Sources say that the Mexican president has reprimanded top officials for decreasing Pemex production this summer.

Sources say that President Claudia Sheinbaum, a former energy minister who spent months praising Mexico's "energy sovereignty" by increasing domestic fuel production, reacted this summer to the declining output of state oil company Pemex.

Sheinbaum confronted her top energy and finance officials in a tense meeting at the National Palace on July 30. Pemex's?gasoline? and diesel production was declining in the second quarter of that year, according to data from Pemex. Mexico was increasingly reliant on expensive imports despite the fact that she claimed to have achieved self-sufficiency for diesel and was nearing it for gasoline.

Mexico has invested billions in Pemex over the last few years, through tax breaks, debt relief and financing to help it pay its suppliers. The government bet that Pemex would increase its oil and fuel production. However, production has stagnated as operational problems persist.

She felt misled by four sources who attended the meeting. She also interrogated her top officials regarding 12 accidents that occurred at Pemex refineries this year, resulting in six deaths and 10 injuries. Sources spoke under condition of anonymity due to the sensitive nature the meeting.

'GET THINGS IN ORDER'

Two sources claim that the president was particularly critical of Energy?Secretary Luz?Ellen Gonzalez and Pemex director Juan Carlos Carpio who took control of the company in May. Two sources said that she told them to "get things in line" and criticized the bad image created by the accidents.

Sheinbaum's spokesperson said that the president met with the energy industry frequently, but did not know any more details. Pemex, Energy Ministry or Finance Ministry did not respond to requests for comments.

Pemex suffered a major setback in the second quarter, which increased Mexico's dependence on foreign fuel.

Pemex's diesel and gasoline production dropped by 11% and 13% respectively from the previous quarter. Diesel imports, however, jumped 134% while gasoline imports increased 45%.

The cost of fuel imports from US refiners increased due to the high prices for fuel during the US-Israeli War on Iran. In terms of value, gasoline imports increased 122% from the first quarter to $4.55billion, while diesel imports rose 273% to $1.5billion.

Accidents at Refineries

Mexico has also been plagued by accidents that have slowed down production.

Electrical failures and fires have been occurring at the Olmeca Refinery in Tabasco - the $21 Billion flagship project of the former president Andres Manuel Obrador. Five people were killed in March by a fire that was caused by an oily wastewater overflow.

Pemex also reported "cases" of injured workers at the Madero Refinery in Tamaulipas, and "safety issues" at Minatitlan Refinery in Veracruz without giving details.

According to an official at Pemex, no refinery is operating at the capacity it was designed for.

The official who spoke under condition of anonymity said, "We continue to lose money every month. Some months are worse than others, but we always lose."

The Minatitlan refinery is the weakest performer. In July, the refinery converted only 39% of its petroleum into products with higher value such as gasoline or diesel. Although this was an increase from the?24% of June, it was still well below its intended conversion rate.

Olmeca achieved a conversion rate in July of 74%, which is closer to the designed capacity of 88.5%, but recorded rates as low at 41.5%.

Sheinbaum's budget for 2027, announced last week by Sheinbaum, slashed funding for Pemex debt repayments, reflecting the expectation of the government that Pemex will no longer require financial assistance.

Refineries Need Funds for Maintenance

Gonzalez met Pemex executives two days after the tense encounter with the President to discuss ways to boost fuel production, according to two of four sources.

The Pemex executives agreed that they would conduct weekly reviews on refinery performance, and push plant managers to improve their results.

Six sources, including four who were present at the meeting in July with Sheinbaum, told us that the new measures failed to reverse the decline of the refinery system.

The report identified a number of structural issues, such as political interference, erosion of safety protocol, inadequately trained personnel shortages, equipment and spare parts shortages, and inconsistent maintenance.

"Pemex employees are asking, 'How can we operate if they don't provide us with money for maintenance?'" Ramses Pech is an energy analyst and consultant. "Maintenance is the main problem for the company."

(source: Reuters)