Making Moves

After an extended turnaround process, Pemex’s Madero and Minatitlan refineries are poised to resume operations in the coming weeks, but concerns about the national oil company’s downstream efforts persist. In this issue of Market Update, we’ll look at the future of refining and storage in Mexico, and explore the impending fall of one of Latin America’s oil giants. Keep reading for more!


Back Online?

According to recent reports, Mexico will soon see a much-welcomed boost to its domestic fuel production. After many months offline due to longer-than-expected turnaround, Pemex is planning to resume operations at both its Madero refinery (190,000 bpd) and its Minatitlan refinery (275,000 bpd). Additionally, the national oil company will restart the catalytic unit at its 315,000 bpd Tula refinery in central Mexico.

It’s a good development for Pemex, albeit notably overdue. While offline capacity is not unusual, the issues that led to those outages (and subsequent turnaround times) serve as a clear indicator of the myriad of problems facing Mexico’s domestic refining sector.

With that said, if Pemex is successful in reviving its offline refining capacity, Mexico will significantly reduce its dependence on fuel imports—and that’s big news for US firms. In the last year, Mexico has been forced to purchase nearly 1 million bpd, mainly from USGC refiners. Of course, restarting from a dead stop is never a sure thing, and subsequent problems may be revealed during the process. Given the state of operations in Mexico, we believe a wait-and-see approach is the most prudent course of action at this time.


West Coast Action

IEnova recently announced plans to develop, construct, and operate a 1-million barrel marine storage terminal on Mexico’s Pacific coast in Baja California. The project is expected to cost $130 million with commercial operations scheduled to begin in mid-2020. The development looks to be a winner for IEnova: Chevron Combustibles has already agreed to lease 50 percent of the capacity for gasoline and diesel storage, with an option to acquire 20 percent of the terminal’s equity after operations begin.

The deal strengthens Chevron’s commitment in Mexico, and will enable the firm to support its planned retail network in the western region. You may recall, Chevron previously announced plans to develop 250 retail stations in the states of Sonora, Sinaloa, Baja California, and Baja California Sur. To date, the firm operates approximately 40 Chevron stations in Mexico, and serves as supplier to an additional 30 unbranded stations.

With the development of a proprietary storage infrastructure, Chevron will no longer have to rely on Pemex to deliver transportation fuels into Mexico. Indeed, the IEnova terminal represents one of the first significant, independent infrastructure assets to be constructed on the west coast of Mexico.


Going South

While Mexico wrestles with the prickly issue of resurrecting its beleaguered oil and gas sector, a look south may provide some solace, and a more positive outlook on the country’s economic challenges. If Mexico’s oil and gas industry is still hanging on, Venezuela’s is in a free fall. The country’s national oil company, PDVSA, is on the brink of total collapse, surviving solely on Chinese credit—and lots of it. In the past two years, PDVSA has racked up a $19+ billion tab, making interest-only payments in the form of crude and refined products. But that arrangement is over; China just ended the crude-for-interest deal, a move that puts both PDVSA and Venezuela behind the eight ball.

If that weren’t enough, Venezuela’s refineries are operating at a dismal 30 percent utilization rate and crude production dropped below 1.5 million bpd in April, a 33-year low. Add to that the fact that more than 25,000 PDVSA employees have quit and the company’s financial resources are just about tapped out and you have a recipe for disaster. Operating conditions in Venezuela are bad, but the financial conditions may be worse. In total, the national oil company has accrued more than $50 billion in debt, China has ceased issuing credit, and the US has placed sanctions on purchasing new Venezuelan bonds. Oh, and did we mention, the country is rife with uncertainty ahead of a heated Presidential election later this month (May 20).

For Mexico, Venezuela’s tumultuous position is a case study in failure, but for now, Pemex will enjoy some benefit from its neighbor’s bad fortunes. The fall in Venezuelan production and exports has left a void in the US for the heavy crudes that USGC refineries are equipped to process. Pemex production is still lagging but marketing has seen stronger prices on exports due to tighter supply.

Inspired to jump into the Mexican market? Click here to contact our international markets team.



Chad Smith
Senior Vice President of Terminal Services