After a month of speculation over Pemex’s comments about importing light crude from the US to increase the feedstock for its aging refineries, the state-owned company revealed on 22 October that it would be importing four 350,000 barrel shipments from the Bakken formation in North Dakota in November. The crude will then be used as feedstock for the country’s refineries to produce petrol and diesel.
Pemex’s six refineries have a combined processing capacity of around 1.6 million b/d but they currently operate at around 40% capacity. It has largely overlooked its refining sector and has instead focused on generating cash from its own crude oil exports. This is something that incoming president, Andrés Manuel López Obrador’s (a.k.a. AMLO), has criticised even though he has not put forward any policy proposal to change the steady stream of oil exports to the US. To make matters worse, Pemex is faced with escalating debt exceeding US$104 billion, regular financial losses, and failure in reaching their 1.95 million b/d production target for 2018.
In spite of the well-received announcement, ratings agencies Fitch and Moody’s downgraded Pemex’s outlook from stable to negative. This was because of their disapproval of AMLO’s proposals for the oil and gas sector, including Pemex’s dire financial situation and declining oil production. The agencies’ ratings come as an initial warning to the incoming administration about the issues that it should concentrate on in order to maintain financial stability and to continue to attract foreign direct investment.
AMLO’s team has said they want to increase production, revamp the existing six refineries, and build a new state-owned plant with public money which the rating agencies have already pointed to as a problem. AMLO has also spoken out against oil exports and argue that Mexico should be using its own crude oil despite the fact that most of it is heavy and cannot be refined at the six refineries. Losing out on oil exports would amount to roughly US$14 billion a year which would not create problems for the government’s public finances but would also leave Pemex at greater risk of growing debt obligations.
However, the problems for the incoming AMLO administration go beyond Pemex’s financial situation.