Pemex Slowly Returning to Productivity
By RICARDO CASTILLO
One of several reasons why Andrés Manuel López Obrador (AMLO) won the 2018 Mexican presidential elections was his protest against former President Enrique Peña Nieto’s energy reform. Back in 2013, AMLO demanded that a referendum be held during the 2015 mid-term election to seek voters’ approval of the reform. Peña Nieto refused to carry out that referendum, perhaps fearing that the energy reform might get shot down.
A second reason AMLO won by a landslide was Peña Nieto’s promise that his reform would bring great income to benefit all Mexicans and, in particular, that the price of gasoline would go down as production increased. The exact opposite occurred as oil production decreased and, on Jan. 1, 2017, gasoline prices spiked up significantly.
The reaction – lest we forget – was one of national fury, as a month of protests ensued until people realized prices would not go down again. Subsequently, AMLO increased the tone of his attacks, not just because of the higher fuel prices, but also because it was clear that Peña Nieto was leading the still state-owned oil company Pemex into bankruptcy, both through inefficient management and corruption, with the creation of a fuel black market with throngs of criminal gangs milking Pemex’s fuel pipelines and selling the stolen gas at lower prices. Peña Nieto did not lift a finger to stop the Pemex sacking.
Peña Nieto’s popularity plummeted to unbelievable lows – aided by the ominous visit then-U.S. presidential candidate Donald Trump made to Peña Nieto on Aug. 31, 2016 – as well as the failure of the energy reform. People did not tire of calling the president a liar, which with higher gasoline prices, he was. Did Peña Nieto wanted to send Pemex into bankruptcy? Not openly, but he left behind a pretty battered company and a pig sty in terms of corrupt management.
Plus, Mexico’s six existing oil refineries were left in a shambles through poor maintenance and ever-dwindling production, leading to an increase of imports of U.S. gasoline.
On Monday, Sept. 23, AMLO delivered a complete report on his administration’s achievements in regards to Pemex, both in terms of restoring maintenance to the by-now very old refineries (the “newest,” at Pacific port Salina Cruz, was built in 1979), in tandem with Pemex CEO Octavio Romero.
The report stated that during 2018, crude oil production dropped by 200,000 barrels per day (bpd) from 1.9 to 1.7 million bpd. When the new administration took over the company, the downward trend continued for some time, but over the past nine months, Pemex stopped its downward trend “and is now stable at 1.7 million bpd.” AMLO said: “We have managed to, if not increase, at least stabilize production.”
For his part, Romero announced that 22 new wells in the Campeche Sound will be opening for production as of October, and he forecast that all probabilities show that Pemex will close the year with a production of 1.787 million bpd.
Regarding Pemex’s existing refineries, AMLO said that the administration is slowly revamping the plants.
“We discovered that they were not processing sufficient crude oil in all refineries because they were not operating at full capacity,” he said. “Well, in general, they’re still not working at full capacity, but they were producing only a scant amount of gasoline and other derivatives.”
Romero – let’s hope is not a fake promise – said that by the end of the AMLO mandate in 2024, he foresaw that Pemex would be producing at least 2.6 million bpd.
AMLO recalled that during his abhorred “neoliberal period” (1988-2018), all past administrations declined the option of refining crude since it was easier — and allegedly cheaper — to import refined product from the United States, reaching the point that imports grew exponentially and production dropped most significantly.
AMLO said that during the Peña Nieto administration (2012-2018), refining almost came to a standstill, mostly because operational technicians were not being supplied with parts and repairs, regardless of the fact that each refinery had its own repair shop.
“The budget was insufficient or it cost too much to carry out repairs,” he said. “Also, because of corruption, things continued to be the same.”
Over the past 15 years, AMLO said that revamping investment was over $8 billion, and that three refineries – Minatitlan in Veracruz, Madero in Tamaulipas and Cadereyta in Nuevo León — were “reconfigured” while three more — Salina Cruz, Tula and Salamanca — were not.
“The three not reconfigured refineries produced more than the reconfigured ones, where $8 billion were squandered,” AMLO said. “In the end, we found out that they were working at 38 percent of their installed capacity.”
During 2019, investment in the six refineries has been 12.5 billion pesos for rehab purposes, and expectations are that they will soon start producing more gasoline and other byproducts.”
In any case, this first report of advances in revamping Pemex was what AMLO talked about during his campaign for president, with an eye to bring it back into being what it should be: a profitable venture.