MOSCOW (MRC) -- A major Pemex oil refinery under construction in Mexico is running over budget and unlikely to come online this year as promised, according to documents seen by Reuters and sources close to the project, despite being a presidential priority.
The Olmeca refinery has an official USD8.9 billion price tag approved by the board of the national oil company in 2020. President Andres Manuel Lopez Obrador has long pitched the refinery as essential to weaning Mexico off its dependence on foreign gasoline and diesel supplies, which he argues undermines the country's energy security.
But two sources with direct knowledge of the project's finances say the latest cost estimate has reached USD14-B, or some USD5-B over budget.
Officials at Pemex, the energy and finance ministries did not respond to requests for comment.
Sources within Pemex say the original budget of USD8.9-B was always unrealistic, with internal estimates calculating a range of up to USD12-B. The upper end of the range, which included the possibility of higher costs, administrative expenses or other contingencies, was never made public.
The USD12-B figure was based on 2020 estimates but the sources said the cost of building Olmeca is now around USD14 billion, due largely to already-committed contracts through early 2024. The sources did not give details about those contracts.
Lopez Obrador, a leftist resource nationalist who has pledged to revive the fortunes of state-owned Pemex, early on tapped his close confidant Energy Minister Rocio Nahle to oversee construction of the new refinery, in the president's native Tabasco state in southern Mexico.
Squeezed by higher costs and Lopez Obrador's determination to see the signature project completed in time for an inauguration this summer, the sources say Nahle is scrambling for additional funding.
"The minister is committing resources that have not been authorized by the Pemex board and that the finance ministry wants to avoid due to legal issues," said one of the sources, who spoke on condition of anonymity to discuss the project's finances.
To date, more than USD8.818 billion has already been spent on the Olmeca refinery, according to the government documents.
Designed to be able to process up to 340,000 bpd of crude, Olmeca would be Pemex's biggest domestic refinery.
The documents seen by Reuters reveal a back-and-forth between the finance and energy ministries, and show how the former has so far declined to approve more money, arguing that the Pemex board must first authorize more spending.
As part of her duties as energy minister, Nahle chairs the Pemex board.
A few days ago, Nahle publicly acknowledged that the refinery's costs had risen by USD900 MM to reach USD9.8-B, due to added pipelines, a power plant and aqueduct. Previously, she had repeatedly denied reports that the project was over budget.
In January, Nahle also batted away suggestions that the refinery would not begin operations later this year, which Lopez Obrador promised in 2019, his first full year in office.
She most recently said the first barrels of gasoline will be produced in December, despite the facility's scheduled inauguration in early July, while Lopez Obrador has acknowledged that the refinery would need a few months for production tests after the formal ribbon-cutting ceremony.
As MRC informed previously, Mexico will reduce refining output at state oil company Pemex while it modernizes its oil refineries, according to President Andres Manuel Lopez Obrador's statement earlier this month.
We remind that n late January, 2022, Pemex signed a long-term crude supply contract with Royal Dutch Shell Plc as part of its acquisition of the Deer Park refinery in Texas. Pemex and Shell in May, 2021, announced the transaction, which is worth almost USD600 MM and will make the Mexican firm the sole owner of the refinery near Houston. The facility has capacity to process 340,000 bpd. Shell will supply about 200,000 bpd of foreign and US crude to the plant for at least 15 years.
Ethylene and propylene are the main feedstocks for the production of polyethylene (PE) and polypropylene (PP), respectively.
According to MRC''s ScanPlast report, Russia's estimated PE consumption totalled 2,487,450 tonnes in 2021, up by 13% year on year. Shipments of all grades of ethylene polymers increased. At the same time, PP shipments to the Russian market totalled 1,494.280 tonnes, up by 21% year on year. Deliveries of homopolymer PP and PP block copolymers increased, whreas shipments of PP random copolymers decreased significantly.