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Bad News For Oil: Refinery Profits Are Sliding

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Are Oil Prices Still Too High?

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Mexico Goes Full Steam Ahead With $8 Billion Oil Refinery Against Advice

Pemex oil tank

Mexico’s controversial Dos Bocas oil refinery project will indeed be built despite investor criticism, Mexican Energy Minister Rocio Nahle said during a radio broadcast on Thursday, reported by Reuters.

Mexico’s refinery plan has drawn criticism from investor and ratings agencies who estimated that the true cost of the refinery is likely between $10 billion and $12 billion—billions more than the $8 billion that Mexico is prepared to allocate for the refinery that Mexico hopes will bring it closer to energy independence by lessening its reliance on refined product purchases from the United States.

The original plan was to utilize foreign firms—with their foreign know-how and expertise to complete the 340,000 barrel per day refinery. Mexico invited Technip, KBR, and Bechtel and Techint, and WorleyParsons and Jacobs Engineering Group to bid on the project. But all bidders quoted amounts much higher than the $8 billion that Mexico hoped for, and none of the bidders said they could meet Mexico’s completion deadline for the project of 2022.

Rather than accept the fact the disappointing news that the project would require additional capital and time, according to “the best refinery-construction companies in the world” as Nahle put it at the time, Mexico decided to forge ahead alone, with heavily indebted Pemex at the helm, whose refining expertise has seen its facilities running near a mere 40% capacity—a drop from 75% between 1990 and 2013, according to the EIA.

By default, this decrease in refining utilization has decreased the amount of crude oil the country has imported for refining for five years running—from 1.2 million barrels per day in 2013 to just 600,000 barrels per day in 2018.

As a result, its domestic gasoline production fell, over the last few years, increasing the need to import finished gasoline and blending components to compensate for the loss.

As for Dos Bocas, “This government will build it,” Nahle said today in the interview, after earlier this week, Mexico offered Pemex a $7 billion tax break over three years that will help to fund the refinery.

By Julianne Geiger for Oilprice.com

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