Friday, June 14, 2024

New refinery could cost more than twice the original estimate

The cost of the state oil company’s new refinery on the Tabasco coast could blow out to more than double its original estimated price tag, according to a report by the news agency Bloomberg.

The Dos Bocas refinery, which will be officially opened July 2, could cost as much as US $18 billion, according to Bloomberg sources, a price tag that would be $10 billion higher than the project’s initial budget.

Citing people with knowledge of the matter who weren’t identified because they aren’t authorized to speak publicly about the refinery, Bloomberg reported that the value of Energy Ministry (SENER) contracts for work through to 2024 increased to over $14 billion in May. The sources said that the final cost of the project will probably be between $16 billion and $18 billion. 

Pemex – the world’s most indebted oil company – and SENER were given responsibility for the project after the government concluded in 2019 that the bids it received from private companies were too high. President López Obrador said at the time that estimates ranged between $10 billion and $12 billion and none of the companies would commit to completing the project within three years.

Federal authorities didn’t respond to Bloomberg’s request for comment on the estimated $16-18 billion cost.

The news agency said that after a period of underspending due to the coronavirus pandemic, refinery construction costs increased significantly as new contracts were issued in order to have the project ready for inauguration. One source said the total number of contracts accounted for by Pemex has increased to about 270 from approximately 100.

Bloomberg said that cost overruns on the refinery project were likely to continue due to inflation, which was 7.88% in Mexico in the first half of June. The cost blowout undermines López Obrador’s austerity drive and “casts doubt on whether Pemex can fulfill its goal of producing all of its own gasoline, given how crucial the refinery is to the oil company’s efforts to end dependence on fuel imports,” the news agency said. 

The president, a staunch energy nationalist, has set a goal of making Mexico self-sufficient for fuel by 2023. To achieve that, the federal government is upgrading Pemex’s existing refineries in addition to building the new one on the Tabasco Gulf coast, which will have the capacity to process 340,000 barrels per day (bpd) of crude and thus add about 20% to Pemex’s existing capacity. It also bought Shell’s 50% share in a Texas refinery that was jointly owned with Pemex.

The inauguration of the Dos Bocas project, which is officially called the Olmeca Refinery (the Olmec people lived in the Gulf coast area), will be attended by Pemex CEO Octavio Romero Oropeza, Energy Minister Rocío Nahle and López Obrador, a Tabasco native who is determined to reinvigorate the economy of Mexico’s southeast with large-scale infrastructure projects.

The inauguration won’t herald the commencement of full production as Pemex is not expected to reach its projected 340,000 bpd refining capacity for at least six months.

Writing in The Washington Post earlier this week, journalist Carlos Loret de Mola – a prominent critic of the president and federal government – charged that López Obrador will formally open a refinery “that doesn’t refine anything.”

“Not a single barrel of oil will enter and not a single liter of gasoline will come out of the Olmeca refinery,” he wrote.

“… The inauguration will be a simulation, a stunt motivated by AMLO’s ego,” Loret de Mola added, noting that the opening will come four years after López Obrador won the 2018 presidential election. “… On July 2, in reality only a ‘test phase’ will be inaugurated,” he said.

With reports from Bloomberg 

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