Two Killer Refinery Fires No Help as Pemex Seeks Partners (1)

Jun 18, 2017 7:48 am ET

(Bloomberg) -- Fatal fires at two Pemex refineries over the past four months have come at a bad time.

Pemex’s bid to recruit partners to help run their facilities "was already a tough sell" because of the condition of the aging plants, said Tim Samples, a law professor and Mexican-energy analyst at the University of Georgia in Athens, by telephone. "It has to make it even harder when the refinery you are trying to find a partner for is burning in the background."

Fire broke out at the Salina Cruz refinery, Pemex’s biggest, on Wednesday. It reerupted Thursday, and was finally extinguished early Friday morning. In the meantime, at least one worker was killed in the blaze, which kept the 330,000 barrel crude capacity facility closed for two days. That incident followed a mid-March explosion at Pemex’s Salamanca plant that killed eight.

Problems at Pemex’s refineries are long-standing. The state-owned oil company, formally known as Petroleos Mexicanos, estimates that maintenance issues and inefficiencies have brought annual losses at its refineries to about 100 billion pesos ($5.5 billion), adding to t almost $100 billion debt. Pemex’s six refineries are operating at only about 60 percent of capacity, processing 948,000 daily barrels of crude in the first quarter.

Waiting Trucks

The accident at Salina Cruz, Mexico’s lone refinery on the Pacific side of the country, threatens gasoline supplies all along Mexico’s western coast. At 9 a.m. Thursday, a line of empty gasoline tanker trucks waited idly on the road outside the still-burning plant, where a thickening cloud of grey smoke billowed from the crude storage area.

One employee at the Salina Cruz refinery, who asked that his name not be used because he was not authorized to give public comments, said the accident was the worst he’d seen in years of working at the plant. The employee said he was worried about pollution from the fire, as rain falling at the plant had turned black Thursday, staining clothing and skin.

A Pemex spokesman confirmed in an email that rain was blackened by falling through the smoke rising from the plant.

Pemex hired Bank of America Corp. to help it seek joint ventures to improve operations and reconfigure its ailing refineries. Since disclosing those plans early last year, Pemex has repeatedly pushed back the expected date for the announcement of a partner.

Seeking Partners

The company wants to partner with private companies to revamp plants at Tula, Salamanca and Salina Cruz, said Carlos Murrieta, Director of Industrial Transformation, in an interview last November. The projects include construction of a new coker plant at Tula, its second-largest refinery. 

In March, the company said Pemex would request formal bids from companies interested in the Tula coker project "in the next few weeks," though it has yet to announce plans for the public auction needed to award a contract.  On a May 3 conference call, Murrieta said Pemex "expects to have a partner toward the end of the year, hopefully in the next three, four months" for the coker project, valued at $6.7 billion for its two phases.

Japanese trading company Mitsui & Co. and South Korea’s SK Engineering & Construction were identified earlier this year by Pemex as among companies it sees as potential partners for the Tula project, according to a spokesman who couldn’t be identified because of company policy.

"Our possible partners understand the nature of the hydrocarbons industry," Pemex said in an emailed response to questions about how the recent refinery accidents might affect interest from investors. "Pemex has implemented the most advanced security protocols in all of its installations to protect its personnel and installations at all times to guarantee a secure operation."

After Pemex’s fuel production sank in 2016 to the lowest level in 26 years, the company pledged to invest more in its refineries this year. Crude processing has rebounded following the completion of maintenance at the end of 2016 and improvement in prices for refined products, according to the company, which said processing could exceed 1.2 million daily barrels by the end of the year.

Outside the Salina Cruz plant Thursday, Ramon Londa, 38, a gasoline tanker truck driver, said he is concerned that if the gasoline supply runs out he will have to drive eight hours to Pajaritos, in the neighboring state of Veracruz, to fill up.

“The trucks are going in little by little, but there is a lot less supply right now,’’ he said.

(Adds that the Salina Cruz fire has been extinguished in the third paragraph.)

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