PEMEX’s Refining Strategy is Costly
PEMEX reported losses from refining of MX$177.857 billion (US$6.56 billion) in 2022, an MX$5.137 billion (US$285.77 million) increase compared to 2021. Rating agencies such as Moody’s have repeatedly signaled that PEMEX’s refining strategy is flawed and contributes to the negative financial outlook and credit ranking for the company.
Although the state company loses money from refining, it still depends on exports to meet the national fuel demand. In February 2022, Mexico imported 425Mb of gasoline from Singapore, one of the largest shipments of fuel imports from the country over the past year. In November 2022, Singapore exported 558Mb in total to Mexico.
Still, PEMEX reported profits for the first time in nine years. After the war in Ukraine caused oil prices to skyrocket, oil companies reported record profits. The NOC received MX$23.48 million (US$1.19 million) in profits last year.
In addition to the federal financial support the NOC has received, the Ministry of Finance (SHCP) collected MX$7.244 billion (US$402.98 million) from IEPS in January 2023, a 40.7% lower than the same period for 2022. Fuel subsidies reached MX$396.61 billion (US$21.01 billion) in 2022.
Furthermore, PEMEX contributed only MX$137 million (US$7.4 million) to the Treasury for Hydrocarbon Exploration Rights in January 2023 and did not provide anything for the Shared Profit Rights and Hydrocarbon Extraction Rights categories.
PEMEX’s contribution to its shared utility right (DUC) also fell from 65% at the beginning of the administration to 40%. According to the Mexican Institute for Competitiveness (IMCO), PEMEX received federal support of MX$809.8 billion (US$42.45 billion) for capital contributions, tax incentives and other aid from January to September 2022.
On the back of high oil prices in 2022, PEMEX reported a record income and started paying off its debt on its own. However, despite advice from the IMF, the government increased fuel subsidies to counter the effects of inflation. This year, as PEMEX scavenged for ways to meet its debt obligations, the oil company decreased its tax contributions.
Despite lackluster refining results, the administration has bet heavily on investing in strengthening the National Refining System (SNR). The landmark project, the Olmeca Refinery in Dos Bocas, has received billions more in funding than initially predicted. Recently, the government approved MX$47.234 billion (US$2.362 billion) more for the refinery’s construction. President López Obrador defended that the cost of the refinery will be US$11.65 billion, still over the original US$8.918 billion budget. However, according to sources like Reuters, the refinery’s costs amount to MX$313 billion (US$15.65 billion), a 75% increase from the original budget.
The investment and policy direction notwithstanding, the country’s energy self-sufficiency has decreased, according to Rice University’s Baker Institute for Public Policy. The institute reported that the energy trade deficit grew from US$21.4 billion in 2019 to US$24.6 billion in 2021. By the first eight months of 2022, the negative trade balance amounted to US$24.5 billion. The institute, as well as credit ratings agencies such as Fitch and S&P, forecast more federal protection for the NOC in 2023.