Mexico's reforms trigger overdue refinery shake-up

Mexico's announcement this month that it will invest US$4.6bn in upgrading its Tula refinery could mean that, with the energy reform in place, the country's long-neglected refineries will get the capital injection required to drag them into the 21st century.

The upgrade, which includes a US$1.2bn storage and distribution terminal, will boost the plant's output 65% to 300,000b/d, bolstering revenue by increasing the conversion of refined products to 80%, state-owned oil firm Pemex said.

As part of the revamp, ICA Fluor, the JV between Mexico's ICA and US-based Fluor Corp., will build a US$1.3bn coker plant at the refinery.

Pemex plans to invest more than US$20bn in refinery projects, including reconfiguration of the Tula, Salamanca and Salina Cruz refineries as well as ultra-low-sulfur diesel and gasoline plants, increasing the country's refined fuel output by 139,000b/d.

And in a bid to clean up its operations, Pemex will invest US$2.8bn in ultra-low sulfur plants at its Madero, Salamanca, Salina Cruz and Tula refineries. Contracts have been awarded to Samsung Engineering, Foster Wheeler, Técnicas Reunidas and ACS to bring low-sulfur fuel production to 360,000b/d.

The energy reforms will allow the country to "overcome the great technological backwardness and inefficiencies in refining," lawmaker Juan Bueno, a former director of Pemex Refinación, told BNamericas for the latest Intelligence Series report .

But challenges remain, he said, namely Pemex's need to modernize to stay competitive.

Bueno gave Pemex until January 2018 to get in shape, which includes "a change of culture" at the company that will require cooperation from the powerful oil workers' union.

But other analysts see investment in Mexico's refineries as wasteful – if oil can be refined more cheaply in the US. And money would be better spent on buying a refinery abroad than upgrading creaking infrastructure at home.

Pemex Petroquímica (PGPB) plans to invest US$36mn in upgrading the Camargo refinery, a decision that does not make much sense, former Pemex executive Pablo Ramírez said in an interview with BNamericas.

"It has outdated 1960s technology and consumes a lot of gas oil. It's not competitive compared to the planned natural gas-fired plant in Topolobampo, which would run on natural gas imported from Arizona."

"The planned Topolobampo plant would be at least three times larger and much more efficient than Camargo. There are a lot of questions surrounding the logic behind the decision to refit it. It's not the best option," he said.

Former PDVSA head Luis Guisti told the 2nd BNamericas Oil and Gas Summit in Houston in September that Latin America needs to preserve the value of its crude, which could mean buying refineries abroad, in what is a buyers' market.

And academic Enrico Martinez is skeptical of Pemex's ability to attract private investment in refining and to compete in the post-reform scenario.

"Mexico depends on private investment for refineries, which I think is unlikely. Anyone with money to invest in refineries will do so in the US, due to the availability of natural gas," he told BNamericas in September.