IMCO says: AMLO’s refinery probability of success is only 2%


“The Dos Bocas refinery would destroy value for Pemex”, IMCO determined after conducting a profitability analysis.

The construction of the new refinery proposed by the government of President Andrés Manuel López Obrador is a bad idea because it has a probability of success of only 2%, according to an analysis made by the Mexican Institute for Competitiveness (Instituto Mexicano de la Competitividad: IMCO).

“In 97% of the modeled scenarios, the Dos Bocas refinery project destroys value for Pemex and therefore should not be carried out,” said the analysis document issued by the organization led by Manuel Molano.

The Mexican think tank gave five main reasons why the project will not be profitable:

  1. The increase in the use of clean energies while the demand for hydrocarbons decreases.
  2. The production of fuels can be increased with the existing refineries.
  3. Crude refining is the least profitable stage in the industry’s value chain.
  4. Investment costs and construction times are extremely high and volatile.
  5. Crude production has fallen in the last 18 years, if it continues, Pemex would have to import oil to supply the new refinery.

The Secretariat of Energy (Sener) estimates that the refinery will cost up to 8,000 million dollars, from an initial price of 6,000 million dollars, and will be built in just three years. Approximately 2,650 million dollars need to be allocated this year to begin its construction.

The analysis methodology used the net present value and the internal rate of return of the refinery project as profitability indicators.

In addition, IMCO implemented a Monte Carlo simulation, a scheme that builds 30,000 scenarios where multiple key variables are recreated.

“This exercise does not consider the costs of construction of additional infrastructure, such as pipelines and storage facilities, or the remodeling of the Dos Bocas port to receive deep-sea vessels,” the IMCO added in the document.

The organization proposed to cancel the project and explore other options to improve supply conditions in the gasoline and diesel market, such as investments in logistics and fuel storage, as well as reallocate resources for activities that increase Pemex’s financial viability such as crude oil exploration and production.

Forbes Mexico tried to consult Sener on the subject, but they obtained no response.