Proposed Mexico refinery sites lack ports, pipelines

Plans to build two new refineries touted by Mexico's incoming administration already face significant logistical hurdles, including a lack of infrastructure and oil supply.

Mexican President-elect Andres Manuel Lopez Obrador has said that he wants to increase domestic production of refined products by both improving performance at the country's six existing refineries and building two more. Mexico imported about 70pc of its 1.3mn b/d of the gasoline, diesel, jet fuel and fuel oil it consumedin April, mostly from the US.

Lopez Obrador has proposed building the refineries in two of Mexico's southern, historically oil-dependent states, which have seen stubborn unemployment after layoffs by state-run Pemex in the wake of the 2013 financial crisis. Although logical from a political and geographic perspective, building two, 300,000 b/d refineries in Dos Bocas, Tabasco, and Atasta, Campeche, in three years for $8bn each as proposed will be significantly challenging, observers say.

The existing port at Dos Bocas has no spare room for a refinery, and both sites would need significant pipelines built for supplies to reach them, said Ramses Pech, an analyst with energy consulting firm Caravia y Asociados.

"In Dos Bocas there are no pipelines and even though there is a dock, a refinery will not fit there," Pech said.

Atasta is a few miles inland of the Gulf coast, so does not have direct access to the Gulf.

"In Atasta there is not even a chance to have a port [at the immediate site], and pipelines seem also like a technical challenge," Pech said.

The new refineries would also need a fresh crude supply "which Mexico does not have right now in sufficient volume for two [more] refineries," Pech added.

Mexico's 1.6mn b/d six-refinery system operated at only 47pc of its total capacity on average in April, mainly because of a lack of light crude. The country's oil production has fallen by 25pc since 2013 to 1.8mn b/d in May.

Political and technical obstacles have prevented the country from importing crude.

The president-elect's optimism for the new refinery projects seems to stem from the 580,000 b/d Jamnagar refinery expansion in India, completed in three years in 2008 for about $8bn. But the Jamnagar project may prove to be a poor model for the new Mexico facilities as it was an expansion on an existing facility that already had access to significant infrastructure.

Rodrigo Favela, a partner at HCX, a consultancy specialized in the refinery sector, said a realistic building cost for a refinery of the magnitude Lopez Obrador is proposing is closer to $15bn to $20bn — more than double the $8bn projected — since there is no crude nearby to supply the facilities.

"Taking into account that you will need to take crude to that zone as there is not much available in that area, in Campeche and in Tabasco, the $8bn would fall short for a 300,000 b/d refinery," Favela said.

Favela said a smaller refinery does not necessarily mean a proportionally smaller investment, as there are fixed costs that are needed in any refinery, such as the land rights and refining equipment.

Favela said a more realistic short- to medium-term goal would be the incoming administration's proposal to improve output at the current refineries.

Where Mexico’s president-elect wants to build refineries