Mexico is buying a Texas refinery in search of energy independence

DEER PARK, Texas – Two giant murals, on tanks at an oil refinery here, depict rebels led by Sam Houston who secured Texas’ independence from Mexico over the years 1830. This week these murals will become the property of Mexico’s national oil company, which is acquiring full control of the refinery.

The refinery acquisition is part of President Andres Manuel López Obrador’s own efforts to gain independence of sorts. In a bid to achieve energy self-sufficiency, the Mexican president is investing heavily in state oil companies, putting a new focus on oil production and retreating from renewables even as a Some oil giants like BP and Royal Dutch Shell are investing. more in that area.

Mr. López Obrador aims to eliminate most of Mexico’s oil exports within the next two years so that the country can process more domestically. He wants to replace the gasoline and diesel supplies the country currently buys from other refineries in the United States with fuel produced domestically or by the refinery in Deer Park, which will be made from oil. raw materials that the country imports from Mexico. This change will be an ambitious leap for Petroleos Mexicanos, the company commonly known as Pemex. The company’s oil production, comparable to Chevron’s in recent years, has fallen for more than a decade and is saddled with more than $100 billion in debt, the largest of any oil company in the world.

The decision to pay $596 million for a controlling interest in the Deer Park refinery, which sits on the Houston ship canal and will be Pemex’s only significant operation outside of Mexico, is central to the completion of Mr. López’s plan. Obrador in long-lasting dry oil recovery. region and set up eight productive refineries for use in Mexico. Mexico also agreed to pay off a $1.2 billion debt owed by Pemex and Shell as co-owners of the refinery, which is profitable.

“It’s something historic,” López Obrador said last month. In a separate press conference last year, he said: “The most important thing is that by 2023, we will be self-sufficient in petrol and diesel and there will be no increase in fuel prices.”

While Mr. López Obrador’s policies differ from the growing global concern about climate change, they reflect a lasting temptation for leaders and lawmakers around the world. : to replace imported energy sources with domestically produced fuels. Furthermore, the high-paying jobs offered by the oil and other fossil fuel industries are politically popular throughout Latin America, Africa as well as industrialized countries such as the United States. Ky.

During the 1930s, the Mexican government took over the operations of Royal Dutch Shell south of the border when the company nationalized the entire oil industry then dominated by foreigners. Now Mr. López Obrador is ready to go one step further, taking full control of a large Shell refinery.

The takeover is all the more obvious because it is taking place in an industrial suburb that calls itself the “birthplace of Texas,” where insurgents march to the battlefields of San Jacinto to defeat the Mexican Army. is remembered on the murals of the oil refinery. The battlefield was a five-mile drive from the refinery.

It’s hard to overestimate the connection between oil and politics in Mexico, where the nationalized oil day, March 18, is a national holiday. Oil provides the Mexican government with a third of its revenue, and Pemex is one of the country’s largest employers, with about 120,000 workers.

López Obrador is from the oil-producing state of Tabasco, and the powerful Pemex labor union is an important part of his political base. He runs on the foundation of rebuilding the company and has increased production budgets, cut taxes and reversed his predecessor’s efforts to restructure the monopoly on domestic oil production.

When he took office three years ago, López Obrador set out to undo changes made in 2013 to the country’s Constitution that opened up the oil and gas industry to private and foreign investment. He is also pushing to reverse the electricity reforms his predecessor Enrique Peña Nieto introduced to increase use of privately funded wind and solar farms and move away from state-owned power plants. Operating water runs on oil and coal.

Energy experts say Mexico is living up to a pledge a decade ago under President Felipe Calderón to generate more than a third of its electricity from clean energy sources by 2024. Mexico currently produces only More than a quarter of electricity comes from renewables.

“They’re going to use heavier fuels rather than lighter ones,” said David Goldwyn, a top State Department energy official in the Obama administration. “Virtually every foreign company — Ford, Walmart, GE, everyone that operates there — now has their own net zero goal. If they cannot access clean energy, Mexico becomes a liability.”

The government of Mr. López Obrador says it will fight climate change by investing in hydroelectricity and reforestation.

Many of the Mexican President’s initiatives are being contested by opposition lawmakers and the business community. But Mr. López Obrador can do a lot on his own. He plans to spend $8 billion on a project to build an oil refinery in the state of Tabasco, and more than $3 billion on modernizing six refineries.

The purchase of the Deer Park refinery is crucial to his plans as the Tabasco complex will not be completed until 2023 or 2024 and will not produce enough gasoline, diesel and other fuels to meet all the needs of Mexico.

Pemex’s longtime partner, Shell, which operates the Deer Park refinery, is selling its stake in part to satisfy climate-change-worried investors who want the oil giant mines invest more in renewables and hydrogen.

Under Mexican ownership, the refinery will continue to use Mexican crude, but will likely sell more gasoline and other fuels it produces to Mexico.

In the future, some energy experts say, Pemex could also use the Deer Park refinery to process oil from other countries that also produce heavy crudes like Mexico.

“I think it’s a good and meaningful deal for Pemex, who notes that Deer Park might be able to deal with it,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service. Venezuela’s oil management if the United States lifts sanctions on that country.

Mexico’s policy changes will have only a temporary and modest impact on US refineries, which can replace Mexican oil with crude from Colombia, Brazil, Saudi Arabia and Canada. Refineries could lose half a million barrels of fuel shipped each day to Mexico, but energy experts say refiners will be able to find other markets.

“Best practices will be maintained,” said Guy Hackwell, general manager of the Deer Park complex. “The majority of the workforce will report for similar work the day after the deal closes,” he said.

As for the murals, Pemex spokeswoman Jimena Alvarado said, “We will never remove a historic mural.”

Residents in Deer Park, the heart of the Gulf of Mexico petrochemical complex, say they feel reassured that locals will run the plant and that Shell will continue to own an adjacent chemical plant. “The phone numbers will stay the same for the person we contact in case of an emergency and we will still have the same people and relationships, so I feel good about that,” the manager city ​​of Deer Park, Jay Stokes, said.

However, some energy experts say Mr. López Obrador’s approach to energy, including the purchase of a refinery, will waste valuable government resources that could be used better used to reduce greenhouse gas emissions and local air pollution. There are also doubts that Mexico can build up enough refining capacity to carry out the president’s goals.

Jorge Piñon, former president of Amoco Oil de Mexico, said Mexico most likely won’t be able to immediately profit from cutting crude exports and processing its own fuels because of its factory business. Refineries often have low margins, especially in Latin America.

He said that Mexican refineries cannot match American refineries in processing Mexican high-sulfur heavy crude. Mexican fuels made from heavy oil caused serious air pollution problems in many cities before the country began importing cleaner-burning American gasoline and diesel over the past 20 years.

By exporting less oil, Mexico will almost certainly also use more oil for domestic electricity generation, potentially reversing wind and solar energy production, and creating more pollution. air and greenhouse gas emissions.

“His nationalistic decisions will have a negative impact on climate change,” said Mr. Piñon. “He’s marching back to the 1930s.”

Mr. López Obrador is not apologetic. “Oil is the best business in the world,” he said at a press conference last May.