Increasing domestic refining utilization is also crucial to add value to Mexico's domestic crude oil production, Nahle said.

Mexico is going to keep the current market framework, which allows private participation in fuel imports and marketing.

"Having a free market will help us to have low fuel prices," she said.

However, the secretary said that there had not been a stable and competitive fuel market in Mexico, which reflected in the lack of fluctuation in domestic fuel prices along with international oil prices, she added.

"Mexico's energy sector is large, and there is enough space for everyone to grow," Nahle said.

Daniel Rodriguez is a reporter at S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.