New Mexico Oil Refinery Cost Doubles

A week before the grand opening of Mexican President Andres Manuel Lopez Obrador’s flagship oil refinery project, costs have spiraled out of control to reach as much as $18 billion -- more than double its original price tag.

The value of contracts for construction work through to 2024 signed by Mexico’s energy ministry rose to more than $14 billion in May, and the final amount is likely to be between $16 billion and $18 billion, according to people with knowledge of the matter, who asked not to be identified because they aren’t authorized to speak publicly about the Petroleos Mexicanos project.

Representatives for Pemex, as the state-owned oil producer is known, Mexico’s Energy Ministry, and President Lopez Obrador didn’t respond to requests for comment.

Cost overruns are likely to continue due to soaring inflation, undermining the austerity pledges of AMLO, as the Mexican president is known. The situation also casts doubt on whether Pemex can fulfill its goal of producing all of its own gasoline, given how crucial the refinery is to the oil company’s efforts to end dependence on fuel imports. 

The refinery will have the capacity to process 340,000 barrels a day of crude, which would add about 20% to its current refining capacity in Mexico. Industry members and energy analysts were already questioning Pemex’s ability to raise fuel output given declining oil production for its refineries, lack of plant maintenance and a heavy debt burden, which is the highest of any oil company.

AMLO pledged to build the facility in his home state of Tabasco, in the country’s southeast, as part of a campaign to return Pemex to its former glory and make Mexico self-sufficient in fuel. The mega-refinery -- known as Dos Bocas, but officially named Olmeca -- will be inaugurated at a July 1 event attended by AMLO, Pemex Chief Executive Officer Octavio Romero Oropeza and Energy Minister Rocio Nahle.

The project’s initial budget was $8 billion when it was proposed in 2019. Outside offers to build the facility were deemed too expensive by the president, while some bidders suggested that the project couldn’t be done by the government’s 2022 target. As a result, AMLO tasked Mexico’s state oil company and energy ministry with completing the job within an ambitious deadline of three years.

After a period of underspending due to the pandemic, costs have risen sharply due to a flurry of new contracts to meet the deadline of finishing construction in July so it can ramp up to full production in six months. The number of contracts accounted for by Pemex has risen to about 270 from about 100, one of the people said.

--With assistance from Maya Averbuch and Max de Haldevang.