Pemex Refining (Image courtesy from 2b1stconsulting.com)

Pemex Refining (Image courtesy from 2b1stconsulting.com)

These are exciting but challenging times for the refining branch of Pemex; the question of what to do with Pemex’s refineries is often a controversial one, as low efficiency and consistent loss making (US$6.9 million in 2012) have given the branch the unwanted label of black sheep. However, the approved budget for 2014 shows a strong increase in the figure for investment in refining at US$4.5 billion, representing 17% of Pemex’s total investment budget. The latest budget allocation could be considered a statement of intent.

If senior management manoeuver deftly, they should be able to deliver tangible results by engaging in tactical solutions for the short term and investing in strategic projects for the long term by singling out the most adapted options that are already at their disposal.

So what should the focus of the branch be? This is certainly a million dollar question. Pemex is currently ranked as the country with the 13th largest refining capacity in the world, totaling 1.69 million b/d at its six refineries spread across Mexico, although latest figures show that throughput levels and petroleum have been in decline. However, Mexico domestic sales of gasoline from 2009 to 2012 show an increase from 792,000 to 803,000 b/d, making the country highly dependent on fuel, an increasing part of which is imported. A limited refining investment budget in a country with a growing economy is hardly an ideal combination.

Refinery upgrades, which are already under way, should go some way towards improving capacity. Only two of the country’s six refineries currently have the proper infrastructure to process Mexico’s main crude oil type. Some experts suggest that a sensible option would be to invest in a new refinery on domestic soil, which would boost local economy and reduce costs. The importance of the private sector in the future of petrochemicals should not be overlooked either.

In the short term, given the growth targets set by the new government, it will not be possible for Pemex to meet domestic demand for energy with domestic production, but it will be important to find a tactical solution to bridge the gap until the demand can be met. According to Rogelio Gasca Beri, former Professional Board Member of Pemex, options include finding a new relationship similar to the one Pemex has with Shell at the Deer Park Refinery, establishing long term purchase agreements with US refineries, or simply buying a refinery outside of the country.

It should be noted that although the collaboration with Shell made sense at the time the deal was struck, Pemex has developed and is now in a more mature position with regard to crude oil. The company should therefore be looking into a business plan that is adapted to its current capabilities, such as co-investment in a new refinery to meets its short and medium term requirements.

Lack of communication between E&P and Refining seems to be a big issue, according to Rogelio Gasca Neri: “This causes time delays and reduces efficiency. Structural problems mean that the refineries consume large amounts of energy, and some of them were not designed to cope with heavy oil. Furthermore, there is a lack of storage for products such as diesel”. Operational downtime has a huge impact on performance. 60% of downtime originates from human mistakes, sometimes fuelled by employee discontent. According to various sources, Pemex’s investment plan has taken into consideration all these points to be addressed in the near future.

As Héctor Moreira Rodriguez explains (Professional Board Member of Pemex), “if we do not have a proper refining strategy the priority will continue to be Pemex E&P”. There is no doubt that the appeal of cheaper and faster options in existing refineries abroad to give short term boost may prove too strong. Either way, the work has been cut out. The weight of expectation looms…

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