The North American Free Trade Agreement has increased Mexicos allure for long term investments.
Mexico, with plentiful raw materials and labor, lies next to the worlds largest consuming economy.
Car makers BMW and Ford are manufacturing profitably in Mexico for the U.S. market, and Shell Oil Co. expects benefits from Mexican oil ventures.
Mike Dossey, vice-president of Deer Park Refining Ltd. partnership, a joint venture between Shell and state owned Petroleos Mexicanos (Pemex), said Shells strategy is to be Mexicos partner of choice as its economy opens to foreign partners.
Shell got a head start with its Deer Park venture in August 1992. Thats when Shell sold half its interest in its Deer Park refinery near Houston to Pemex.
The venture has spent about $1 billion in upgrading and converting the plant to run medium sour crude oil. This enables the venture to take 140,000-160,000 b/d of Maya crude oil from Mexico.
Deer Park project
Work on the Deer Park project has included installation of a 50,000 b/d delayed coker, a 32,000 b/d gas oil hydrotreater, two sulfur recovery units, and coke handling facilities.
Dossey said, The venture has improved competitiveness because it can run cheaper, heavier crude oil to make the same product slate as before. And we have secured our crude oil supply for 30 years.
Besides providing a secure outlet for about 15% of Mexicos Maya crude production, the venture sells 35,000-45,000 b/d of unleaded gasoline to Pemex, which is about half of its import requirement.
Capacity of the refinery is 225,000 b/d, although the venture has aspirations to run more. Early this month the plant received a permit to increase capacity without increasing emissions.
Now the Deer Park partners are working on a project to convert their lubricants plant to handle sour crudes so it can run Maya and Saudi Arabian oil.
Long view
Shell benefits from the Deer Park venture by foregoing half its profits to halve its risk, which is seen as an increasingly attractive move in this period of lousy refining margins.
Dossey said Shell is looking to secure other deals in Mexico as privatization of its state concerns takes place: However, nothing is close to being imminent. The Maya deal took 20 years.
Privatization of Mexicos state petrochemicals business is the first major opportunity in Mexico for Shell, with regulations expected to be in place in November and bids due in second quarter 1996. Shell also is studying the feasibility of building a polyethylene terephthalate plant at Tampico.
Dossey said even if the world petrochemical market enters the downturn part of its cycle before Mexican privatization, Shell would be keen to bid because Mexico is viewed as a long term investment prospect.
A petrochemicals project similar to the BMW and Ford ventures is a possibility, Dossey said. There is no reason a plant couldnt be built in Mexico to focus initially on the U.S. market but to sell increasingly within Mexico as the Mexican economy improves. Of course, how valuable such a venture would be is currently debatable. Copyright 1995 Oil & Gas Journal. All Rights Reserved.
