Analysis: A new hope or false dawn for Mexico's oil refiners?

Fri Jan 3, 2014 2:46am EST
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By David Alire Garcia

TULA, Mexico (Reuters) - Mexico's oil refining industry, saddled for years with bloated costs, chronic underinvestment and generous government fuel subsidies, ought to be on the verge of a bright new dawn.

A shake-up last month dismantled the state-run Pemex oil and gas monopoly, ending decades of stubborn self-reliance and potentially opening the door to foreign oil companies. At the same time, U.S. energy producers are looking for new ways to sell a glut of light, sweet shale oil, a variety of crude that could immediately improve Mexican refinery operations.

Yet experts say Pemex's aging, ailing downstream sector, which suffered an estimated record $10 billion loss last year, remains far from salvation.

The wave of excitement that followed the opening of Mexico's vast oil fields has failed to translate into optimism for refineries like the one near the city of Tula, 45 miles north of Mexico City.

Named for the priest who led Mexico's independence struggle, the Miguel Hidalgo refinery is the country's second-largest refinery - and also its worst performing.

For every barrel of crude it processes - around 292,000 barrels each day - $1.23 is lost, according to data from Mexico's national chemical industry association ANIQ.

"Our priority is to reverse the losses," said Pemex Chief Executive Emilio Lozoya, who has pledged major upgrades at the country's three biggest refineries. "Given limited budgets, we have to modernize the plants that are losing money."

At most, 60 percent of the crude processed at the Miguel Hidalgo refinery is converted into higher value fuels, Pemex says - making it about one fifth less productive than refineries along the U.S. Gulf Coast. It has some 3,200 full-time employees; top U.S. refinery Valero Energy Corp (VLO.N: Quote), which has 16 refineries, employs between 480 and 800 full-time workers at five similar-sized plants.   Continued...

A storage tank and a processing plant are seen at the Miguel Hidalgo refinery in Tula November 21, 2013. REUTERS/Henry Romero