Mexican refinery processing falls despite promises

Mexican refineries processed the lowest volumes of crude in at least three decades in the first half of 2019 as the country's president vowed to increase domestic production of gasoline and diesel.

State-owned Pemex's six refineries processed 565,000 b/d of crude in the first half of 2019, the lowest outright volume according to energy ministry (Sener) data that goes back to 1990.

The volume decreased by less than 1pc from 566,000 b/d in the second half of 2018, but declined by 12pc from the comparable first half of last year. Mexico has not initiated any crude imports since President Andres Manuel Lopez Obrador took office on 1 December, promising to boost Mexico's energy self-sufficiency and decrease fuel imports — mostly from the US.

Less crude is going to Mexico's refineries not only because of the country's long-term decline in oil output and continuous maintenance issues, but because a bigger share of its crude is heading out of the country as exports. Pemex has traditionally split its crude use almost evenly between its domestic refineries and exports. From 2008 to 2016, the share of crude exported or processed domestically ranged between 45pc-55pc.

But in the first half of 2019, only 33pc of Mexico's crude production went to its refineries, in line with 34pc in the first half of 2018 and 33pc in the last half of that year.

"No matter what type of political ideology we have, everyone sees that Pemex gets a greater economic benefit from exporting crude and selling it in the international markets than from refining that same crude in the country," energy academic Miriam Grunstein said.

The price for Mexico's main export grade Maya crude in the first half of the year averaged $60/bl, delivered to the US Gulf coast, once touching $66/bl. That is down from the $65/bl average for the first half of 2018, but it was still the third-highest average for a six-month period since the first half of 2015, based on Argus assessments.

Accordingly, Pemex's refining margin in the second quarter of this year fell to a negative, -$0.65/bl from $5.44/bl, according to Pemex's latest financial report.

Following this trend, gasoline output in the first half of 2019 also reached the second-lowest average since 1990, at 197,400 b/d. Output in the second half of 2018 was slightly lower, at 196,500 b/d. Diesel production fared slightly better, hitting only its fourth-lowest output since 1990, at 130,000 b/d.

Yet non-economic factors may have also influenced decisions on crude runs. Pemex recorded its highest number of unplanned outages at its refineries in a month in December, with 48. Some of those issued lingered until March, when there were 24 — the highest for that month since 2016.

The 190,000 b/d Madero refinery processed no crude in January and from March through June. The 220,000 b/d Salamanca refinery processed no crude in January and early February because of intentional pipeline shutdowns to prevent fuel theft.

The administration has also given other signals that economics are not its primary concern. It has insisted on building a 340,000 b/d refinery in Dos Bocas, Tabasco despite criticism from analysts, the risk of a credit downgrade and the resignation of the previous finance minister over this policy direction.