Dos Bocas Refinery Begins Production Amid Global Refining Shifts

As the global energy transition continues, oil projects in Latin America, such as Mexico's Dos Bocas refinery, take center stage. These projects aim to enhance energy self-sufficiency and protect economies from international disruptions and rising energy prices. However, refining trends are starting to go back to pre-pandemic levels, yielding less profit.

A feared economic recession in China and the United States has kept oil prices at modest levels, despite ongoing OPEC cuts and geopolitical conflicts in Eastern Europe and the Middle East. As reported by Bloomberg, new refineries in the Middle East, Africa, Latin America, and Asia, alongside completed maintenance projects delayed by COVID-19 and the war in Ukraine, have contributed to a decline in refinery profits in the most recent quarter. According to Total Energies, refiners must adjust to delivering good results with lower margins after exceptional performances.

Refineries are expected to process about 900Mb/d more of crude this year compared to last year, according to the International Energy Agency (IEA). Notably, Mexico's Dos Bocas refinery, inaugurated this month, is set to reach its full capacity of 340Mb/d as the country seeks energy independence. However, falling margins may limit refinery operations at full capacity, potentially restricting supply. In the long term, older plants, particularly in Europe, are expected to close, and the summer season in the Northern Hemisphere presents additional risks, such as high temperatures and Atlantic hurricanes that could impact the US Gulf Coast refining center.

"It is fair to say that we have essentially seen the normalization of prices and margins across the energy system back to pre-2022 levels," said Wael Sawan, CEO, SHELL, in an interview with Bloomberg.

In Mexico, President Andrés Manuel López Obrador has invested heavily in oil and refining to increase energy self-sufficiency. Concerns around this strategy include PEMEX's weak financial position and long-standing losses in its refining business. Additionally, external factors, such as the search for cleaner energy alternatives and the need for investment in Mexico's electric sector, add to the challenges.

López Obrador has argued that the cost of the Olmeca refinery is offset by savings from combating fuel theft in Mexico, known as "huachicol." However, a normalization in refined prices could impact profits from this significant refining investment.

The focus on refining continues as the government addresses low production levels, with oil sales being PEMEX's most profitable sector. Despite PEMEX's addition of 54 new oil fields since 2019, the total hydrocarbon production has not significantly increased. Currently, production is 1.47MMbd, falling short of the 2MMb/d target.

President-elect Claudia Sheinbaum supports the current government's efforts to strengthen PEMEX and the CFE, while also advocating for an energy transition. Under Sheinbaum's leadership, Mexico has become an attractive destination for renewable energy investment, partly due to the "Sheinbaum effect," according to EY Latin America. She has emphasized that Mexico will achieve hydrocarbon self-sufficiency through the operation of the Dos Bocas refinery and the modernization of the Tula and Salina Cruz cokers, ruling out the construction of new refineries during her term.