After four decades without having more of its own capacity to produce gasoline, Mexico took a step forward last week by acquiring 100% of a refinery that is not in its national territory.
Deer Park is one of the 20 largest capacity facilities in the United States and one of the oldest (founded in 1929).
Since 1992 it has been co-owned by the Dutch company Shell and the state company Petróleos Mexicanos ( Pemex ).
But the government of Mexico launched a surprise offer to its partner this year, which received the go-ahead last week from the US government, which had to verify that there were no national security problems.
“It’s historic,” celebrated President Andrés Manuel López Obrador when making the announcement on Wednesday.
“Now we are moving towards self-sufficiency. This will allow us, above all, to maintain low prices in gasoline, diesel, jet fuel and other oil products, because we have the capacity to process our raw material. That is the change in oil policy “, he pointed.
His government is paying Shell $ 600 million plus another $ 600 million to settle debts.
Although the high efficiency of Deer Park will help solve the fuel production deficit of Mexico , which is paradoxically an oil country , the purchase occurs at the same time that the world moves towards the substitution of oil for other energy sources.
“López Obrador wants to resume a model of economic development that was successful in 1960. It is a completely different planet Earth ,” analyst Rosanety Barrios tells BBC Mundo.
Other industry experts consider it to be a good decision in the short term, but they find contradictions in the government’s discourse of seeking energy sovereignty with a refinery located in another country .
“The Deer Park refinery is in the United States and López Obrador has always complained that Mexico depends on the United States. But it is not a crazy decision, in my view,” says Francisco Monaldi, director of the Latin American Energy Program of the Baker Institute at Rice University (Texas, USA)
What does Deer Park bring?
Mexico’s golden years in the oil industry are long gone.
The country ceased to be one of the major oil exporters and lost fuel self-sufficiency for several decades. Currently, it only has six active refineries, the last one opened in 1979 .
These refineries have numerous operating problems – according to López Obrador they were intentionally abandoned by the predecessor governments – so they currently only work at a third of their capacity .
Instead, Deer Park op e ra to 90% capacity , which is 340,000 barrels of oil a day.
- 340,000barrels of oil per day is its processing capacity.
- 131,000barrels of gasoline.
- 89,000barrels of diesel.
- 21,000jet fuel barrels
- 61,000other products
“It is integrated into Shell’s petrochemical complex in Deer Park, which makes it easy for many of the additional gasoline, diesel and jet fuel products to be marketed in a very agile way and with very little in logistics because they are practically together,” said the director. of Pemex, Octavio Ramírez Oropeza.
The official stated that Deer Park, by being located on the coast of the Gulf of Mexico in the Houston area, near the borders and ports of Mexico, allows reducing fuel transportation costs.
Why buy it? Is it effective?
Since he took office in 2018, López Obrador proposed an energy model that favors the rectory of the State , a return to the model of the 20th century, when Mexico emerged as an oil power.
His strategy seeks to reverse the energy reform approved in 2013 that opened investments to private companies, since the president defends that his plan avoids dependence on the outside and ensures sovereignty .
“We have not built a new refinery for more than 40 years. Always because of the lie that it was not a business to do refining, that it was better to sell crude oil and buy gasoline. It is, as we have said many times in a metaphorical way, to sell orange to buy orange juice, “said López Obrador when announcing the purchase.
One of its great infrastructure promises is the construction of the new Dos Bocas refinery, which has raised its cost to more than US $ 9,000 million and will have the same capacity as Deer Park. It ensures that it will be in operation before the end of its mandate, in 2024.
According to analysts, López Obrador made the decision to buy Deer Park outside of his energy plan given the uncertainty of when the Dos Bocas refinery will be ready.
“It is going to cost Pemex US $ 600 million, half of the refinery it is buying, versus more than US $ 9,000 million that Dos Boca costs. That is, it is seven or eight times cheaper in terms of capacity than they are buying, “Monaldi points out, noting that building refineries in the Western Hemisphere is not the best idea.
While Deer Park can make it easier for the Mexican government to cover current fuel demand, Rosanety Barrios warns that the government’s accounts are “very, very optimistic.”
Currently, the country consumes 1.43 million barrels of fuel per day. And its refineries, according to official data, generate just over 863,000 barrels a day. The other 690,000 are bought on the international market.
Adding all the capacity of Deer Park, the country would exceed 1.2 million barrels, but would still be in the red with respect to demand.
The government’s bet is to add another 340,000 when the Dos Bocas refinery comes into operation and increase the production of the six that are already operating through modernization.
Barrios, however, points out that the government’s calculations are risky.
On the one hand, the analyst points out that it remains to be seen whether the six Pemex refineries can expand their capacity (something that she considers “practically impossible”) . And the government accounts must be subtracted for fuel oil, a residue from refining whose value is very low.
Technical problems in Mexican refineries turn a third of what they refine into fuel oil , so the government accounts do not close, according to Barrios.
In addition, Deer Park already has contracts that it must fulfill, so there are no guarantees that 100% of its capacity will go to Mexico.
“This shows that the economic issue does not concern [López Obrador]. For him that is not relevant in order to fulfill the political objective,” Barrios maintains.
Sovereignty and / or energy security
The energy policy of the president of Mexico evokes the oil nationalism of the 20th century that led the country to self-finance and create its main social and infrastructure works.
The president says that it is a “change of mentality” that the neoliberals reject.
“From the oil expropriation [a nationalization of 1938] until the 1980s, we were self-sufficient in gasoline, we did not buy. From the 1980s to date, we bought fuels, that is why the refineries were not built, ” says the president. .
“So, turning again is a different policy that they are carrying out at Pemex. And this means more work in Mexico, more independence.”
For analyst Adrián Duhalt, the decision “strengthens, at first glance, the objective of increasing Pemex’s production of petroleum products.” But he points out that energy security and sovereignty are parallel objectives that may not be met.
“The first implies having access to energy supplies constantly at competitive prices, while the second, as expressed by President López Obrador, aims for Mexico to produce what it consumes,” he explains.
“In practice, I have a hard time thinking that the purchase of the Deer Park refinery adds to the issue of energy security since petroleum products such as gasoline and diesel are only part of that concept .”
And the fact that Deer Park is in the United States does not add to López Obrador’s idea of having sovereignty in the production of fuels.
On the other hand, countries with advanced energy industries are already taking the steps towards the energy transition : substituting polluting sources such as oil for more “green” ones. Shell’s decision to sell Deer Park is part of that company’s journey.
Mexico, with the construction of Dos Bocas and the purchase of the Texas refinery, remains in the oil policy even though it has signed international pollutant reduction commitments.
“We have an energy model that in addition to causing economic losses in state companies, the cost of energy goes up and completely puts aside the whole issue of the energy transition ,” says Barrios.
“Mexico is going to require clean energy and the best prices to take advantage of the Free Trade Agreement and increase its exports. Mexico is an exporting country, a manufacturing and exporting country. So, in order to take advantage of what we have and maximize it, we need two things: cheap and clean energy and private investments “.