The Long and Winding Road of Mexico’s Refining Capacity

Without a doubt, the increase in refining capacity has been one of the fundamental objectives of the current administration's oil policy. Thus, according to PEMEX's results for the third quarter of 2023, crude oil processing went from 807,000 barrels per day in the third quarter of 2022 to 778,000 barrels per day in the same quarter of 2023; that is, it decreased 3.6 %. The utilization of the installed refining capacity reached 47.4%, a value that was 1.8 percentage points lower than that observed in the third quarter of 2022. In this regard, it should be noted that crude oil processing, after having decreased in the second quarter of 2022 by 3.2% compared to the first quarter of the same year, followed two consecutive quarters of increase, reaching 838,000 barrels per day in the fourth quarter of 2022. It then decreased marginally to 835,000 barrels per day in the first quarter of 2023, to 826,000 in the second and to 778,000 in the reported quarter. The 5.8% drop in crude oil processing between the last two reported quarters is noteworthy.

The National Refining System (SNR) saw a decrease in oil production by 1.9%, going from 802,000 barrels per day in the third quarter of 2022 to 787,000 barrels per day in the reported quarter. As a result, the SNR posted two consecutive quarters of decline in oil production, after having shown an upward trend that began in the third quarter of 2022, continued in the fourth quarter (850,000 barrels per day) and with a peak in the first quarter of 2023 (856,000 barrels per day). In the second quarter of 2023, production fell to 822,000 barrels per day.

Gasoline production in the third quarter of 2023, compared to the same quarter in 2022, decreased by 0.8%, going from 242,000 to 240,000 barrels per day. In the fourth quarter of 2022, 274,000 barrels per day were produced, in the first quarter of 2023, 270,000 barrels per day, and in the second quarter, 247,000 barrels per day. In other words, there have been three consecutive quarters of decline in gasoline production.

For its part, fuel oil production went from 264,000 barrels per day in the third quarter of 2022 to 244,000 barrels per day in the reported quarter, a decrease of 7.6%. Regarding diesel production, this increased from 137,000 barrels per day in the third quarter of 2022 to 136,000 barrels in the reported quarter; that is, there was a slight decrease of 0.7% for this item.

Meanwhile, the refining margin per barrel processed went from minus-US$8.43 in the third quarter of 2022 to US$22.98 in the same quarter of this year. An increase of US$31.40 per barrel processed.

In the specific case of the Deer Park refinery, in the reported quarter it processed an average of 300,900 barrels of crude oil per day (78% of its capacity), which is 1% less than in the same quarter of 2022. In the third quarter of 2023, Deer Park produced 129,100 barrels per day of gasoline, 94,700 of diesel, 26,500 of jet fuel, and 2,200 of fuel oil. Compared to the third quarter of 2022, Deer Park gasoline production increased by 0.3%, diesel production decreased by 13.8%, and jet fuel production increased by 8.6%. In the same period, fuel oil production decreased 75.3%.

Likewise, crude oil processing in the last 21 months has fluctuated around 820,000 barrels per day, with peaks close to 840,000 barrels per day and valleys below 800 Mbd, highlighting the significant drop in the reported quarter to 778,000 Mbd. Furthermore, the evolution of oil production has been such that, according to the Oil Statistics’s figures from last September, fuel oil production (281,200 barrels per day) remains consistently above gasoline production (226,100 barrels per day). In fact, the volume of gasoline produced in September of this year is the lowest since June 2022.

It seems that the operational strategy has found its limits; issues that need to be analyzed and addressed, include the possible importation of suitable crude oil to mix and feed the SNR refineries with the diet for which they were designed, review the acquisition policy and the quality of the catalysts used, and the planning of preventive maintenance, among others.

On the oil marketing side, as of Sept. 30, 2023, 7,122 service stations operated under the PEMEX franchise. This number is 3.7% higher than the number of PEMEX franchisees that existed a year before. Since the fuel market opened in 2016, PEMEX franchises have gone from 11,632 in 2017 to 7,122 in the reported quarter: a loss of 38.8% of the service station market. Of the total service stations that operate under the PEMEX brand, 7,077 are private and operate as franchises, while the remaining 45 are owned by PEMEX Industrial Transformation. Likewise, the subsidiary supplies fuel to 1,113 service stations under the brand sublicensing scheme and another 3,769 are supplied both by PEMEX Industrial Transformation and by direct import.

 
The recovery of PEMEX TRI's percentage of participation in the supply of service stations is not necessarily reflected in a greater volume of fuel sold by this subsidiary. According to Oil Statistics, in September of this year its gasoline sales decreased by 2.2% compared to the same month in 2022, going from 674,900 to 660,100 barrels per day; while diesel prices fell 8.3% in the same period, going from 267,500 to 245,300 barrels per day. Furthermore, the cost of what was sold by PTRI from January to September of this year (MX$870.900 billion, or US$ 51 million) was 10.6% higher than the income from its sale (MX$787.6 billion), which deserves a more in-depth analysis.

The big issue that remains open is to what extent it is economically convenient for PEMEX to increase its participation in the domestic fuel market and the reasons for this.