Earlier in 2019, sources had speculated that refineries were diverting vacuum gas oil feedstock from base oil production to fuels, which are more profitable.

An executive with one U.S. base oil producer concurred, explaining that pricing and margins were “challenged, which led to some production adjustments as well as more material being made and sold to the VGO market for marine fuels or other gasoil-type applications.

“A handful of turnarounds were also completed in the second half of 2019,” the executive pointed out.

The factor perhaps inducing the most head scratching was the double-digit drop in paraffinic production against a respectable bump in naphthenic production last year. Figures show that paraffinic output fell 12 percent from 57.3 million barrels in 2018 to 50.7 million last year.

“The numbers are hard for me to wrap my hands around,” said Spyro Dimitratos of Renkert Oil. “We saw record refinery runs, some running at 90 percent.”

Meanwhile, naphthenic base oil production increased by 3 percent from nearly 10 million barrels in 2018 to 10.3 million barrels in 2019, EIA figures show. “Naphthenic tends to follow the domestic demand, which was solid in many of the key applications such as automotive and electrical,” explained the base oil executive, who asked not to be named in order to speak more freely. “Import material is not as prevalent for naphthenic base oils. Producers also had less turnarounds in 2019.”

Regionally, production suffered across the board. Refineries in the Petroleum Administration for Defense District 3, which encompasses the vast majority of the largest U.S. refineries, kept pace with the overall 9 percent decline in output. Mostly located along the Gulf Coast, these plants made nearly 80 percent of all U.S. base oil last year.

California refineries suffered most. Chevron’s Richmond plant made 5.1 million barrels of API Group II oil last year, a 19 percent drop from 2018. San Joaquin Refining put out 950,000 barrels of naphthenic product in Bakersfield, a 13 percent drop.

Output at HollyFrontier’s Group I plant in Tulsa, Oklahoma, also suffered a 13 percent decline to just under 2.1 million barrels for the year.

East Coast refineries—including American Refining Group’s Bradford, Pennsylvania, plant, PBF Energy’s facility in Paulsboro, New Jersey, and Ergon’s Newell, West Virginia, plant—held the steadiest with just a 4 percent drop. Together, they churned out about 4.7 million barrels of Group I and Group II oils.

Exports Slide

Exports slowed from 70 percent of production in the first half of 2019 to 56 percent in the second half, but total export volumes for the year were down less than 1 percent from 2018.

While it has never been a large export market for U.S. base oils, shipments to the Asia-Pacific region dropped by 43 percent. India cut its purchases 39 percent from 1.4 million barrels in 2018 to 832,000 in 2019. India is by far the largest country market for U.S. exports to Asia but now represents just 2 percent of total U.S. exports. It has been eclipsed by Nigeria, which saw a slight increase from 1 million barrels in 2018 to 1.1 million barrels last year, taking 3 percent of exports.

Singapore was second in the region in 2018 but dropped to third (just behind China) in 2019. The island city-state drank nearly 82 percent less U.S. base oil last year, or 165,000 barrels. Meanwhile, shipments to China plummeted 44 percent to 199,000 barrels.

It seems that the late-February opening last year of ExxonMobil’s 19,000-barrels-per-day Group II base oil plant in Rotterdam, the Netherlands, has made its mark on the European market. Exports to Europe dropped 11 percent in 2019.

Excluding Northern Europe, that decline amplified to 34 percent. Exports to Germany and Italy fell precipitously: 93 percent for Germany, from 452,000 barrels in 2018 to only 32,000 last year. Italy was down 77 percent, from 133,000 barrels to 30,000 barrels. However, shipments to France increased 9 percent to 603,000 barrels.

Exports to Belgium and the Netherlands fell 5 percent, but Northern Europe still took 15 percent of U.S. exports.

Exports to the Middle East dropped 30 percent, most notably for Israel, which went from 744,000 barrels to 131,000, an 82 percent decline.

The two bright spots for U.S. base oil exports, Mexico and Brazil, each increased their thirst by nearly a quarter. Base oil shipments to Mexico skyrocketed from 10.2 million barrels in 2018 to nearly 12.7 million barrels last year.

Roberto Rangel Gutierrez, market research and analysis consultant director for Mexim Consulting, isn’t shocked by the vaulted increase, given the poor performance at state-run Petroleos Mexicanos. Pemex’s 6,000 b/d API Group I refinery in Salamanca is the only source of base oil in Mexico. “Regarding U.S. base oil imports, it is flowing well because the production supply from Pemex is still unpredictable,” he said. The company continued to be plagued by scandal and feedstock shortages last year.

Brazil also opened the tap further, drawing a 24 percent year-over-year increase in the flow of U.S. base oil from 3.4 million barrels to 4.3 million barrels. In 2019, according to the Economist magazine, Brazil fully exited a recession, which helped boost auto sales. In 2019, about 4 million new vehicles were sold in Brazil, a 10.5 percent increase from 2018.

Automotive lubricants account for about two-thirds of Brazilian lubricant demand, and its appetite for higher-quality lubricants is increasing. State-owned Petrobras produces only Group I and naphthenic oils, which are not used in modern engine oils. The country’s only domestic source of Group II is small rerefiner Lwart’s 1,550 b/d plant in Lencois Paulista.

Outside Mexico and Brazil, shipments of U.S. base oil to Central and South America fell almost 10 percent from 7.3 million barrels two years ago to 6.6 million barrels in 2019. Several Latin American countries witnessed political unrest last year, coupled with hyper-inflation in the region.

Argentina, which had an inflation rate of 54 percent in 2019, only imported 370,000 barrels last year, down from 878,000 the year before. The normally peaceful Ecuador saw street protests against austerity measures, including elimination of fuel and gas subsidies, and imports of U.S. base oil took a nose dive from 1.2 million barrels to 668,000 barrels. Chile, considered one of the region’s most stable markets, witnessed a small decline, from 891,000 barrels in 2018 to 866,000 in 2019. Sanctions against the region’s pariah, Venezuela, also hurt U.S. exports to that country, which dropped to 63,000 barrels last year from 96,000 in 2018.

Exports to Canada dropped 5 percent last year from 3.2 million barrels in 2018 to just over 3 million in 2019, though its share of total exports remained at 8 percent.

Imports Up—Slightly

Base oil imports to the U.S. saw a slight increase between 2018 and 2019, from 15.4 million barrels to 16.5 million barrels. The two largest sources, South Korea and Qatar, make evident the growing U.S. appetite for API Group III base oils.

South Korea continued its dominance of U.S. imports, sending 4.65 million barrels in 2019 and accounting for 28 percent of all imports. This number was down slightly from 4.7 million in 2018. Confirmed Group III capacity in the United States is just 2,300 b/d, while South Korean refineries can churn out 49,500 b/d.

The Shell-Qatar Petroleum plant in Ras Laffan, Qatar, sent 3.8 million barrels last year, up from 3.4 million in 2018. The plant, which can produce 6,000 b/d of Group II and 22,000 b/d of Group III oils, accounted for a steady 23 percent of U.S. imports in 2019.

The United Arab Emirates also increased its sales to the U.S. by 19 percent to almost 1.1 million barrels, or 7 percent of all U.S. imports. The Abu Dhabi National Oil Co. can make 2,000 b/d of Group II and 10,300 b/d of Group III.

Canada sent slightly more base oil over its southern border last year, increasing from 2.79 million barrels in 2018 to 2.83 million in 2019, or 17 percent of all U.S. imports.

Imports from Indonesia dropped from 995,000 in 2018 to 980,000 barrels in 2019, but remained at 6 percent of the total. Barrels from neighboring Singapore, where ExxonMobil is the only player, plummeted from 645,000 to 125,000.

Most European countries sent less base oil to the U.S. in 2019, but Russia and Sweden saw a hefty leap. Imports from Sweden, where Nynas is the only producer, increased from 4,000 barrels to 93,000 barrels. Russian imports jumped from just 74,000 barrels to 429,000. France went from shipping 160,000 barrels two years ago to 219,000 in 2019. The Netherlands also upped its exports to the U.S., from 34,000 barrels in 2018 to 100,000 last year.

“Demand [for base oil] was weaker, excluding North America, which resulted in more imports to the U.S. in the back half of 2019 and less exports from the U.S.,” the base oil executive said. “The imports were mostly Group II and Group III and created additional domestic market length as the year progressed.”

Summing it up, the executive said, “2019 was a challenging year globally for base oils.”