Introduction

Petrochemicals, inputs obtained by processing hydrocarbons, are essential for manufacturing activities (such as the production of plastics, fertilizers, paints, textiles, detergents, packaging materials, automobiles, steel, etc.) that are central to Mexico’s economy. Regrettably, the strategic nature of the petrochemical industry has been largely misunderstood and underestimated by the last three presidential administrations (2010-2018) in Mexico, which have not done enough to boost domestic production. This has contributed to an increase in imports to meet domestic demand and to the dismantling of the associated domestic value chains. As a result, over the past two decades, production levels in the petrochemical complexes of Petróleos Mexicanos (Pemex) have severely fallen (Figure 2).

With the outbreak of Covid-19 and the plunge of oil prices hitting both Mexico’s economy and Pemex’s revenues, it remains to be seen if President Andrés Manuel López Obrador will eventually address the deterioration of the state-owned petrochemical industry. Even though the president has made public remarks in that respect, a proper strategy is yet to be divulged to encourage this sector to add value beyond Pemex’s production of crude oil and natural gas. The extraordinarily high level of debt carried by Pemex and the president’s primary focus on upgrading the refining, exploration, and production activities of Pemex, do not bode well for the prospects of the petrochemical plants.

Considering the adverse context described above, this paper contends that it is worth evaluating which state-owned petrochemical assets could be strengthened (potentially with the participation of private firms) to support both economic recovery and President López Obrador’s agenda.

The potential impact associated with revitalizing the state-owned petrochemical industry is consistent with the socioeconomic approach of Mexico’s government and, with the correct incentives, could be an avenue to encourage investment after the growth conditions affected by the coronavirus pandemic are restored. It is important to emphasize that a large share of the installed capacity is currently idle (Figure 1), while a sizeable domestic demand is being served through imports. The ammonia-urea value chain is one of the cases that serves said arguments in the sense that production of these two petrochemical products can help enhance both agricultural productivity and regional economic imbalances.

This material may be quoted or reproduced without prior permission, provided appropriate credit is given to the author and Rice University’s Baker Institute for Public Policy. The views expressed herein are those of the individual author(s), and do not necessarily represent the views of Rice University’s Baker Institute for Public Policy.