Will the new monster refineries impact Inland barging?

Gasoline blending

The Netherlands holds a unique position in the global energy market due to its significant use of naphtha as a blending component in gasoline export flows.

The Amsterdam-Rotterdam-Antwerp (ARA) region, a long-standing premier hub for gasoline blending, now finds itself at a critical juncture. The intersection of regulatory changes and market dynamics is transforming the industry landscape, necessitating a strategic reevaluation of ARA's role within this evolving sector. Europe has a persistent surplus of gasoline, and it heavily depends on exports to balance its supply.

Naphtha serves as a reformer feedstock to produce gasoline and can also be directly blended into gasoline as a sub-octane component. Other components used to blend gasoline are reformate, platformate, alkylate, methanol and MTBE. These are mainly delivered to Amsterdam by barge for blending gasoline.

Methanol and MTBE are commonly added to low-octane gasoline or naphtha to enhance their octane ratings. In contrast, alkylate is a high-octane, low-sulfur blendstock with zero aromatic content, making it a desirable component in gasoline production.

Dangote Refinery

Adding to the complexity of the situation is the imminent launch of the Dangote refinery in Nigeria. This refinery is designed to produce significant volumes of gasoline, with the aim of making Nigeria self-sufficient in terms of fuel.

The Dangote refinery is capable of producing gasoline that meets European standards, but without regulatory changes and subsequent price increases in the local market, it is possible that the refinery-produced gasoline may not be fully utilized within Nigeria.

In an effort to maximise revenue, the Dangote refinery may be incentivised to export its products, even while high-sulfur gasoline continues to be imported into the country. This could potentially create competition in some of the markets currently supplied by the Amsterdam-Rotterdam-Antwerp (ARA) region, posing challenges for gasoline blenders in the area.

The launch of Nigeria's Dangote oil refinery could potentially mark the end of a long-standing, $17 billion per year gasoline trade from Europe to Africa. (reuters)

The refinery, has the capacity to refine up to 650,000 barrels per day (bpd) and was specifically designed to produce up to 53 million liters of gasoline per day, equivalent to approximately 300,000 bpd. Once it reaches full capacity, it is set to become the largest refinery in both Africa and Europe.

In 2023, roughly a third of Europe's average gasoline exports, totalling 1.33 million bpd, were destined for West Africa – a larger proportion than for any other region.

Mexico's new Dos Bocas Refinery

After years of setbacks and an expenditure overrun of $7 billion, the Chief Executive Officer of Pemex has announced that the company's new Dos Bocas (Olmeca) refinery, with a capacity of 340,000 barrels per day (bpd), has reached full production in March 2024.

Once operational at its maximum capacity, the new refinery will produce 170,000 bpd of gasoline and 120,000 bpd of ultra-low sulfur diesel. This additional output is projected to boost Pemex's overall production of gasoline, diesel, and jet fuel by 60%, bringing the total to 1.05 million bpd.

Kuwait's Al-Zour refinery

Kuwait's Al-Zour refinery achieved its full production capacity of 615,000 barrels per day (b/d) on February 4th 2024. This accomplishment solidifies its position as the largest refinery in the Middle East. With the advent of new refineries like Al-Zour, the Middle East Gulf region is poised to capture a portion of Europe's market share in West Africa.

A new market structure?

The situation is further exacerbated by the increased gasoline exports from Russia and the Middle East to West Africa, as they capitalize on price discounts and blending opportunities. This, coupled with the rise of new blending hubs in Tunisia and Estonia, indicates a potential move towards a more decentralized market structure. With the coming of the Dos Bocas refinery the U.S. refineries will have to find a new outlet for their gasoline and diesel exports, the same applies to the ARA gasoline blending terminals which are also have to find new markets which create extra competition in the market.

Impact on inland barging

The refineries in ARA will keep producing naphtha’s and mogas components, as it is derived in refineries as one of the intermediate products resulting from the distillation of crude oil, the question is where will it be going? Will there be a new market or output for the gasoline blends from ARA? Or is this not viable and will the naphtha’s and components be shipped directly out of the refineries into vessels to other destinations where it is more profitable to use it. One might ask, will these large volumes which are being barged to Amsterdam and Antwerp still take place in the near future? As the Dangote, Dos Bocas and Al-Zour refinery just started it’s production it will be hard to tell.

The enforcement of regulations by the Dutch 'Inspectie Leefomgeving en Transport' (ILT) in 2022, aimed at limiting the export of low-quality gasoline with high sulphur and benzene content, has already had a notable impact on the industry. As a result, gasoline exports from Amsterdam to West Africa have decreased by a third.

However, Antwerp has taken over a substantial portion of this trade. If Belgium were to introduce similar regulations, the export of these ‘unhealthy’ fuels would likely continue unabated from other EU countries or ports outside of Europe.

In summary, the gasoline terminals in (ARA) region are at a strategic inflection point. The intricate interplay of regulatory changes, market fluctuations, and the emergence of formidable competitors like the Dangote, Dos Bocas and Al-Zour refineries are drastically reshaping the industry's landscape.