A new refinery due to come online in Mexico is set to have a significant impact on regional crude and product flows, according to Gibson Shipbrokers.
The 340,000 barrels per day (bpd) Dos Bocas refinery project on the country’s Caribbean coastline is now gearing up to produce refined products and seeking to move close to capacity by the end of 2023.
Despite being a major crude exporter and home to significant refining capacity, Mexico has relied for many years on imports to meet its domestic fuel demand.
But in 2018, Mexico President Andres Manuel Lopez Obrador came to power with the promise that he would end the country’s import reliance and to do this commissioned the new refinery project.
Gibson said the refinery will have two key impacts on the tanker market.
For the crude sector, it should reduce exports by around 30% as the plant consumes domestic crude.
“Exports have been fairly steady around 1m to 1.1m bpd over the past five years in line with flat production and refinery activity. However, with crude runs set to rise by over 300,000 bpd next year, exports will inevitably fall,” said Gibson.
“So far this year, around 70% of Mexican exports have gone to the US, with a similar proportion sailing on aframaxes.
“As a result, Maya crude exports from Dos Bocas to the US could fall to a trickle and total Mexican exports could fall to around 700,000 to 800,000 bpd, exacerbating the tightness of heavy sour grades for complex refineries in the Gulf,” it added.
Exports on suezmaxes and panamaxes will also be impacted, although to a much lesser extent, whilst VLCCs will only marginally be impacted, with very little loading at Dos Bocas in recent years.
“With the US tighter on sour grades from Mexico, it may have to consume more Latin American or Canadian grades, which could boost tonne-mile demand given limited spare pipeline capacity from Canada. However, refiners in the Gulf will also need to compete with their counterparts on the West Coast and Asia for the same barrels,” said Gibson.
On the clean side, the shipbroker said the US is also likely to feel the brunt of the impact as Mexico becomes more self-sufficient.
“Currently, the US exports 600,000 bpd of clean products to Mexico, Dos Bocas is slated to produce 290,000 bpd of gasoline and diesel, which could, in theory, reduce US/Mexico products trade by around 50%,” Gibson said.
The broker added that whilst the distances involved are not great, the volume loss will be noticed.
“Furthermore, Mexican imports can often generate extended port delays, which acts as a further support factor for regional tanker trade,” Gibson said.
“Ultimately, US refiners will be forced to either cut runs or find new export markets, depending on the export margins on offer.
“But, with any alternative export market being further away, longer distances will help offset any loss in volume from a tonne-mile perspective,” it added.
Gibson said that while the refinery is not particularly significant on a global scale, regionally however, it will have a significant impact on crude and product flows.
“Exactly how these flows will reshape is difficult to predict, with many moving parts in terms of refinery margins, yields, arbitrages and competition from other suppliers,” said Gibson.
“Whilst the refinery should bring a much-needed increase in the efficiency of Mexican fuel supply, it will make US product exports and crude imports less efficient, which could end up being a support factor for the tanker market, if the US can find a home for its lost Mexican exports,” it added.
