Adds statement from Mexico president, more detail on the assets and strategies.
Mexico's president Andres Manuel Lopez Obrador will seek national transportation fuel independence with production from US soil.
The country's national oil company, Pemex, agreed to a $596mn (Ps11.8bn) deal to buy Shell's majority interest in the joint venture 340,000 b/d refinery in Deer Park, Texas. Both companies expect the deal to close by the end of the year, pending regulatory approval.
The transaction acts on both parties' well-known ambitions and yet comes as some surprise. Shell continues a downstream divestment program shedding global refining capacity to concentrate on hubs integrating chemicals, refining and trading. The oil major confirmed that Deer Park was not part of its divestment plan but an unsolicited Pemex offer. Shell will keep the site's petrochemical facilities.
Pemex would acquire full ownership of a complex US Gulf coast refinery, furthering Lopez Obrador's goals to satisfy the country's fuel demand from state-controlled refineries. AMLO, as the president is widely known, touted the deal in a video address today as moving the country closer to fuel self-sufficiency through Pemex production by 2023.
Mexico would gain the refinery through "not credit, not debt, but savings from not allowing corruption and having an austere government without luxuries," Lopez Obrador said.
AMLO has sought to slash the country's fuel imports through a new refinery and heavy rehabilitation of Mexico's long-neglected facilities. The president championed a new 340,000 b/d refinery in Dos Bocas, Tabasco, already facing cost and feasibility concerns. Pemex's six existing refineries have for years operated well below capacity.
The country consistently imports the bulk of US gasoline and diesel sent to the export market by a combination of waterborne, rail and truck deliveries. Data compiled by the US Census Bureau shows that Mexico's roughly 470,000 b/d imports of US gasoline in 2019 was greater than the average volume of US gasoline exports to all other destinations for that year — combined.
Pemex would tap a well-operating complex facility for more of that supply, even if the fuel still comes from the Texas coast. Deer Park has capacity to produce about a quarter of that 470,000 b/d gasoline import demand, if Pemex had no desire to sell into other markets.
The refinery has for years filled most of its crude slate with heavy Mexican crude. Competing Canadian heavy, sour imports arriving in the US Gulf coast have found a growing home in the Deer Park slate as Mexican imports declined. Heavy Mexican crude imports to Deer Park averaged about 166,000 b/d in 2016, according to Energy Information Administration data. That fell to about 111,000 b/d in 2019, as Canadian crude processing rose to about 25,000 b/d.
Shell, out
The $596mn sale price for the 50pc interest, funded with a combination of cash and debt, is nearly double the $350mn Shell accepted for its 145,000 b/d Puget Sound Refinery in Anacortes, Washington. That complex but smaller facility supplies fuels into a more challenging regulatory environment.
If regulators approve the deals, Shell will have reduced its refining capacity in the Americas by 725,000 b/d over roughly a calendar year. The company shut its 240,000 b/d refinery in Convent, Louisiana, late last year. Refineries in Sarnia, Ontario, and Mobile, Alabama, remain on the market. Shell also has a sales agreement for its 70,000 b/d refinery in Fredericia, Denmark, and is seeking a buyer for its interest in its 180,000 b/d joint venture refinery in Durban, South Africa. The company converted its 110,000 b/d Tabangao refinery in the Philippines last year.
Deer Park was previously seen as one of the oil major's six "energy and chemicals parks", along with Norco, Louisiana, Scotford, Canada, and sites in the Netherlands, Singapore and Germany.
"As new opportunities present themselves to advance this strategy, we will continue to evaluate them — which is what happened here," the company said. "Portfolio shaping is an ongoing process and there are always factors that can result in a change of plans, especially if they have the potential to create value for Shell and its shareholders."
