Some Arguments in Favor of the Olmeca Refinery

The construction of the Olmeca refinery in Dos Bocas, Tabasco has been one of President López Obrador’s key commitments ever since he entered office. Even before its opening, the mega-infrastructure project had been criticized, as many experts consider heavy investment in fossil fuels to be unfeasible because other governments around the world are trying to replace polluting hydrocarbons with cleaner energy sources. However, there are also several strong arguments to be made in favor of the refinery.

The refining project was rather controversial since its announcement. On one hand, the refining of hydrocarbons is no longer considered a profitable business in Mexico or the world, according to the IMCO. The Institute affirms that Olmeca refinery in Dos Bocas, Tabasco, will further exacerbate the financial situation of PEMEX. The subsidiary of the NOC that oversees the refining and petrochemical business, PEMEX Industrial Transformation (PTRI), has reported losses of US$10.61 billion between 2011 and 2021.

However, the Mexican government argues that refining is the only way to achieve self-sufficiency regarding oil. “It is a contradiction, an absurdity, that we have crude oil and we are buying gasoline, that in 40 years we have not built a single refinery. (...) this is a return to the government being able to carry out works by direct management without being dependent on others,” López Obrador said. Additionally, he has said that it will promote the economy through more jobs and development on the southern region, which needs economic revitalization.

Rodrigo Benedith, Economist, Center for Economic Research and Teaching (CIDE) concurs. According to Benedith’s opinion for the Washington Post, it would have been impossible to construct a refinery considering the current supply chain issues, including steeply rising steel prices. At the same time, refining would become increasingly important, because the heretofore reliable fuel supply from the US can no longer be guaranteed as the country increasingly needs to focus on its own energy security. “Energy security is important at all times, but in the current context it is essential,” Benedith concluded.

Some critics of Dos Bocas argue that the demand for hydrocarbons will decrease due to the "inevitable" energy transition. However, Stephen Nalley, Energy Expert, the International Energy Agency (IEA) stated that liquid fuels such as gasoline or diesel remain necessary. Along with natural gas, they will keep their place as the top two energy sources in the US, at least until 2050.

In the foreseeable future, there will still be a demand for products derived from hydrocarbons, but these needs will likely evolve, and the uses for fuels will be different. According to consultancy IHS Markit, the global demand for refined products will not exceed 75MMb/d in 2050. To date, the global installed capacity can already produce 105.6MMb/d.