Pemex focuses on infrastructure improvements to bolster oil output

MEXICO CITY (Bloomberg) –With its money-losing refineries producing the least fuel in 27 years and only a handful of private partnerships announced since Mexico’s energy reforms, sealing a $2.6 billion venture with Mitsui & Co. will come as a relief to Petroleos Mexicanos.

Pemex is a few months away from closing an agreement for the project with a group led by Mitsui that will help Pemex increase the amount of fuels produced at its flagship Tula refinery by about 40%, reducing the nation’s reliance on imports from the U.S. and elsewhere.

The Tula project is what we are focusing our attention on, said Carlos Murrieta, director of Pemex Industrial Transformation, speaking in a phone interview with Bloomberg. We need to discuss a lot of things, but we are at the point of closing the deal.

The consortium, comprised of Japan’s Mitsui and Cosmo Oil Co., Spain’s Cia. Espanola de Petroleos and a joint venture between Mexico’s Empresas ICA SAB and Fluor Corp. in the U.S., will construct and operate a delayed coker at the refinery in Hidalgo state.

The project is one of the biggest investments by a private company in Mexico’s refining sector since the country enacted reforms several years ago that promised to revive Pemex’s ailing plants. So far, the reforms have delivered little else.

Last year, Mexico imported the most fuel since at least 1990, when the Energy Ministry began publishing data. Pemex’s six refineries were hit by earthquakes, flooding and fires. Budget cuts resulted in unit refurbishments being delayed or shelved, with the number of unscheduled stoppages more than tripling since 2013.

If that weren’t enough, fuel theft is a massive hindrance to the refineries operations, future investment and the safety of workers. Mexico’s deadly drug cartels have muscled in on the business, costing Pemex about $1 billion a year.

Major maintenance could turn this around, said Murrieta. The company expects to finish work at its Minatitlan and Madero refineries by the end of March and start repairs at the Tula and Salamanca plants this year. Last year, Cadereyta underwent a revamp and the country’s largest refinery, Salina Cruz, was offline for months as Pemex sought to repair damages from natural disasters.

The company could import crude this year to feed its refineries. Pemex is preparing infrastructure in order to have the flexibility to bring in crude, most probably by tanker or rail, according to Murrieta. Imports could eventually account for up to 5% of the refineries crude slate. Last year, Pemex processed almost 770,000 bopd.

Pemex faces stiff competition from international companies such as Exxon Mobil Corp., Royal Dutch Shell Plc, Total SA and Glencore Plc, which are opening retail stations and plan to import fuel as part of Mexico’s fuel liberalization.

Now that we are returning to do the major maintenance that the refineries need, we should see output reach 900,000 to 1 MMbopd, depending on whether it is economically profitable to raise run rates, said Murrieta. We are trying to maximize the value of refining.

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