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Pemex Considers 7th Refinery

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  • #4272


    Mexican Oil Monopoly Mulls 7th Refinery
    December 19, 2005
    AP / MEXICO CITY – The head of Mexican state oil monopoly Petroleos Mexicanos, or Pemex, said Monday the company is contemplating building a seventh refinery in Mexico.
    The refinery would either be built in the Gulf coast state of Veracruz or on the Pacific coast, and get Pemex closer to meeting domestic demand for gasoline, chief executive Luis Ramirez said.                     
    If the government approves expenditures for the $4 billion refinery, it could be operating by 2010, he said at a luncheon with journalists.

    Despite being the world’s third biggest crude company with average daily output of 3.33 million barrels this year, Pemex lacks the refining capacity to meet growing domestic demand for gasoline.
    Pemex is a major supplier of crude to the U.S. market, and most of the 1.8 million barrels a day it exports heads to refineries along the U.S. Gulf Coast that specialize in processing heavy crude.

    The need to diversify its customer base, or build more plants in Mexico, became clear for Pemex after hurricanes Katrina and Rita this year, which knocked almost all of the state company’s overseas clients off-line for several weeks. The company also missed an opportunity to supply higher priced gasoline to U.S. consumers.

    Meanwhile, demand in Mexico for gasoline has increased by 25 percent since 2000, to 664,000 daily barrels. During the first 11 months of this year, Pemex satisfied a quarter of that demand with imports.
    Thanks to record high crude prices, the company expects to report revenues of $70 billion this year and $80 billion for 2006. Pemex hands over about 60 percent of its sales to the Mexican government, which in turn uses the cash to fund a third of the annual federal budget. Major capital expenditures — such as a refinery — would require congressional approval.

    Under Mexico’s Constitution, private investment in the energy sector is severely restricted.

  • #7685


    Pemex has made investments in several refinery coking unit additions to enable the processing of heavier Mayan crude (through JV participation with Cemex who is a customer for the petroleum coke), and enable the lighter Mexican crudes like Isthmus, & Olmeca to remain in the higher priced export markets, and reduce the heavier component of the marker Mayan blend. This 7th Pemex refinery will likely need coking capacity IF it gets congressional approval & gains government funding.
    The Pemex expansion problems for this 7th Refinery runs into the same issues that have foiled development of huge Natural Gas reserves along the Texas border and huge Crude reserves lying offshore. The Mexican government takes 60% of Pemex sales to meet a federal budget, leaving Pemex without capital of its own to expand with, the needed foreign technology /production investment is severely restricted & not allowed to participate in ownership, and since the government is only balancing expenditures by using Pemex revenue it too has limited budget for expansion across several infrastructure areas.
    The advantage this refinery investment has is the demand growth in Mexico has a net cost disadvantage (exporting discounted cheap Maya crude but importing expensive incremental gasoline products), enables an alternate in-country option for disabled consumers (like US refineries after hurricanes Rita & Katrina) and INCREASES net sales to both Pemex & Mexican Government.
    Perhaps the stacking of yet another costly “missed opportunity” for Mexico’s Energy sector will be enough to break thru the “Catch 22” funding & investment roadblock that is decades old and obsolete in a Global economy.
    Charlie Randall

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