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June 5, 2019

Plans to bring Mexico’s Dos Bocas refinery to fruition withing three years look overly ambitious

Building a refinery in the three-year period the government is setting, and at a cost not beyond the US$8 billion established as the maximum, will certainly require for some downward adjustment in capacity.

By GlobalData

In Mexico, the exclusive tender for project management and construction of the Dos Bocas refinery was recently declared void as companies assessed expenditures beyond the US$8 billion the government set a limit and delivery of the project after 2022.

Mexico Dos Bocas refinery

Specialist engineering firms estimated a cost for a 340 thousand barrels per day (mbd) processing capacity refinery to be between $10 to $12 billion and a timeline to be completed in 2023 or 2025.

Building a refinery in the three-year period the government is setting, and at a cost not beyond the figure established as the maximum, will certainly require for some downward adjustment in capacity.

Furthermore, even with a smaller capacity, the time to complete is still challenging since usually these projects take, on average, no less than five years.

Being cost efficient in construction might be challenging since neither Pemex (the state oil company) nor the Energy Secretariat has recent experience as project managers of downstream projects of this size. The original plan requires a processing capital expenditure per barrel of $23,500, which is below the average cost if compared against relatively new-built refineries internationally.

Furthermore, in a scenario of successful increase in the use of existing refineries and the effective Dos Bocas construction, there would a downstream demand of at least 1.6 million barrels per day (mmbd) of crude oil or the total current crude oil production of the country.

Crude oil distribution 2009-2019

Source: GlobalData Analytics and Pemex Institutional Database

Aware of the long-term sustainability challenge, Pemex has announced not only the new 22 fields that are supposed to start production in 2019 and 2020, but a general plan for bringing 20 to 40 new discovered fields every year until 2024, the last year of the current administration. This seems utterly unrealistic based on the company’s history of successful discoveries even if only shallow water efforts are considered, where Pemex is an experienced player.

Moreover, the challenges involved in building and competitively operating a new refinery – at the same time as launching an aggressive upstream exploratory and development campaign – will continue to put pressure on the company’s credit rating assessments.

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