Can Mexico’s $20B Olmeca Refinery Deliver?

The refinery lacks pipeline and rail connections

Mexico’s $20 billion Olmeca Refinery in Dos Bocas, Tabasco — touted as the largest new refinery in the Americas and a centerpiece of the nation’s energy sovereignty agenda — is operating far below capacity after a troubled start marked by technical setbacks, budget overruns, and logistical gaps.

President Claudia Sheinbaum confirmed this week that the refinery is online but producing well under its designed capacity of 340,000 to 360,000 barrels per day (b/d). Output in May reached just 115,000 b/d — about one-third of that figure — including 50,000 b/d of diesel and 43,000 b/d of gasoline. Even at full output, Olmeca would only meet 25% of Mexico’s diesel needs and 18% of its gasoline demand.

The president acknowledged that operations were halted from December 2023 to February 2024 due to contamination from crude oil mixed with saline water, requiring a time-consuming decontamination process. A more recent electrical issue also affected performance, though both refining trains are now reportedly active.

Despite Sheinbaum’s assurances, Olmeca’s struggles reflect deeper structural problems. Former President López Obrador positioned the refinery as a pillar of Mexico’s push to reduce fuel imports from the U.S., but critics say the project put “the cart before the horse” by failing to stabilize long-term crude production or build out supporting infrastructure. The refinery currently lacks pipeline and rail connections, forcing reliance on trucks and ports for fuel distribution.

"That’s a big red flag,” John Padilla of IPD Latin America told The Financial Times. “The fact that they didn’t plan for logistics should make anybody wary.”

Built to reduce dependency on the U.S., the refinery ironically comes online as Mexico continues to import roughly half of its gasoline, a third of its diesel, and over 60% of its natural gas from its northern neighbor. Meanwhile, oil production continues to decline. More than half of Mexico’s output now comes from just seven of its 240 fields, and the International Energy Agency projects Mexico will see the steepest crude output decline globally by 2030.

Pemex, which operates Olmeca, is already weighed down by the highest debt burden of any oil company and has cut back on investments. In a recent SEC filing, the state-owned company disclosed the three-month shutdown at Olmeca, raising further questions about the refinery’s readiness.

Still, energy independence remains politically potent. In March, Sheinbaum echoed her predecessor’s nationalist tone, quoting a 1960 speech: “Only a traitor hands their country over to foreigners.” She has promised a new financial and production plan for Pemex, though her administration is simultaneously proposing the largest federal budget cut in decades.

Energy analyst Ramses Pech was blunt: “Mexico won’t be self-sufficient in the next four to five decades without greater public and private investment.”

Sheinbaum said she will request Energy Minister Luz Elena González and Pemex CEO Octavio Romero to organize a press visit to the site, hoping to reassure the public and investors that progress is being made. But the question remains: will Olmeca ever fulfill the promises made on its behalf?

My Opinion: It’s Time to Replace Pemex

Pemex has become the single biggest obstacle to Mexico’s energy future. With a track record defined by inefficiency, corruption, and financial mismanagement, the company has long ceased to serve the national interest. The latest setbacks at the Olmeca Refinery in Dos Bocas — from technical failures to cost overruns — are just the most recent evidence that Pemex is structurally incapable of delivering energy security or long-term growth. The only path forward is to end its role as a government monopoly and allow private industry to step in.

Founded in 1938 with nationalistic fanfare, Pemex was once a source of pride. Today, it’s a liability. It carries the highest debt burden of any oil company in the world — over $100 billion USD — and is consistently downgraded by ratings agencies. Year after year, Pemex posts financial losses, underperforms on production goals, and siphons public funds that could be better spent elsewhere.

Its operational inefficiencies are staggering. As of 2023, Pemex’s six refineries were running at less than 50% of capacity. At the much-hyped Olmeca Refinery, output in May was just 115,000 barrels per day — a third of its projected capacity. Despite over $20 billion in sunk costs, the refinery still lacks basic pipeline infrastructure and must rely on trucks and ports to move fuel — a logistical failure that no private firm would have tolerated.

The corruption scandals are just as troubling. From inflated contracts to insider deals, Pemex has been implicated in decades of financial misconduct. In 2020, former CEO Emilio Lozoya was arrested and charged in connection with the Odebrecht bribery case. Billions have been lost to waste, fraud, and political interference — and little has changed.

The result is an energy sector starved of innovation and capital. With Pemex at the center, Mexico remains dependent on foreign fuel: importing over 60% of its natural gas, half of its gasoline, and a third of its diesel — mostly from the U.S.

President Claudia Sheinbaum has pledged to continue her predecessor’s nationalist energy policies, but ideology cannot overcome math or market realities. Without massive outside investment and technical expertise, Mexico will continue falling behind.

The solution is not to prop up a broken model but to replace it. Open the energy sector to true competition. Privatize Pemex or wind it down entirely. Let capable companies — both domestic and international — do what Pemex has repeatedly failed to do: invest efficiently, operate transparently, and deliver results.

Mexico deserves an energy sector that works. Pemex doesn’t, and hasn’t for a long time.

Unlock the 10 more stories in this edition by becoming a paid subscriber today.

👉 Subscribe Now to Read the Full Report

Paid subscribers to Barber’s Mexico Business Report get our sister publication, The Rising Tide, at no additional cost.

Barber’s Mexico Business Report is sponsored by Genera Softlanding — trusted experts in helping companies establish operations in Mexico. As I work with Genera, contact me Dean Barber, at dbarber@barberadvisors.com, for more information.