The Dos Bocas refinery project could cost 40% more than previously estimated and is unlikely to be completed before the government’s 2022 deadline, calling into question whether the country will soon be able to meet its goal of producing the all of your gasoline.
The plant, located in Tabasco, is crucial to Pemex’s plans to stop exporting oil by 2023, as part of President Andrés Manuel López Obrador’s nationalist goal of self-sufficiency in fuel supplies. The roadblocks to the project come as critics already questioned Pemex’s ability to refine all of its own crude, given declining output, lack of refinery maintenance and its heavy debt load, which is the highest in any country. any oil company.
The construction of the Dos Bocas plant, with a capacity of 340,000 barrels per day, will cost some 12.5 billion dollars, according to people with knowledge of the matter who asked not to be identified because the information is not public. This figure is far higher than the $8.9 billion estimated by Pemex’s chief executive 15 months ago, reflecting construction delays, rising material costs and a budget that may have been unrealistic from the start.
The project may not produce a single gallon of gasoline in 2022 and could produce only limited amounts of fuel for several years afterward, according to some analysts.
Representatives from Pemex and the energy ministry did not respond to requests for comment.
The Dos Bocas project is not the only plant that Pemex will end up spending more on than it initially said. The company paid more than $1.5 billion for a refinery in Deer Park, Texas, that it bought from Royal Dutch Shell Plc, more than double the price announced in May for the deal.
This double whammy of higher costs will put pressure on Pemex’s balance sheet and Mexico’s coffers, as the construction of Dos Bocas and the purchase of Deer Park rely heavily on federal funds.
spending problem
Energy Secretary RocÃo Nahle told Bloomberg News in August that Dos Bocas was on track to begin conducting commissioning tests in July and be operational a few months later, in 2022. She also said the cost of the project was within the budget of 8,900 million, plus or minus 10%. The original budget for the refinery was 8 billion, an amount that international contractors considered inadequate for the magnitude of the project, which led many in 2019 to participate in its construction.
The project’s pace of spending to date makes it unlikely that it will stay close to its initial budget. Until December 2021, the Government had given Pemex 120.9 billion pesos, or 5.9 billion, to spend in Dos Bocas, according to data provided by Joel Tonatiuh Vázquez Pérez, an expert in energy and public finances at the Center for Economic and Budgetary Research in Ciudad from Mexico. This year another 45,000 million pesos, or 2,200 million, have been earmarked for the refinery, bringing the total to 8,100 million.
In 2021 alone, 81.4 billion pesos, almost double the 45 billion pesos that it had initially allocated for that year. If the projected spending pace is maintained and construction continues through 2023, it will almost certainly exceed its previous budget estimates.
operational delays
Bloomberg analyzed more than 100 by the Ministry of Energy that document the construction of the project, from the landscaping to the arrival of the equipment. In one of the latest, featuring stunning graphics and a dynamic soundtrack, Nahle talks about gasoline-making equipment on its way from South Korea to Mexico, and other units coming from India. In others, she is seen traveling to Italy and Turkey and reporting from plants that make equipment for Dos Bocas.
However, there is no mention that the water and gas connections are being completed in Dos Bocas, nor the connections of the pipelines that will transport the oil to feed the distillation towers. In the videos, there are no images of the construction of a maritime terminal to distribute gasoline and diesel to other Mexican states.
According to Bloomberg analysis, at least two areas appear to be on track to open their doors in July. One is the tank farm, which contains 90 tanks to store gasoline and diesel produced by the refinery. The other is the administration building, which is being equipped with air conditioning and reflecting pools.
With all the delays, the refinery could have the key gasoline units up and running in 2023 and be fully operational in 2025, said Karina López Huitron, an analyst at Wood Mackenzie.
“There are two forces at play, political and technical, and it really depends on which one will push harder in the coming months,” he said.
The Mexican government plans to inaugurate the Dos Bocas facility with pomp and circumstance in July. However, like the eye-popping videos documenting the refinery’s construction, the event is likely to be more show than substance.
“It is possible that the refinery will not be producing fuels before López Obrador’s term ends,” said Felipe Pérez, an analyst for Latin America at IHS Markit. AMLO, as the president is known, ends his six-year term at the end of 2024. “Unfortunately, there is a great discrepancy between the government’s expectations and reality.”
