Mexico spends billions on fossil fuels

Many energy groups have been closing refineries in recent years as they try to manage the transition to greener forms of energy — but Mexico is making a multibillion-dollar bet.

On Friday, state-owned oil and gas company Pemex officially announced the opening of its massive Dos Bocas refinery in the southeast of the country.

President Andres Manuel Lopez ObradorTouting the landmark infrastructure project as a special expression of national sovereignty and energy self-reliance, he called it a “dream come true”.

“At the moment we are suffering from an energy crisis, but we have gasoline and diesel and we can maintain prices to benefit Mexicans,” he added.

López Obrador’s nationalist vision harks back to a bygone era, when state-funded mega-projects and oil production were the drivers of the country’s economic development, but were fueled by soaring fuel prices and global energy crunch.

However, analysts said Pemex and Mexico were unlikely to benefit from the project, even with record refining margins due to shortages caused by Russia’s invasion of Ukraine.

“When Dos Bocas is fully operational, market conditions could be completely different,” said OilX analyst Juan Carlos Rodríguez Arguelles. “Even if refinery margins remain at these levels, it will take time to recover initial costs.”

The project – officially named the Olmeca refinery, but more commonly known as Dos Bocas after its location on the coast of Lopez Obrador’s home state of Tabasco – has proven controversial.

Originally forecast by Pemex to cost $8 billion, the project has gone well over budget © JMM/Presidencia

Pemex initially projected a cost of $8 billion, but it has gone well over budget, although how much is debatable. López Obrador disputed media reports that the bill had ballooned to $18 billion, but acknowledged the cost could be between $11 billion and $12 billion.This will put pressure on Pemex, which Total debt is about $108 billion at the end of the first quarter.

Dos Bocas is expected to produce 340,000 barrels of oil per day, which will add to Mexico’s existing system of six underperforming refineries. Pemex also bought Shell, its joint venture partner in a refinery in Texas, last year.

However, despite now being declared open, the refinery is only entering the commissioning phase and doubts are it will be able to produce large quantities of petroleum products until Lopez Obrador’s term ends in September 2024. The president said Mexico would stop importing gasoline in 2023, but analysts believe there are already many refineries along the U.S. Gulf Coast that can produce it at low cost.

“It’s not clear if new refineries are needed on the Gulf Coast; there are a lot of them on the U.S. Gulf Coast,” said David Shields, an energy analyst who specializes in Mexico. “This refinery was built at a time when oil production in southeastern Mexico was declining,” he added.

Environmentalists have also challenged it, with Greenpeace campaigners advocating for construction on mangrove-covered sites started before to complete an appropriate environmental impact plan. Another campaigner has filed a legal challenge to the project, claiming it was built on flood-prone, environmentally friendly foundations. protected land. Pemex did not respond to a request for comment.

“The most important thing about Dos Bocas is that there is very little transparency,” said Pablo Zárate, senior managing director at consulting group FTI Consulting.

Dos Bocas is part of a series of large-scale projects promoted by López Obrador, including a planned Train around the Yucatan Peninsula and underutilized airport north of Mexico City.

The president has cut public spending but put money into those programs. Jorge Andrés Castañeda, a consultant in Mexico City, said: “Public spending on infrastructure has fallen, but it is mainly focused on his pet project.”

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