{"id":248277,"date":"2025-07-08T15:07:09","date_gmt":"2025-07-08T15:07:09","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/248277\/"},"modified":"2025-07-08T15:07:09","modified_gmt":"2025-07-08T15:07:09","slug":"can-a-20bn-refinery-make-mexicos-energy-dream-come-true","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/248277\/","title":{"rendered":"Can a $20bn refinery make Mexico\u2019s energy \u2018dream\u2019 come true?"},"content":{"rendered":"

This article is an on-site version of our Energy Source newsletter.\u00a0Premium subscribers can sign up here<\/a>\u00a0to get the newsletter delivered every Tuesday and Thursday. Standard subscribers can upgrade to Premium here<\/a>, or explore<\/a> all FT newsletters<\/p>\n

Welcome to Energy Source, coming to you from New York, where people are back at their desks after the July 4 weekend.<\/p>\n

The latest news from another US-British struggle \u2014 activist investor Elliott Management\u2019s drive to revamp BP \u2014 is that the laggard oil major has appointed<\/a> the former chief financial officer of its rival Shell, Simon Henry, to its board.<\/p>\n

Henry has considerable experience in oil and gas, which may help the company prove it was taking its pivot away from green energy seriously, and hold off a potential takeover<\/a>. <\/p>\n

To the east, Russia is seeking to solve the curious case of the exploding tankers. <\/p>\n

On Sunday an explosion on a vessel carrying Russian cargo resulted in an ammonia leak<\/a>. There has been speculation the blasts were linked to Ukraine, whose representatives have declined to comment, or Libya. <\/p>\n

For today\u2019s newsletter we go to Mexico, where our correspondent Christine Murray looks at the country\u2019s quest to break its energy dependence on the US.<\/p>\n

Thanks for reading \u2014 Martha<\/p>\n

Can a $20bn refinery secure Mexico\u2019s energy self-sufficiency?<\/p>\n

Amid the mangroves that line Mexico\u2019s Gulf coast, the largest new oil refinery in the Americas is finally stepping up production of fuel.<\/p>\n

The country\u2019s previous president, Andr\u00e9s Manuel L\u00f3pez Obrador, called the $20bn Olmeca Refinery a \u201cdream come true\u201d that would help Mexico attain energy self-sufficiency.<\/p>\n

However, the megaproject ran more than twice over budget, lacks pipeline connections and experts say it is unlikely to make a significant dent in Mexico\u2019s heavy energy dependence on the US.<\/p>\n

Mexico imports about half its petrol needs, one-third of its diesel and more than 60 per cent of its natural gas, all overwhelmingly from the US.<\/p>\n

By 2030 its crude production is projected to fall by more than any other country, according to the International Energy Agency (IEA), meaning it could also become a net importer for the first time since the 1950s.<\/p>\n

\u201cYou put the cart before the horse,\u201d John Padilla, partner at energy consultancy IPD Latin America, said of the Mexican government\u2019s strategy. \u201cYou didn\u2019t stabilise your production to ensure that you would have enough product for the long-term picture of what it is you\u2019re trying to achieve.\u201d<\/p>\n

At a time when Washington is slapping tariffs on Mexico and raising the possibility of military intervention<\/a>, the country naturally is worried about dependence on its northern neighbour more broadly.<\/p>\n

During his six-year term that ended last year, L\u00f3pez Obrador bought out half of a Texas refinery, updated cokers at existing plants and built Olmeca in an attempt to insulate the country from price fluctuations abroad.<\/p>\n

It\u2019s a policy the current president, Claudia Sheinbaum, has vowed to continue.<\/p>\n

\u201cOnly a traitor hands their country over to foreigners,\u201d she said at an event in March, quoting from a historic speech by a nationalist president in 1960.<\/p>\n

Mexico\u2019s government has begun reducing crude exports to redirect more to its refineries, creating a problem for US refiners that rely on its heavy crude. But Olmeca also faces its own issues.<\/p>\n

In May, Olmeca produced 50,000 barrels a day of diesel and 43,000 b\/d of petrol, operating at about one-third of its total capacity. Even at 100 per cent capacity producing 120,000 b\/d of diesel and 170,000 of petrol, that would only represent some 25 per cent and 18 per cent of estimated national demand.<\/p>\n

Most refineries are also unable to operate at full speed for long periods, and industry participants are sceptical Olmeca will meet its 2026 deadline. State oil company Pemex\u2019s other Mexican refineries are known for inefficiency, with an average operation at less than 50 per cent of capacity.<\/p>\n

Crucially, Olmeca lacks significant pipeline and rail connections to distribute the fuel across the country, and instead will rely on trucks and its adjacent port for the foreseeable future.<\/p>\n

\u201cIt\u2019s going to cost more money and the fact that they didn\u2019t think about this\u2009.\u2009.\u2009. should make anybody a little wary,\u201d Padilla said. \u201cIt\u2019s a big red flag.\u201d<\/p>\n

At the same time, Mexico may eventually need to import crude to feed the refinery.<\/p>\n

Its crude oil production has been in decline since 2004 as previously productive fields fall off and few new ventures have come to fruition. Pemex has the highest debt burden of any oil company and has cut investments. More than half of its production is now from seven of its 240 fields, the IEA says.<\/p>\n

Sheinbaum is implementing the largest cut to the deficit in decades, so to stem that decline Pemex needs to rely on private investment, which collapsed under her predecessor. She said last month that a new long-term financial and production plan for Pemex was nearly ready.<\/p>\n

Ramses Pech, an energy and economics consultant, said: \u201cMexico won\u2019t be self-sufficient in the next four to five decades unless there is more public investment and a total openness to private investment.\u201d<\/p>\n

\u201cThe last administration put the energy sector on pause and the current one doesn\u2019t have the money to take on everything that a long-term energy transition plan requires.\u201d<\/p>\n

Overall, the Olmeca refinery may have come at too high an opportunity cost, Padilla said. \u201cIt created some local temporary economic benefit. You will get a little more energy certainty but at an extremely high cost and potentially huge overhead.\u201d (Christine Murray)<\/p>\n

Power Points<\/p>\n