• 2 minutes Oil Price Could Fall To $30 If Global Deal Not Extended
  • 5 minutes Middle East on brink: Oil tankers attacked off Oman
  • 8 minutes CNN:America's oil boom will break more records this year. OPEC is stuck in retreat
  • 40 mins Emissions Need To Be Halved To Avoid 3C Warming
  • 6 hours The Pope: "Climate change ... doomsday predictions can no longer be met with irony or disdain."
  • 3 mins Coal Boom in Asia is Real and a Long Trend
  • 15 hours Hormuz and surrounding waters: Energy Threats to the World: Oil, LNG, shipping markets digest new risks after Strait of Hormuz attack
  • 16 hours OPEC, GEO-POLITICS & OIL SUPPLY & PRICES
  • 2 hours Pioneer CEO Said U.S. Oil Production would be up to 15 mm bbls/day NOW if we had the pipelines. Permian pipelines STARTING Q3
  • 4 hours Solar Panels at 26 cents per watt
  • 9 hours The Magic and Wonders of US Shale Supply: Keeping energy price shock minimised: US oil supply keeping lid on prices despite global risks: IEA chief
  • 9 hours Magic of Shale: EXPORTS!! Crude Exporters Navigate Gulf Coast Terminal Constraints
  • 9 hours US to become net oil exporter in November: EIA
  • 6 hours US Shale Drilling lacks regulatory body.
  • 14 hours Trudeau approves Trans Mountain Pipeline
  • 16 hours The Plastics Problem
  • 8 hours Ireland To Ban New Petrol And Diesel Vehicles From 2030
Alt Text

The Oil Company Investors Fear Most

This is arguably the most…

Alt Text

OPEC Agrees To Schedule Meeting On July 1-2

After weeks of disagreements, conflicting…

Alt Text

Global Oil Market Surprisingly Oversupplied

Despite OPEC oil production cuts…

Haley Zaremba

Haley Zaremba

Haley Zaremba is a writer and journalist based in Mexico City. She has extensive experience writing and editing environmental features, travel pieces, local news in the…

More Info

Trending Discussions

Think Tank: Mexico’s New Refinery Already Doomed

A Mexican think tank has declared that Pemex’s newest refinery is doomed in a grim analysis released this month. The Mexican Institute for Competitiveness (Instituto Mexicano para la Competitividad, or IMCO for short) released a damning financial analysis of the Dos Bocas refinery, currently being developed in Tabasco by state-owned oil company Petróleos Mexicanos (Pemex), which gave the project a mere 2 percent chance of success. Highlighting the disastrous findings of the financial analysis, a report accompanying the results warns that if Mexico goes through with the Dos Bocas project, it “could generate a serious crisis for the public finances of the whole country.”

The Dos Bocas project is being backed strongly by Mexican president Andrés Manuel López Obrador and is to be built in his home state of Tabasco. The newly elected leftist president ran on a platform of “energy sovereignty” for Mexico and a large-scale campaign to bail out Pemex, which has seen many years of decline in its once-booming production partnered with exponentially ballooning debt. Pemex has not only seen a nosedive in its oil extraction and refining, it has also suffered a 42 percent cut in natural gas production since 2009, a major blow to an all-important segment of the nation’s power and manufacturing sectors.

The Dos Bocas refinery is an ambitious and pricey project--the first refinery of its size to be built in North America since 1977--and is projected to be completed in four years with a price tag to the tune of 160-billion-pesos (US $8.5-billion). In their analysis, IMCO smartly points out that regional history shows us that that four-year timeline and 160-billion-peso budget are both likely to be overly optimistic estimates on the part of the Mexican government. Related: Artificial Intelligence Is Transforming Oil Trade

The IMCO analysis created a financial model for the Dos Bocas refinery and ran it through a Monte Carlo simulation in order to study 30,000 potential development scenarios. The study included variable such as refining margins, total investment, construction time and operating costs, and concluded that a whopping 98 percent of the scenarios studied, the refinery would produce more cost than benefit, making it an almost certain financial and strategic failure for the already struggling and long-mismanaged Pemex.

Based on the think tank’s financial analysis, IMCO argues that the ill-fated project should be scrapped altogether, and the funds diverted into exploration and production, a much more profitable segment of the industry, instead. As the “least profitable” segment of the oil and gas industry, refining should not be the focus for a company with as much cash flow issues as Pemex. In addition to redirecting investment away from Dos Bocas and into E&P, IMCO recommends that López Obrador and Pemex invest more money and attention into improving efficiency and earnings in the company’s six existing refineries.

Pemex’s existing refineries operated at a record-low utilization rate in 2017, with an average of 19.6 percent utilization. According to IMCO’s report, this “indicates that currently there is sufficient installed capacity to increase production of refined products, however, underinvestment in the last 18 years in the national refining system infrastructure has caused the current refineries to not have the necessary productivity levels to make them profitable.” Related: Brent Could Hit $80 This Summer As Hedge Funds Lose Steam

López Obrador’s continued support for the project has added to existing public concern and disagreement as well as discontent within his own administration and among Pemex investors. In a particularly messy exchange, Mexico’s deputy finance minister Arturo Herrera issued public assurances that the president would be heeding financial warnings and pressing pause on the Dos Bocas project, but was promptly shut down by López Obrador himself, who has doubled down on the refinery’s development.

While politicians exchange barbs and op-eds swirl about López Obrador’s competence and divisiveness, the IMCO report wastes no words on false equivalence: “Pemex is on the edge of the abyss” the report warns, “and its performance is intimately related to the country’s public finances. It is urgent that the decisions with respect to this company be taken based on evidence and criteria of profitability, not political agendas.”

By Haley Zaremba for Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage

Trending Discussions


Leave a comment

Leave a comment





Oilprice - The No. 1 Source for Oil & Energy News