Mexico’s crown-jewel refinery is $3.6 billion over budget
Mexico’s mega-refinery project Dos Bocas is expected to cost 40 percent more than previously estimated and is unlikely to be completed by the government’s 2022 deadline, casting serious doubts on whether the country can soon fulfill its goal to produce all of its own gasoline.
The facility, located in the southeastern state of Tabasco, is crucial to Pemex’s plans to halt crude oil exports in 2023 as part of President Andres Manuel Lopez Obrador’s nationalist goal of selfsufficiency in fuel consumption. The speed bumps for the project come as critics were already questioning Petroleos Mexicanos’s ability to refine all of its own crude given declining production, its lack of maintenance of its refineries and its heavy debt burden, which is the highest of any oil company.
Construction of the 340,000barrel-a-day Dos Bocas plant is now projected to cost about $12.5 billion, according to people with knowledge of the situation who asked not to be identified because the information isn’t public. That is sharply higher than the $8.9 billion estimate given by Pemex’s chief executive officer some 15 months ago, a reflection of construction delays, rising materials costs, and a budget that may have been unrealistic from the start.
The project may fail to produce a single gallon of gasoline in 2022 and could produce only limited amounts of fuel for several years after, according to some analysts.
Pemex and Energy Ministry representatives did not respond to requests for comment.
The Dos Bocas project is not the only plant where Pemex will end up spending more than it initially said. The company paid more than $1.5 billion to take over a refinery in Deer Park, that it has acquired from Royal Dutch Shell — more than twice the price announced in May for the deal.
Energy Minister Rocio Nahle said in August that Dos Bocas was on track to begin running startup tests in July and to be open for business a few months later during 2022. She also said the cost of the project was within the $8.9 billion budget, give or take 10 percent. The refinery originally had a budget of $8 billion — an amount international contractors deemed inadequate for the scope of the project, resulting in many declining in 2019 to participate in its construction.
The pace of spending on the project to date underscores the unlikelihood of it keeping close to its earlier budget. Through December 2021, the government had handed Pemex 120.9 billion pesos, or $5.9 billion, to spend on Dos Bocas, according to data provided by Joel Tonatiuh Vázquez Perez at the Center for Economic and Budgetary Research think tank in Mexico City. Another 45 billion pesos, or $2.2 billion, has been set aside for the refinery this year, taking the total allocation to $8.1 billion.
In 2021 alone, the government gave it 81.4 billion pesos — nearly double the 45 billion it had initially apportioned for that year. If it keeps to its planned spending rate going forward and construction continues into 2023, it will almost surely blow past its previous budget estimates.
With all the delays, the refinery could have key gasoline units up and running as soon as 2023 and be fully operational in 2025, said Karina Lopez Huitron, an analyst with Wood Mackenzie Ltd.
The Mexican government plans to inaugurate the Dos Bocas facility with pomp and circumstance in July. The event, however, is likely to be more show than substance.
“It’s possible that the refinery won’t be producing fuels before Lopez Obrador’s time in office comes to an end” in 2024, said Felipe Perez, an IHS Markit Latin America analyst.