Pemex plan to send fuel oil to Deer Park has obstacles

One widely-touted reason for Pemex's $596mn Deer Park, Texas, refinery purchase — it's ability to handle excess Mexican fuel oil — may not prove to be economically or even physically viable.

State-owned Pemex's six domestic refineries produce greater volumes of fuel oil than its domestic market needs, leading to a surplus that fills storage tanks and has led to reduced output at some refineries. Mexico produced more fuel oil than gasoline for a 10th consecutive month in April, when it produced 197,500 b/d of gasoline and 226,000 b/d of fuel oil.

This is particularly true for the 315,000 b/d Tula refinery in central Mexico, which in April produced 61,000 b/d of fuel oil.

When state-owned Pemex said it would buy-out Shell's majority interest in the joint venture Deer Park refinery, it touted the facilities' ability to turn the low value fuel oil from Tula in particular into higher value refined products, thus improving Mexico's self-sufficiency.

But the logistics of moving fuel oil from Mexico to Texas could complicate the government's plans. Fuel oil needs to be transported at relatively warm temperatures of at least 30°C (86°F), but usually is moved at close to 40°C. Below that pouring point, fuel oil can turn into wax that is extremely hard to move.

Pipelines able to maintain such high temperatures for long distances are extremely rare. Mexico's pipeline system has only a few fuel oil pipelines that move the product through short distances between refineries and distribution points, a former head of products logistics at Pemex told Argus.

To successfully move fuel oil from the Tula refinery in Mexico's central valley to the Gulf coast for waterborne transport implies a very costly fuel oil pipeline infrastructure that would traverse the most fuel-theft prone areas for gasoline and diesel pipelines.

Another option would be to move the products by rail. But that method would be even more costly, and also require a near continuous flow of trains back and forth from Tula to Deer Park. Close to 970 miles separate the refineries.

The rail tank cars would also need to keep the product at least above the 30° C mark, which further complicates the operation and elevates the cost, even if the rail infrastructure exists. Any cost increase in fuel oil logistics has an arguably higher impact, as the price of fuel oil is cheaper than any other refined product.

Even if the movement of vast quantities of fuel oil from Mexico to Deer Park was technically and financially viable, it would also diminish Deer Park's own operations. With outside feedstocks going to its coker unit, Deer Park could be constrained in its ability to process its own residuals into higher value products.

Both companies expect the Deer Park deal to close by the end of the year, pending regulatory approval.

By Sergio Meana