By Julianne Geiger of OilPrice.com
An estimated 60-plus vessels carrying imported gasoline, diesel and fuel are stranded off the coast of Mexico due to storage bottlenecks, Bloomberg reports.
Unable to unload due to a backlog reminiscent of the height of the COVID pandemic when Mexico declared force majeure, fuel importers are paying some $40,000 a day per vessel in the waiting line, while Mexican state-run Pemex struggles in the red.
According to Bloomberg, the vessels stuck in this holding pattern presently contain approximately 60% of Mexico’s monthly fuel demand. At the same time, oil exports by Mexico’s state-run Pemex continue to plummet.
As Mexico attempts to reduce its dependence on foreign energy sources, Pemex is shifting toward refining, which is negatively impacting the company’s balance sheet, according to BNAmericas.
On July 11th, Moody’s Investors Services downgraded Pemex after investigating its refining-related finances.
Moody’s cut Pemex's credit rating to B1 from Ba3, representing a downgrade of four notches and reflecting a higher risk of default.
The debt picture is dire. This year, Pemex has a looming debt payment of $5.1 billion. Next year, another $7.5 billion comes due, and nearly $9 billion in 2024.
"Pemex will have substantial negative free cash flow in the next 12-18 months, driven by insufficient operating cash generation to pay interest expenses, taxes, and capital spending," said Moody's.
This level of risk limits Pemex’s access to the capital markets.
While Pemex is looking to increase its refining capacity to be able to meet domestic demand by the end of next year, the plan comes at a high cost.
According to Moody’s this requires, among other things, the construction of a new refinery that can process 340,000 bpd. That refinery, however, could end up costing more than double the initial $8 billion estimate due to hefty cost overruns. Additionally, new reports indicate that the refinery may not achieve the 340,000 bpd capacity until years later than originally anticipated.