How Mexico’s Dos Bocas and Nigeria’s Dangote Refineries Will Reshape Atlantic Oil Flows

Hello ?? and Welcome to another edition of the Energy Business Analytics Newsletter. In this edition we examine the role that Mexico’s Dos-Bocas refinery and Nigeria’s Dangote refinery can possibly have on Atlantic flow of crude oil and refined products.

KEY TAKEAWAYS

• Mexico's net exports of crude oil were worth $38.2 billion in 2022, while its net imports of refined products were $36.8 billion. 1 MMbpd of refined products were imported.
• Nigeria in 2022: net crude oil exports worth $52 billion, while its net imports of refined products were $19.7 billion. 0.53 MMbpd of refined products imported.
• The Dos-Bocas in Mexico can offset 30% of current product imports at capacity.
• Oil production is in decline in both countries. Left unchecked, both Mexico and Nigeria could switch to oil imports earlier than 2035 to fulfill domestic refinery capacity.

INTRODUCTION

The OPEC recently released its World Oil Outlook, in which they stated that the start-up of the Dangote refinery in Nigeria and the upcoming commercial start of the Dos Bocas refinery in Mexico could significantly affect the gasoline market in the Atlantic basin. When these refineries reach full operation, they could alter oil and refined product flows in the Atlantic basin, changing Nigeria and Mexico's status as gasoline-importing countries.

This looks to be a big shift.

In this article, we look at the Mexican and Nigerian oil industry to understand the backdrop against which these changes are set to occur.

Let’s dive in!

REFINERIES BY THE WATER

Both refineries are located on the Atlantic coasts of their respective countries to ease access to crude feedstock and enable seaborne product movement. It is from these coastal locations that their impact on Atlantic oil and product flows will be felt.

The Dangote Leviathan

The Dangote refinery is a 650,000 bbl/day refinery which took seven years and cost $19.5 billion to construct. It was initially conceived in 2013 as a 450,000 bbls/day refinery which was estimated to cost $9 billion.

The refinery located in Lekki, Lagos state in Nigeria is expected to produce 327,000 bbls/day of gasoline, 244,000 bbls/day of diesel and 56,000 bbls/day of jet fuel/kerosene at full capacity. It was designed to process 12 different crude types. The refinery was located to take advantage of the proximity to offshore oil and gas blocks in Nigeria that could be a source of feedstock.

The completion of the 650 Mbpd Dangote refinery has more than doubled Nigeria’s refining footprint, expanding it by 146% and that of Africa by 20%. Such is the scale of the undertaking.

The Dos-Bocas Refinery

The Dos-Bocas refinery (officially known as the Olmeca Refinery) is a 340,000 bbls/day refinery located in Mexico’s Southeastern Tobasco region. Initially planned as an $8 billion project in 2018, as part of Mexico’s National Refining Plan (NRP), its cost increased to $18.9 billion (2023).

The refinery is expected to process heavy, sour Maya crude oil produced offshore southeast Mexico from fields in the Bay of Campeche. At capacity, Dos Bocas will produce 178,000 bbls/day of gasoline and 125,000 bbls/day of Ultra-Low Sulphur Diesel (ULSD) while minimizing production of fuel oil and asphalt.

At its peak, this refinery is expected to produce enough products to substitute the equivalent of 30% of the fuel currently being imported from abroad.

Table 1 profiles both refineries.

Inter-Regional Crude Oil Trade Flow

Figure 3 shows the inter-regional trade flows of crude oil globally. The OECD Americas which consists of the United States, Canada, Mexico and Chile exported a total of 3.82 MMbpd, 2.02 MMbpd of which was to OECD Europe and 561 Mbpd to OECD Asia Pacific which is mostly Australia.

Oil exports from Africa, of which Nigeria is a major contributor, totalled 4.32 MMbpd. Of this export volume, 2.26 MMbpd was to OECD Europe, 1.11 MMbpd to China, and 400 Mbpd to the OECD Americas.

When looked at on a net basis, both Nigeria and Mexico are net crude oil exporters within the Atlantic basin. Figure 4 vividly depicts this.

According to the Organization for Economic Complexity, Nigeria was a net exporter of $52 billion worth of crude oil in 2022, while Mexico was a net exporter of $38 billion worth of crude oil.

Within the Atlantic basin, the United States is the largest net importer of crude oil worth $80 billion. Canada is a net exporter of crude valued at $106 billion. Brazil is a net exporter of crude oil worth $39 billion, while Angola is a net exporter of oil worth $39 billion.

Inter-Regional Gasoline Trade Flow

Figure 5 shows the gasoline flow globally. The map is broadly divided into net exporter and importers of gasoline. For each of the eight regions represented the net exports/imports are expressed for 2015, 2020 and 2025.

On aggregate, North America is a net gasoline exporter, with its net exports expected to increase. However, look carefully and you’ll note that Mexico is a net importer of gasoline.

Gasoline imports to Mexico originate from the United States and China. Mexico is currently one of China's largest markets outside of Asia. North America’s role as a major exporter is intensifying competition in the Atlantic basin and across the globe.

Every country on the African continent is a net importer of gasoline with supplies originating from China, Europe, Middle East and Russia. Chinese gasoline exports to Nigeria are a significant threat to supply from Europe.

Focusing on the Atlantic basin, most of the countries are net importers of gasoline.

However, globally, the demand centres are in Latin America, Africa, Southeast Asia, and Australasia. Competition is now from the United States, Europe, the Middle East, and Russia for market access to these demand centres.

Inter-Regional Diesel Trade Flow

Figure 6 shows the diesel flow globally for 2019 and 2023.

Latin America, Africa, North Central Europe, Southeast Asia and Australasia are net importers of diesel (diesel short). The United States is a major supplier of diesel to LatAm, While Russia is a major diesel exporter to North Central Europe. Diesel supplies to Africa originate from the Middle East and India.

Figure 7 shows the aggregate net trade in refined products worldwide. In the Atlantic basin, the significant net importers are Mexico ($36.8 billion), France ($24.7 billion), Nigeria ($19.7 billion), South Africa ($15 billion), Brazil ($10.1 billion), and Morocco ($8.5 billion).

The United States is the largest net exporter of refined products in the Atlantic basin valued at $56.6 billion, followed by Netherlands at $17 billion, Algeria at $8.5 billion, and Spain at $6 billion.

Clearly Mexico and Nigeria within the Atlantic basin are net exporters of crude oil and net importers of refined transport fuels.

So, in what way will their shiny new refineries redraw this picture? Let’s see.

ECONOMIC GROWTH AND OIL DEMAND

Mexico’s Oil demand per capita peaked in 1991 at 8.02 barrels/person and has since declined to 4.94 barrels/person in 2023. However, its GDP per capita has climbed from ~ $9,000/person in 1991 to ~ $25,000/person in 2023.

A “decoupling” of Mexico’s per capita oil demand from its GDP growth is evident signaling that per capita oil demand is looking to shrink into the future.

For Nigeria, per capita oil demand peaked in 1982 at 0.82 barrels/person and declined to a low of 0.54 barrels/person in 2009. However, it has climbed to 0.79 barrels/person in 2023. Over similar period, Nigeria’s per capita GDP grew from $2,000/person in 1990 to $6,300/person in 2023.

The relationship between Nigeria’s per capita GDP and oil demand per capita has been evidently positive between 2007 and 2023. Compared to Mexico, this is suggestive that there is still a lot of room to grow Nigeria’s oil demand per capita and GDP per capita.

Hence per capita oil demand will continue to play a long-term role in the country’s economic growth. This signals that the Nigerian refinery system will be expected to help meet domestic demand for transport fuels.

UPSTREAM PERFORMANCE

Now, we turn our attention to upstream oil production and performance. Where will the oil come from?

Production vs exports

Mexico’s production increased at different rates from 1960 (265 Mbpd) to peak at 3.82 MMbpd in 2004. However, production has declined at an average annual rate of 3.26% to 2.04 MMbpd in 2023.

In the nearly 4.5 decades between 1980 and 2023, Mexico produced 47 billion bbls of oil, 52% of which went to service export markets.

Nigeria’s oil production increased rapidly from 141 Mbpd in 1968 to peak at 2.30 MMbpd in 1979, declined to a trough of 1.24 MMbpd in 1983. Production rebounded to peak at 2.53 MMbpd in 2010. However, in the nearly 15 years since that peak, Nigeria has lost an average of 80 Mbpd of production every year to date (this is 3.75% decline per annum).

Between 1980 and 2023, Nigeria has produced 31 billion bbls of oil – most of which is light and sweet – of which 90% has been exported.

What do the production performance of imply for future oil production and the possible oil sourcing strategies for the downstream refining assets? How about what the historical performance has meant for Mexico and Nigeria’s refining capabilities?

We turn attention to the R-P ratio.

The Reserves-Production (R-P) Ratio

The R-P ratio indicates how much longer oil reserves can be produced at a given production rate.

In the figure below, we juxtapose the R-P index of both Mexico and Nigeria. While Mexico’s index has declined from a high of 61-years in 1981 to 8-years in 2023, Nigeria’s index has increased from 31-years to 67-years in the same period.

Note that Mexico’s declining R-P index coupled with its declining production suggests that it requires upstream effort to improve its reserves position. Nigeria’s increasing R-P index is more to do with its declining production against its reserve position.

In both cases, increase in reserves and production is required.

As of 2023, Nigeria’s reserves were at 37 billion bbls compared to Mexico’s circa 6 billion bbls.

REFINERY AND DOWNSTREAM PERFORMANCE

The combined effect of production levels, oil exports, domestic refining capacity and domestic product demand is bound to have its effect on the refineries’ throughput.

Historically, Mexico’s refinery utilization ranged from 77% to 94% between 1980 and 2010. However, it declined to 40% in 2020 and only recovered to 55% in 2022 as shown below.

The Dos-Bocas refinery is to be the 7th refinery adding 340 Mbpd capacity to the country’s 1.61 MMbpd refining capacity.

Although domestic oil demand per capita in Mexico has been in decline, the production from the refineries hasn’t kept up (due to declining production). This has necessitated the refined products imports noted earlier – which in 2023 reached 1 MMbbls/day out of 1.7 MMbbls/day demand.

Refinery capacity utilization in Nigeria has declined erratically from 76% in 1984 to 0% in 2022. Over the period, 90% of Nigeria’s crude oil production has headed for export leading to aggregate refinery utilization of circa 40%.

The implication of this dynamic has been that Nigeria has relied on imports to meet its burgeoning per capita demand (which, as of 2023, was about one-tenth that of Mexico).

Comparing the product import ratio of both countries in Figure 15 provides context for the expectation that the Dangote refinery can substantially reverse the imports.

Since 2004, Nigeria has imported practically 100% of its refined products demand. In 2023, Nigeria imported 476 Mbpd of products up from 291 Mbpd in 2004. Over that same 2-decade period, Mexico’s product import grew from 333 Mbpd (16% of demand) to 1 MMbpd (58% of demand).

DEMAND SUPPLY GAP

We introduce Table 2 to show how much refined product import can be displaced in the respective countries by the on-streaming of the new refineries at capacity.

The calculation assumes the status quo for the existing refinery assets in the respective countries.

Using the 2023 import figures, and the expected product yields from the plants, we note that Mexico will still need to import 697 Mbpd of refined product even if the Dos-Bocas ran at capacity.

For Nigeria however, there is an excess of 151 Mbpd of refined product available for export.

On the crude supply side, the fact of declining production in both countries does not bode well for the domestic refining assets.

THE STRATEGIC IMPLICATIONS

We lay out what this all means for the oil and product trade flows in the Atlantic basin:

1. Production is in decline in both countries. For Mexico the current refining capacity (with Dos-Bocas included) at 1.95 MMbpd is at near parity with production of 2.04 MMbpd. All else equal, this would mean Mexico should have very little crude oil to export. If the decline is not arrested and reversed, Mexico may need to import crude oil to keep its refineries running.
2. The specifics of the source and quality of oil imports will be driven partly by the decline rate of the different grades Mexico produces and the feedstock requirement of the refineries. Mexico’s refineries are mostly configured to process light crude oil. However, three (totalling 750 Mbpd) out of its first six refineries, are equipped with coker units to produce lower-sulfur gasoline from heavy crude oil.
3. In Nigeria, assuming no encumbrances on oil produced, at the current rates of decline, Nigeria will switch to oil imports to keep its current refining capacity of 1.12 MMbpd full by 2030 – 2035. However, given the existing commitments on her production, this switch may happen earlier if the decline is not reversed.
4. The Dos-Bocas in Mexico is capable of offsetting 30% of current product imports. This implies there is still room for product import if the capacity utilization at the other 6 refineries is not increased beyond the 40% - 50% level. We can still expect to see refined product flowing into Mexico, albeit at reduced levels.
5. Excess refined product at about 151 Mbpd can be expected to be exported from the Dangote Refinery all else equal. This effectively zeros out the imports of 476 Mbpd refined product into Nigeria (as of 2023).

Overall, given the declining production in both countries, the on-streaming of Dos-Bocas and Dangote refineries will lead to crude oil imports if declining domestic production is not reversed. Additionally, Mexico’s declining reserves implies PEMEX’s strategy should also focus on oil reserves addition. The next decade will be critical!

Mexico will continue to see product imports, albeit at reduced levels, due to declining domestic oil demand and the on-streaming of Dos-Bocas (if it lives up to its billing).

Meanwhile, in Nigeria, the Dangote refinery should be able to satisfy current refined product demand, with excess to export. Thus, Nigeria becomes (marginally) a refined product export country. However, with a lot of room for demand to grow (Nigeria’s per capita product demand is about 10% that of Mexico’s), Nigeria may slip back into product imports if its other refineries do not step up.

If neither upstream oil production is increased nor do the other domestic refineries step up, Nigeria may find itself simultaneously an importer of crude oil and refined products and an exporter of mostly non-transport refined products.

That’s the new Atlantic map as drawn by the Dos Bocas and Dangote refineries!

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