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CENTRAL AMERICA: Mexican Refinery Moves Forward Despite Opposition

Diego Cevallos* - Tierramérica

MEXICO CITY, Mar 13 2006 (IPS) - The Mexican project to build an oil refinery in Central America is running into obstacles that are making it unfeasible, say observers. But the region’s governments, including the outgoing administration of President Vicente Fox, assure that it is an excellent idea that will become reality.

Four months ahead of the elections to choose Fox’s successor and nine months before his term ends, the government is not letting down its guard on this proposal. The refinery, with a four-billion-dollar price tag, would process crude from Mexico and manufacture petroleum derivatives for Mexico and its Central American neighbours, where oil production is minimal.

“We are betting that the refinery – which would basically be private – will be built, because it would benefit everyone,” Salvador Beltrán del Río, director of international affairs for Mexico’s Energy Secretariat, told Tierramérica.

The Fox administration is not discouraged by gloomy forecasts for Mexico as an oil exporter, or the dramatic decline in oil sales to Central America, or the rejection of the plan by leftist presidential candidate Andrés Manuel López Obrador, who polls indicate is the front-runner.

Crude oil from Mexico, whose reserves are on the decline and can assure only 13 years more of production, supply just 1.2 percent of Central America’s annual oil consumption. Venezuela is the leading supplier of petroleum and derivatives to Central America, followed by the United States, Ecuador and Chile.

>From March through the end of May, a private consulting firm, hired by the Inter-American Development Bank (IDB), will conduct studies to determine in which Central American country and under what conditions the refinery could be built.

Beltrán del Río said he is confident that the consulting firm will bring good news and stressed that the Mexican government plans to contribute to the construction of the refinery, but would leave its administration in private hands. “It is a project that would be protected from any shifts in the political sphere,” he said.

The refinery is the star of a sustainable energy integration project involving Mexico, the Central American countries and Colombia, and includes electrical interconnection, construction of gas pipelines and promotion of renewable energy as well as energy efficiency, at a cost of nine billion dollars, and backed by the IDB.

According to the Fox government, the overall project would free its partners from supply problems, shore up integration, reduce pollution, reduce transportation costs, strengthen cooperation, and make Central America a more attractive region for investment.

But for now that enthusiasm is focussed on the refinery.

The head of the energy unit at the Economic Commission for Latin America and the Caribbean, Fernando Cuevas, told Tierramérica that the plant would generate employment and attract investment in companies associated with the provision of goods and services..

If the refinery is built, “the main benefit would be a new supplier of derivative products for the Central American region, which would allow increased competition. That could translate into reductions in prices in each country, as long as the number of actors and the level of competition is strong.”

He added that today “there is very limited refining capacity in the world, which could become critical in the next five to 10 years if new refineries aren’t built.”

Mexico promises to supply the new plant with a daily average of 250,000 barrels of heavy crude.

In 2005 Mexico produced 3.3 million barrels a day, a rate slightly below the previous year. According to several studies and experts, this would be its ceiling, because from now on output, they say, will begin to decline.

Behind the promotion of the Mesoamerican refinery is the fact that Mexico, where petroleum is managed by the state-run company Pemex, has little money to build a new refinery within its own territory and legal limitations for partnering with private firms..

But Pemex can receive private resources and work in partnership with other companies as long as the business is outside Mexico. In addition to Pemex’s financial troubles, that is why in recent years most of Mexico’s petroleum has been refined in other countries.

Expert David Shields, who heads a specialised energy publication in Mexico, told Tierramérica that the Mexican plan for setting up a refinery in Central America “isn’t logical.” In the project, he said, “everything is more or less a fraud.”

Mexico’s crude oil is very heavy to transport to the region, and in the five or six years it would take to build the refinery, if nothing out of the ordinary happens, Pemex will no longer have enough crude to supply the plant, said Shields.

“But one can always go forward with a project (that appears) unfeasible, as long as it has political or economic support, like that of the IDB,” he added.

Roger Cerda, former director of the Nicaraguan Institute of Energy and current adviser to that country’s Central Bank, also questions the refinery project. “It’s a proposal pulled out of nowhere” with the aim of counterbalancing Venezuela’s proliferation of oil deals in Central America, Cerda told Tierramérica.

“The problem is that it’s quite an ambitious and costly project and at its roots is only inspired by a difficult juncture, which could make it fail,” he said.

The governments of Central America see in the Mexican proposal the salvation for the region’s oil supply problems and hope for a green light at the end of May, when the presidents will gather to fine-tune the project.

In Central America, Guatemala alone is an oil producer, while refineries exist only in Costa Rica, El Salvador and Nicaragua. In the rest of the countries these plants have been shut down due to financial or technical problems.

In 2004, the region imported 94.7 million barrels of hydrocarbons, of which 83.5 percent were derivatives, and only 16.5 percent crude oil. The total value of those imports was 3.95 billion dollars, 23.3 percent more than in 2003.

Beltrán del Río, Mexico’s Energy Secretariat spokesman, said there are no brakes on the plan, unless the consulting firm conducting the assessment decides to rule it out.

“Mexico and Pemex assure that the refinery will have sufficient resources and petroleum to ensure its operation, but if at some point there is the possibility to process crude in other countries, go ahead, we aren’t opposed at all,” he said.

(*Diego Cevallos is an IPS correspondent. Originally published Mar. 4 by Latin American newspapers that are part of the Tierramérica network. Tierramérica is a specialised news service produced by IPS with the backing of the United Nations Development Programme and the United Nations Environment Programme.)