May 12, 2010 / 11:17 PM / 8 years ago

UPDATE 1-Mexico eyes US, European refineries for supply

* Mexico eyeing spare refining capacity in Europe, U.S.

* Country relies heavily on imports for domestic supply (Adds bullet points, additional quote from Pemex CEO)

LA JOLLA, Calif., May 12 (Reuters) - Mexico state oil company Pemex will not build enough refineries to fully supply the Mexican market and may seek foreign partners to secure domestic supplies, its chief executive said on Wednesday.

Pemex [PEMX.UL] depends on imports to meet more than 40 percent of Mexican gasoline demand and is building a new refinery to cut its reliance on foreign supplies, but CEO Juan Jose Suarez said the company was open to deals with foreign suppliers due to the high cost of new refinery capacity.

“Our mandate is not to be self-sufficient in gasoline. Our mandate is to secure supplies,” Suarez said in a speech at a conference hosted by the Institute of the Americas.

Pemex already has a refining joint venture in the United States with Shell at Deer Park, Texas, which it has used in the past to meet Mexican gasoline needs, although in recent years it has relied on open market purchases.

“There’s a lot of excess capacity now in the U.S. and Europe ... right now the cost of existing capacity in the U.S. is probably around one-fifth of a new refinery,” added Suarez.

Falling gasoline demand, plunging refining margins and competition from biofuels and new export refineries in Asia have led some analysts to predict that Atlantic basin gasoline prices could remain depressed for years to come, which may force more refinery closures in the Americas and Europe.

Pemex will continue work on a new refinery near an existing plant at Tula, north of Mexico City, as well as planned overhauls of other plants, including the Salamanca facility, but Suarez said the excess of refining capacity in the United States and Europe made it more sensible for Pemex to consider other ways of meeting Mexican demand growth.

Pemex’s critics have said the company’s plan to spend more than $13 billion to build a new refinery and overhaul Salamanca is not the best use of capital resources as Mexico faces declining oil production and an increasingly strained balance sheet at Pemex.

Pemex managers have in the past talked of the necessity of beginning work on a second new oil refinery soon after completing the first new plant in order to keep up with demand growth. (Reporting by Robert Campbell; Editing by Gary Hill)

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