Rogelio Gasca Neri
Professional Board Member
View from the Top

The Future of Pemex Refining

Tue, 01/22/2013 - 12:55

Q: What are the main goals for Pemex Refining?

A: Pemex loses a lot of money through its refining activities. Some of the reasons for these losses are operational, and others are related to the company’s structural situation. Currently, e·ciency at Pemex’s refineries stands at around 70%. One of the biggest challenges that Pemex Refining faces in improving its e·ciency is related to the human factor. The communication between Pemex E&P and Pemex Refining needs to improve dramatically in order to improve planning. If refineries are receiving crude oil of a di†erent quality to what they were expecting, or with more salt or water in the mix, then processes need to be adjusted in the refining process, which takes time and reduces e·ciency. Better communication and planning between the two divisions could help to improve this situation dramatically.

Mexico’s refineries consume between two and a half to three times more energy than international standards, since the original design of the power generation systems does not include cogeneration. Another structural problem is the fact that Mexico’s refineries were not originally designed to process heavy oil. Today, we have problems with the e·ciency of transformation of this crude into refined products: we end up refining too much crude into diesel fuel. This is an issue because firstly, there is a very small market for diesel fuel in Mexico, and secondly, there is a lack of storage for such products, so when they are not sold, there is also no place to put them. Once these problems have been identified, it should in theory be easy to work towards solutions. For example, if power generation is the problem, then steps need to be taken to introduce cogeneration technology at Mexico’s refineries. Our refineries were originally designed to refine oil directly from the pipeline, with very few storage areas. Since more and more oil needs to be separated from water before processing, the need for such storage areas is growing. This is another issue that needs to be addressed. We also need to install cokers at our refineries, in order to improve the refining process for heavy oil. Pemex’s investment plan is currently addressing all of these areas in its refinery upgrade program. However, these improvements will only go half way towards the eventual aim of Pemex Refining, which is to make its activities profitable and e·cient.

Q: Should the long-term goal for Pemex be to refine 100% of Mexican crude domestically?

A: The new Mexican president is aiming for an annual GDP growth of between five and six percent for the country, which will mean huge rises in the consumption of energy, electricity, and gasoline, in a timeframe that does not allow us to develop the refining infrastructure required to meet rising demand with domestic production. We have to find a strategic solution to optimize the importation of gasoline and other refined products. Options include finding a new relationship similar to the one Pemex has with Shell at the Deer Park refinery, establishing long-term purchase agreements with US refineries, or simply buying a refinery outside of the country.

At the same time, we have to improve our domestic refining e·ciency, and perhaps build a new refinery on Mexican soil. We also need to work on the pipeline infrastructure for importing oil, gas, and refined product, as well as on better storage solutions, and building redundancy into the Mexican pipeline network.

Q: How does Pemex view its collaboration with Shell at Deer Park Refinery in Texas?

A: It is viewed as a success, in the sense that Pemex achieved the objectives they set out to at Deer Park. The partnership was established at the time that Pemex’s production of heavy oil was starting to grow, and the best way to take advantage of that was to invest in this refinery in collaboration with Shell, designed to process the type of crude that Mexico was producing. Both parties profited from this arrangement: not only did Pemex profit from selling its oil, but also from finding a new market for it and developing e·cient processes at the refinery.

It would not make sense to follow the same business plan for the same reasons today: heavy oil is in much higher demand than it was before, as refineries have adjusted their hardware and can now process it with ease. However, we could enter into a similar partnership but for di†erent reasons: if we need to import a large amount of refined products each day for the next 20 years, then co-investment in a new refinery is one way that we could make that more cost-e†ective.