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Pemex to invest $2.6 billion at Tula refinery to cut dependence of imported fuels: CEO

Highlights

Pemex to complete coking plant with investment

Plant to process 140,000 b/d of fuel oil

Mexico City — Mexico's Pemex will invest $2.64 billion to complete a coking plant at its Tula refinery as the country seeks to reduce its dependence on imported fuels, the state company's CEO said May 12.

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The project, which Pemex expects to finish by 2023, will allow Pemex to process 90% of the fuel oil produced at Tula and at neighboring Salamanca, Octavio Romero Oropeza said during the daily press conference held by Mexican President Manuel Andres Lopez Obrador.

Mexico currently has six refineries with a combined nominal capacity to process 1.6 million b/d, three of which have a coking plant. However, during the last decade they have been running at a fraction of their capacity, processing less than 600,000 b/d in 2020 on average, as two of the refineries were built over a century ago.

Under Lopez Obrador, Pemex has recently increased its gasoline output to close to 300,000 b/d, a figure not seen in the last four years, data from the Energy Secretariat shows. Lopez Obrador has promised the country will stop importing fuels when his term finishes in 2024. In April, Mexico imported little under 500,000 b/d of gasoline and almost 300,000 b/d of diesel, slightly below the average of the last five years, data from the secretariat, or SENER, shows.

"When the coking plant is ready, it will process 140,000 b/d of fuel oil to generate 42,000 b/d of gasoline; 78,000 b/d of diesel and 20,000 b/d of fuel oil," Romero Oropeza said.

Romero Oropeza mentioned that the investment is part of a broader scheme to restore the strength of the state oil company after it was neglected for years under past administrations.

The previous administrations managed to sell three important hydrogen plants inside the refineries of Tula, Madero and Cadereyta, although they are essential for the operation, Romero Oropeza said.

The current administration managed to cancel the sale of Cadereyta, Romero Oropeza said, but Pemex continues to pay high sums for the lease of those facilities, he said.

"The Tula plant was sold for little over $50 million in 2017, but by the end of 2020, Pemex had paid the new owners over $49 million in lease fees," Romero Oropeza said, adding that the contract extends for another 15 years.

To avoid those excessive costs, the government is now in negotiations to buy back the other two plants, he said.

Hurdles

However, for some observers the efforts by the current administration may not be enough to compensate for decades of negligence and underinvestment.

Gonzalo Monroy, CEO of Mexico-based consultancy GMEC, told Platts the limited budget of the company can only afford "cosmetic repairs" that do not solve the bottom problems and result in unplanned stoppage time that deepen the losses of the company.

According to Pemex financial statements, the losses of the refining division of the company outweigh the profits of the upstream divisions.

"The amount of money they are putting into the refineries is hilarious; $2.6 billion is roughly what they need to invest in each refinery, and there are some, like Madero, which need as much as $5 billion to get them running at 95% of capacity," Monroy said.

In Monroy's opinion, budget constrains are not the only hurdles Pemex faces to increase output.

"Previous attempts by Pemex to rehabilitate its refineries failed because they were either not properly planned or properly executed," he said, noting that corruption and conflicts of interest have also played a part.

According to two people familiar with the process, major international companies like Siemens, Marubeni, Mitsui and Valero were involved in a previous attempt in 2017 to upgrade the country's refineries, but efforts failed.

"When the international companies saw the state the machines were in, many told Pemex it was easier, cheaper and better to build new ones and sell the existing facilities as scrap metal," said one of those people.

Most companies were willing to take the challenge to improve the refining system, as the country's underserved domestic market has always shown huge potential, said the second person.

"However, most were discouraged when they saw the prominent role the workers union plays in the decisions," he said.

A Pemex spokesperson did not immediately reply for requests for comment.