OPEC Admits Nigerian Dangote, Mexican Dos Bocas Refineries Will Disrupt Global Oil Market

The global refining industry is on the verge of a profound transformation, driven by the emergence of Nigeria’s Dangote Oil Refinery and Mexico’s Dos Bocas Refinery. Both projects are set to significantly alter the fuel markets in Africa, Latin America, and beyond, challenging the established dominance of refineries in Europe and the United States.

With their massive processing capacities and strategic locations, these refineries are expected to disrupt global trade flows of refined crude oil, undercutting the supply chains and profit margins of Western refiners. According to the Organization of Petroleum Exporting Countries (OPEC), this shift could trigger an economic struggle for market share, with the ripple effects already being felt in Europe.

OPEC’s recently published 2024 World Oil Outlook 2050 highlighted the scale of disruption these refineries are poised to cause. The report states that the Dangote Oil Refinery, with a processing capacity of 650,000 barrels per day (bpd), and the Dos Bocas Refinery, which will process 340,000 bpd, are set to reshape gasoline markets in Africa and Latin America.

These two regions, historically reliant on refined fuel imports from Europe and the U.S., are now on the brink of self-sufficiency. As a result, Western refineries that have supplied premium motor spirit (PMS) to these markets will face stiff competition. This could be especially problematic for European refineries, which are already grappling with stagnant gasoline markets and rising operational costs.

“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. This in turn could negatively affect refineries in the US and especially Europe, as gasoline markets in these regions are stagnating,” OPEC’s report states.

The Dangote refinery, which will soon be operating at full capacity, is expected to meet not only Nigeria’s domestic fuel needs but also supply markets across West Africa. This ambitious project has been touted as the game-changer Africa needs to reduce its dependence on imported fuel, especially gasoline. Once operational at full throttle, the refinery is expected to transform trade flows across the Atlantic.

Also, the Dos Bocas refinery in Mexico is expected to make Mexico self-sufficient in refined petroleum products, reducing the country’s reliance on imports from the U.S. The combined impact of these two mega-refineries will be felt across the Atlantic basin, where refineries in Europe and the U.S. could face significant challenges in maintaining market share.

“The Dangote refinery will soon rival the largest refining sites in the US and it is more than 50% larger than Europe’s biggest refinery,” NJ Ayuk, Executive Chairman of the African Energy Chamber, remarked.

Ayuk further noted, “Refinery ramp-ups can be tricky, and there will be delays. But once the site starts operating at full capacity, it will transform fuel markets in the West African region and change trade flows in Europe. In other words, Nigerian refined products will soon be making their way into Northwest Europe, traditionally an exporter. Then there’s feedstock. Once the Dangote refinery will be purchasing at full throttle, there will be less crude in the Atlantic basin, notably in Europe.”

The Struggle for Market Share

The rise of the Dangote and Dos Bocas refineries is expected to provoke a defensive response from Western refiners. As their traditional export markets shrink, European and U.S. refineries may adopt aggressive pricing strategies or form strategic alliances to retain their foothold. This fightback is expected to extend beyond simple economics, potentially involving geopolitical maneuvering and trade negotiations to protect these industries from the growing competition in Africa and Latin America.

While OPEC’s outlook paints a picture of shifting supply chains, it also acknowledges the broader geopolitical context. The report noted that “the downstream market and related trade dynamics are still strongly influenced by geopolitics,” citing the European Union’s embargo on Russian crude and product exports in response to the Ukraine war.

“The EU embargo on Russian crude and product exports has altered interregional oil flows, with EU refiners increasing crude oil imports from regions such as the US and Middle East. EU product imports of non-Russian origin also increased, especially from India, the US, and the Middle East,” the report explained.

Pressure on European Refineries

The changes in the global refinery industry are already being felt in Europe, where some refineries have reportedly shut down following the decline in fuel imports. European refineries, particularly those with aging infrastructure and high operational costs, are expected to struggle in the face of competition from the more advanced and cost-effective refineries in Nigeria and Mexico.

OPEC’s report also pointed out that “recently commissioned plants in the Middle East have started exporting diesel to the EU, including Jizan in Saudi Arabia and Duqm in Oman,” further increasing competition for European refiners.

NJ Ayuk noted that the Dangote refinery will soon disrupt European markets: “Once Dangote starts operating at full capacity, it will not only meet West African demand but will also start exporting refined products to Europe, a region that has traditionally been an exporter,” he said.

Aliko Dangote’s Battle with the “Oil Mafia”

Beyond the global stage, the Dangote refinery has also faced significant resistance from local market forces in Nigeria. Aliko Dangote, Africa’s richest man and the mastermind behind the refinery, has previously claimed that a powerful “oil mafia” in Nigeria is actively working to frustrate the refinery’s success. These entrenched interests, which have long profited from Nigeria’s dependence on imported fuel, are reportedly trying to block the refinery’s progress.

“Well, I knew that there would be a fight. But I didn’t know that the mafia in oil, they are stronger than the mafia in drugs. I can tell you that. Yes, it’s a fact,” he said.

This alleged sabotage has affected the local reception of the refinery’s products. Despite offering lower prices for diesel and jet fuel, Dangote’s refinery has struggled to capture a significant market share in Nigeria. Vice President of Dangote Industries Limited, Devakumar V.G. Edwin, expressed frustration over the local resistance, explaining that 97% of the refinery’s products have been exported because local traders have largely boycotted the products.

A Fight Into the Future

As the Dangote and Dos Bocas refineries ramp up production, the global refining industry is entering a new era of competition and realignment. This means that African and Latin American countries, once heavily reliant on imports from the U.S. and Europe, are now positioning themselves as significant players in the international fuel market.

While this development presents opportunities for these regions, it also poses a significant challenge to Western refiners who have long dominated the global market.

The rise of the Dangote refinery, in particular, will continue to trigger a fightback from local and global competitors. What remains to be seen is how European and U.S. refineries will respond to the rise of these new mega-refineries.

As OPEC concluded, “Global refinery throughputs have continued their growth,” but with the rise of these new players, the global supply chains are being redefined. The question is no longer if the Dangote and Dos Bocas refineries will disrupt the market, but how profoundly they will reshape it.