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Doomed From The Start: Mexico’s Oil Refinery To See Cost Overruns

Pemex oil

Mexico’s newest oil refinery project is set to exceed the planned budget—and in a big way—according to Moody’s cited by Reuters.

The massive undertaking—by Mexico itself, no less—will most likely cost as much as between $2 billion and $4 billion more than it had originally planned, Moody’s said, citing its “limited know-how,” ironically exactly the situation Mexico sought to avoid when Mexico’s President, Andres Manuel Lopez Obrador,  shunned Big Oil last week, cutting them out of the project all together for submitting bids that were over on time and over on budget.

Mexico had originally sought out international help for the massive refinery that would bring Mexico closer to energy efficiency, garnering bids from Bechtel/Techint, Worley Parsons, and KBR. All three bids submitted pegged the costs somewhere between $10 billion and $12 billion, and the time to complete between four and six years.

Obrador thought the project should cost $8 billion and be completed in three years.

Displeased with what this international help had to offer, Mexico decided to go it alone on this project—a decision that likely led Moody’s to prophecy large cost overruns anyway.

“Given the government’s (and Pemex’s) lack of experience in building refineries, the project is likely to end up costing more and taking longer than the government anticipates, placing further strains on fiscal resources,” Moody’s said in a statement to Reuters.

Petroleos Mexicanos, or Pemex, is already the most indebted oil company in the world, and has been  hemorrhaging cash for years—even in the days of $100 oil.

Earlier today, Mexico Daily News reported that three banks were extending an $8 billion loan to Pemex to add to its heavy debt burden, which is already more than $100 billion.

By Julianne Geiger for Oilprice.com:



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