Do they realize what kind of trouble they are getting into by purchasing the Deer Park refinery in Houston, Texas? President Andrés Manuel López Obrador presented it as a great business opportunity. In trying to find a positive side to this purchase, we argued in a previous article that it could make economic, even strategic sense, if it were part of a rigorous planning to maximize output and performance at all of state-run Petróleos Mexicanos (Pemex)’s refineries, which would imply importing light crude oil to Mexico to facilitate oil processing.
However, such planning does not exist so far. According to the President, the Deer Park refinery “will be part of the country’s patrimony”. He looks upon it as an extension of the nation’s territory that “will be very important for our fuel self-sufficiency goal”. In other words, he proposes a fictitious accounting: the crude oil that Pemex will send to Deer Park will no longer count as exports and the gasoline that comes into the country from there will no longer count as imports.
Yet the United States is an entirely different ecosystem, in business, in culture, in laws, in everything. There, Pemex will not find accommodating authorities, nor a submissive labor union. Rather, it will have to comply with the demands of the Environmental Protection Authority (EPA), the United Steelworkers Union (AFL-CIO) and the U.S. Committee on Foreign Investment. The latter, if supported by the Houston business community, could even block the acquisition. In the case of a natural or climate disaster, the governor of Texas or President Joe Biden himself could prohibit the shipments of gasoline from Deer Park to Mexico.
The risk of environmental litigation has increased. We saw that a Dutch court has just ordered Shell to reduce its emissions by half by 2030 to offset its contribution to climate change. Companies in the United States and other countries are selling refineries. There must be a reason for that. What have Pemex and Mexico to gain with this acquisition? Deer Park is designed to process extraheavy oil, like the Mexican Maya crude and high sulfur fuel oil, mixing them with West Texas and other light crude grades. It will not be easy for it to process greater volumes nor for it to modify its system of global purchases and sales of crude oil and fuels.
What is the logic of buying the remaining 50 percent of Deer Park, if Pemex already has full access to that processing capacity? Moreover, without holding any assets, Pemex sells its oil without any problems to the Exxon, Marathon and Valero refineries in the Houston area and buys gasoline from them.
Wouldn’t it make more sense to properly rehabilitate three of the six refineries in Mexico, importing light crude so that they no longer produce the high sulfur fuel oil, which damages the environment and health when it is burned in power plants and which is also sent for processing at Texas refineries, where it competes to the detriment of the price of Pemex’s own Maya crude oil? Exporting crude and fuel oil and bringing back gasoline also has a high logistics cost. Has Pemex analyzed the cost structure for operating Deer Park? Is Pemex aware of it?
The López Obrador government is proposing that Pemex should have eight refineries, rather than six, despite the fact that oil production will not increase. The Ku-Maloob-Zaap oilfields, which produce heavy crude, will soon deplete. If any new oilfields do start up production, they will provide light oil. So, why purchase Deer Park? Where will Pemex get the heavy crude oil from for Deer Park a few years from now? If it begins operating the coking plant at Tula refinery, improves its existing refineries and starts up its new Dos Bocas refinery, currently under construction in the southeast of the country, there will not be a drop of Maya crude left over for Deer Park.
A very feasible scenario, if Venezuela can free itself from the sanctions against it, is that 5 or 10 years from now Deer Park could be processing the abundant bituminous crude oil from the Orinoco or from Canada or Arabia, for lack of Maya crude. Is that what we want the refinery for? Did Pemex’s board members and advisers analyze the numbers and the global trends? Is the decision to purchase Deer Park anything more than a case of political opportunism?
* David Shields is an energy industry analyst. His e-mail: email@example.com A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition.