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Mexico Refinery Upgrades to Continue in 2016

After fits and starts and multiple cancellations of plans, Pemex has issued an investment plan worth some US$23 billion for much needed upgrades to Mexico’s aging oil refineries. The new plan replaces much more ambitious plans that had been released prior to the worst fiscal year in a quarter century for the former Mexican state oil monopoly.

The new investment plan was announced in December nearly simultaneously with announcements of job cuts that are also to be part of the 2016 Pemex budget. The oil giant has been struggling to bring its workforce down from the nearly 153,000 employees to a level closer to the numbers of similar private companies in the world market.

Pemex and the energy regulatory agency of the Mexican government had previously outlined goals for increasing refinement capacity as well as for upgrading its capacity for producing cleaner burning fuels.

The current proposals are something of a refinement to earlier and more expensive projects, the contracts for some of which had already been granted. Among the most notable was a two-phase upgrade project to the Salamanca Refinery, both parts of which were awarded to South Korean firm Samsung.

Many similar projects were actually cancelled or seriously revised prior to opening to bidding. This was in part due to lower global oil prices, but also in response to several expensive accidents that dampened the company’s near-term prospects. Total budget cuts were some $4 billion prior to budgetary 2015, which necessitated the disappointing revisions to plans.

The newer projects include a US$5 billion retrofitting of the petroleum refinery in Tula, in the Mexico State which borders Mexico City. This upgrade will increase the plant’s refining capacity to some 340,000 barrels a day.

The Salina Cruz refinery, the third of Mexico’s big-three of refineries, is also part of the revised investment plan. All of the refinery upgrades are intended to decrease sulfur in the gasoline being produced, but they range in complexity in part due to the varying ages of the refineries.

Still, exploration has led to announcements of new oil fields, rights for which will also be on the auction block in the coming year. 2015 saw the first ever auctioning of oil extraction rights to private and international firms in the Mexican oil giant’s history. Reserves of some 180 million barrels of crude oil could provide Pemex with an additional 40,000 barrels a day of crude oil in addition to extensive natural gas resources. Rights to similar oil fields sold with great interest toward the end of 2015, and in the government’s favor, though the first auction was met with very mixed interest.

Interest in Pemex’s technological and engineering standards and documents are expected to peak as increasing numbers of international and private firms compete for these lucrative contracts. And an increasing number of the documents themselves are being prepared and translated for the use of those interested in presenting contract bids over the coming years.

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