PEMEX to Lose Money with Dos Bocas: IMCO

The Mexican Institute for Competitiveness (IMCO) said that the Dos Bocas refinery, a flagship project of the López Obrador administration also referred to as Olmeca, will lead to major losses for PEMEX. The refinery will be inaugurated on July 1, 2022.

IMCO warns about the various deficiencies in the development of the project, such as bad planning, inadequate resource allocation and a lack of transparency. Moreover, the institute mentioned that PEMEX Industrial Transformation (PTRI), the subsidiary in charge of the refining and petrochemical business, could face major losses following Olmeca’s start of operations, worsening the financial situation of the already heavily-indebted state oil company.

According to the NOC’s Business Plan 2021-2025, the refinery will start operating in 2023 and it is expected to produce 340,000b/d of crude oil during that year. Nonetheless, a few days away from the inauguration, there is no public information available about its production capacity in the initial stages of operation.

Experts point out that the development of Dos Bocas has been characterized by a lack of both planning and transparency. A full cost-benefit analysis is missing entirely, construction works started without a prior environmental impact assessment and more efficient alternatives to increase oil production in the country were not explored, says IMCO. In addition, the government did not calculate if the estimated profits during the useful life of the project would be more or equal to its cost.

Initially, the cost for the refinery was estimated to be around MX$160 billion (US$8 billion), but it ran over budget by between US$3 and US$4 billion, which is between 38 and 50 percent more than the original budget.

PEMEX’s refining arm registered losses of MX$1.28 trillion (US$63.5 billion) between 2011 and 2021. This past year alone, PTRI reported a loss of MX$219.8 billion (US$10.9 billion). IMCO forewarned that the new refinery’s inauguration is not accompanied by structural changes that allow the subsidiary to become more competitive. At the same time, the company will have fewer resources available to finance projects in profitable activities such as exploration and oil production. Rating agencies have also said that PEMEX’s strategy puts its credit profile at risk by incurring operative losses in the short and medium term.

According to IMCO, demand for refined fuel products will remain strong toward the future, but their applications will be different. As stated by the international consultancy firm IHS Markit, global demand for refined products in 2050 will not exceed 75MMb/d. Today, the global refining capacity stands at 105.6MMb/d. IHS Markit recommends to adapt to this new environment, as it estimates that refining companies will invest US$150 billion in decarbonization measures during the next three decades.

IMCO states that investment in EU and US refineries will be centered on biofuel and other more sustainable products. The market will therefore not disappear, but the successful players will be those adapting to the new circumstances efficiently. In an environment where electric mobility will gain more weight, refineries should bet on petrochemicals, plastics and pharmaceutical products instead.