UPDATE 2-Mexico's Pemex sees $3.5 bln refinery expansion adding 40,000 bpd
* State oil company expects to add capacity at Tula refinery
* First phase of project is underway -Pemex official
* Also plans to produce cleaner-burning gasoline in northern state
MEXICO CITY, Sept 23 (Reuters) - Mexico's state oil monopoly Pemex expects to add 40,000 barrels per day of capacity by 2018 at its No.2 refinery, under a $3.5-billion expansion planned with construction firm ICA Fluor.
The first phase of the Tula refinery expansion is underway and includes basic engineering and other site preparation, a Pemex official told Reuters on Monday.
The expansion project awarded to ICA Fluor, a joint venture between Mexican construction company ICA and U.S. engineering firm Fluor Corp, will boost the refinery's distillates production by more than a quarter from current levels when completed, Pemex said in a statement on Sunday.
The project is separate from a new $10 billion refinery also planned for near the existing 325,000 bpd installation at Tula, 51 miles (82 km) north of Mexico City.
"We're going to produce higher-value products (with the expansion project), including more gasoline, diesel and jet fuel," the Pemex official said, speaking on condition of anonymity in accordance with company policy.
The first phase of the expansion project is expected to wrap up in the second quarter of 2015, at which point construction will begin. The overall project is expected to be completed by the second quarter of 2018.
Pemex has also begun a project that will produce 42,500 bpd of cleaner-burning gasoline at its Cadereyta refinery, located in the northern state of Nuevo Leon, the company said in a separate statement on Monday.
Pemex's five other refineries will also adopt similar moves to produce more ultra-low sulfur gasoline, but no timeline was provided.
The Cadereyta project can refine gasoline that contains about 30 parts per million (ppm) of sulfur, while standard gasoline grades produced at the refinery contain about 800 ppm.
Last week, ICA Fluor won a contract valued at about $110 million to build a gas compression system at Mexico's Gulf coast port of Dos Bocas.
In July, ICA Chief Executive Alonso Quintana said the company will still take part in an expected windfall of up to $70 billion annually in new Mexican government infrastructure projects.