MEXICO CITY (Reuters) - Mexico’s state oil company Pemex will process the lowest amount of crude this year in at least a quarter century, internal refining plan documents seen by Reuters show, as plant outages and other inefficiencies continue to batter margins.
The decline is a double blow, as it means the national oil giant will likely struggle to compete in the upcoming liberalization of Mexico’s retail oil sector and the country will probably have to buy more gasoline from U.S. refiners, unless it can significantly improve operations.
As Pemex [PEMX.UL] processes less oil, the utilization rate of its six domestic refineries - the volume of crude processed divided by refinery capacity - could sink to as low as 63 percent this year, badly lagging peers in the United States, Brazil and Venezuela and making it one of the most inefficient refiners in the world.
U.S. refiners next door, meanwhile, have in recent years been running more crude than ever before, and in some cases at the highest efficiency levels on record.
Over decades, Pemex’s refining business has been protected by its monopoly status and government-set fuel prices, but a historic energy reform will soon force it to face off against lean private competitors to hold its shrinking share of demand from Mexico’s growing fleet of motorists.
Pemex estimates it will process about 1.091 million barrels per day (bpd) by the end of this year, which would mark its lowest level since at least 1990.
The company is producing less fuel even though domestic demand for gasoline has steadily risen by nearly 80 percent over the past 25 years.
Refining less crude will push down Pemex’s utilization rate by about a fifth to 63 percent compared with about 77 percent five years ago, according to data from Houston-based energy consultancy Wood Mackenzie.
Utilization rates at refineries in the United States average 89 percent while in Latin America, excluding Mexico, they average about 81 percent, Wood Mackenzie said.
“It’s a trend you just don’t see among the other major refiners,” said Mark Broadbent, the consultancy’s Americas refining sector analyst.
So far this year, Pemex has refined even less, at 1.058 million bpd, according to data posted on the company’s website. The company said it sees crude processing rebounding to 1.150 million bpd in 2016.
Mexico’s slumping crude production, down about 7 percent versus last year, is also cited by experts as a contributing factor behind the record low crude runs this year.
Analysts added that cash-flush U.S. independent refiners could be eyeing partnerships with Pemex to upgrade its worst-performing plants that lack coking units, which are better at squeezing out more valuable fuels like gasoline and diesel from Mexico’s increasingly heavy crude output.
“The value is certainly there,” said Broadbent. “But how much is Pemex willing to give to get a joint venture partner involved and unlock that value?”
Pemex, like other oil companies, has been forced to trim spending as oil prices plunged by more than half since last year. At the same time, low prices have been a boon to refining margins across the sector, just not in Mexico.
Bernardo de la Garza, an ex-Pemex oil trader and former executive with the company’s refining arm, said dramatically lower input prices should act as an incentive for more refining.
He pointed to data from oil major BP Plc which shows that its refining margins are up nearly 40 percent since 2010.
“These Pemex refineries should operate like clockwork, running the same crude and producing the same products, but they don’t,” he said, adding that better operational practices are key to preventing costly outages, not necessarily spending more.
Pemex’s domestic refineries have suffered 73 non-scheduled unit outages through August of this year, according to the internal documents seen by Reuters, but the length of each outage was not detailed.
Looking forward, Mexico’s energy reform will permit non-Pemex companies to distribute imported gasoline starting in 2017, and then allow private firms to refine crude and sell fuels at market prices in 2018.
The sharp dip in Pemex crude runs, by more than 12 percent over the last couple of years, means Mexico will likely have to further boost fuel purchases from U.S. Gulf Coast refiners.
Mexico’s gasoline imports so far this year, at about 415,000 bpd through September, are up nearly 10 percent compared to import levels five years ago.
Over the same period, Mexico’s total gasoline output has fallen by about 9 percent, averaging about 386,000 bpd through September.
If that average output holds for the rest of the year, it will mark the lowest level of gasoline production since 1992.
In an emailed statement, Pemex said its record low crude runs were due to disruptions caused by various low-sulfur diesel plant upgrades this year.
The company also pointed to the depressed domestic fuel oil market, which causes excess fuel oil supplies to back up at refinery storage tanks, which in turn cuts into its ability to process crude oil.
($1 = 16.5317 Mexican pesos)
Reporting by David Alire Garcia and Adriana Barrera; Editing by Simon Gardner and Bill Rigby