Page 5 - LatAmOil Week 41 2021

LatAmOil COMMENTARY LatAmOil

(This will make it larger than Salina Cruz, It is nowhere near being finished yet, and the
Pemex’s 330,000 bpd refinery in Oaxaca State, upgrade and rehabilitation projects have acted
and the 315,000 bpd Tula plant.) as another constraint on throughput. As a result,
Moreover, the protesters are not schoolteach- refinery performance looks set to remain subpar
ers but employees of ICA Fluor, a joint venture for the time being.
formed by ICA, a Mexican engineering and
construction firm, and Fluor, a US-based engi- Implications: Dos Bocas
neering and construction company. They are Meanwhile, the challenges in Tabasco State
demonstrating not because of overdue salary are significant because they highlight another
and pension payments but because they want aspect of the problems besetting Mexico’s refin-
better pay and working conditions. ing industry – namely, the current government’s
Additionally, these developments are mak- desire to ensure that Pemex retains the domi-
ing headlines not because of road blockages but nant position in the country’s oil sector.
because of clashes between security forces and The Dos Bocas refinery is being built because
union members. The protests have also drawn President Andres Manuel Lopez Obrador sees
in the military, as the Mexican government has the project as a means of creating jobs and
summoned members of the national guard and establishing a destination for Pemex’s heavy Recent events
the navy to protect federal facilities in the area. crude output. Meanwhile, Lopez Obrador has
also argued that the plant will give a boost to the are putting even
Implications: Tula Mexican economy by allowing the country to
The events in Hidalgo State are significant overcome its dependence on imported petro- more strain on
because they draw attention to the state of Mex- leum products.
ico’s downstream sector. So far, though, the plant has not exactly been the Mexican
Even before the Tula refinery halted opera- an engine of growth. Construction work has refining sector
tions, it was not performing optimally. Accord- been running behind schedule, and the refin-
ing to official Pemex data, the facility has been ery is not widely expected to begin commercial
operating at less than half of its design capac- operations by the original deadline of mid-2022.
ity this year. In the first eight months of 2021, Also, the anticipated total cost of the project has
it processed 153,400 bpd on average or 48.7% crept up considerably. In its latest annual report,
of capacity, and in August alone it processed Pemex said that that the price tag for the plant
146,000 bpd on average or 46.3% of capacity. might be as high as $12.4bn, up by 55% on the
The Tula plant actually boasts higher capac- original estimate of $8bn.
ity utilisation levels than the country’s other The NOC also suggested that the business
five refineries, which are also owned by Pemex. case for the Dos Bocas refinery might have to
According to official figures, Mexico’s oil-pro- be revamped in light of the setbacks the project
cessing facilities are currently operating at less has experienced. “[It] will be necessary to refor-
than 35% of their combined design capacity of mulate the project, in particular the internal rate
1.64mn bpd, and throughput has sunk every of return and the net present value,” it said in its
year since 2013. (Between 1990 and 2013, by 2020 annual report, which was published earlier
contrast, capacity utilisation averaged about this year.
75%.) As of press time, it was not clear when the
According to a US Energy Information Tula refinery might resume operations or when
Administration (EIA) note published in mid- ICA Fluor might be able to restart construction
2019, Mexican refineries are in this state largely work at the Dos Bocas site. It does seem evident,
because they cannot secure enough feedstock though, that recent events are putting even more
from domestic sources. The plants are con- strain on a sector that is already facing less than
figured to handle light crude oil, but Pemex’s optimal circumstances. ™
production of lighter grades is in a long-term
decline. As the EIA noted, the NOC delivered CORRECTION: In last week’s issue, the arti-
less than 400,000 bpd of light crude to its refin- cle “Castillo reorganises Cabinet shortly after
eries in 2018, down by 50% on the 2013 figure. PM urges higher taxes for gas investors” referred
Pemex has been trying to improve condi- to Peru’s new Prime Minister Mirtha Vasquez as
tions in the refining sector by reconfiguring its a member of a Marxist political party. Vasquez is
plants to work with heavier grades of crude oil an independent within the Broad Front (Frente
(and also to facilitate the production of cleaner Amplio) coalition of leftist parties in Peru’s Par-
fuels). However, this has been a slow process. liament. NewsBase regrets the error.

Week 41 14•October•2021 www. NEWSBASE .com P5