Mexico goes all-in on refining

Mexico’s state-owned national oil company Petróleos Mexicanos (Pemex) announced earlier this year that it plans to significantly reduce crude petroleum exports in 2022 and phase out crude exports altogether by the end of 2023. The news was reported widely in domestic and international media. We have criticized President Andrés Manuel López Obrador (AMLO) in this space, but in fairness we must acknowledge that he is clearly not afraid to launch bold and decisive new public policy initiatives, for better or worse. We continue to question, however, whether many of them are a good idea.

The Mexican state has long depended on Pemex’s crude exports to finance an important portion of the operations of government, as well as, reportedly, political campaigns and other less public pursuits. Through the years much wringing of hands has taken place over the country’s dependence on oil, and in recent years, the rise of tourism, remittances, automobile manufacturing and other industries has significantly eased the preponderance of oil among Mexico’s sources of hard currency revenues. Nonetheless, an audacious move to cease oil exports is subject to a number of unknowns that could easily derail the intended outcome.

Mr. López Obrador frequently rails against what he perceives to be rapacious foreign corporations plundering Mexico’s natural bounty, and he is pursuing import-substitution programs in agriculture as well as hydrocarbons to increase the country’s self-sufficiency in these areas. Refining oil into gasoline and diesel at home to replace imports of these products is among his top goals for the nation. When Pemex announced the planned reduction of crude exports, the company’s executives pointed to two of the president’s signature projects – the Deer Park and Dos Bocas refineries – as the source of supply to meet demand for fuels that would no longer be imported. But as we say in Latin America, momento, momento. Pemex is talking about sharply reducing crude exports this year, but the Deer Park deal was only finalized in mid-January, and Pemex is now entering a transition period to take over full management of the refinery. The Dos Bocas project is currently under construction in the Gulf coast state of Tabasco, with a stated completion date of July 2022. We admit that we have not hiked out to the site to review progress, but even so we are willing to predict that the refinery will not be operational by July, due to the very well established track record of government mega-projects going over time and over budget. Energy Minister Rocío Nahle continues to assure the media that the work is “going well”, but, like her boss, beyond that sticks to slogans referencing national pride, sovereignty and heroic resistance to the sacking of the nation by foreign neoliberal freebooters.

We will take no satisfaction from the eventual failure of Mr. López Obrador’s energy policies, if that turns out to be the outcome. Our objective, which we presume the president shares, is a more prosperous and more just society for all Mexican people. Our visions clearly differ with respect to how to achieve that goal, with the current government committing completely to fossil fuels by altering the rules of play to block development of renewable energy infrastructure and putting deeply indebted, politically beholden state enterprises in charge of the regulation of their own industries. Pemex is renowned for the explosions and fires at its drilling and refining sites, routinely blamed on “lack of maintenance.” The company’s colossal debt, poor operational track record and crushing pension liabilities will combine with unreliable crude output, refining capability and future demand to create daunting challenges for the president’s all-in strategy. A recent analysis by the National Hydrocarbon Commission (CNH), in fact, projects that even the most optimistic of its three crude production scenarios will not reach the government’s stated output goal by the end of the president’s term in office.

You may say, wait a minute, you’re not an energy industry analyst, you’re just some schmuck. Quite right, and this is precisely our concern — that any schmuck can see how this one is going to turn out. But for the moment let’s just hope we’re wrong and whoever gets handed the mop and bucket once this sexenio is over will have a better plan.

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