Over the past two decades, the world’s mineral base oil refiners have gradually shifted away from API Group I production to more Group II and latterly Group III, as demand for higher grades in automotive lubricants has grown.
Base oil production capacity has evolved significantly across different countries and regions over time, reflecting broader shifts in refining technology and market demand. China has seen the most dramatic transformation, with capacity skyrocketing in recent years. The country moved quickly from producing primarily Group I base oils to Group II, and is now a major producer of Group III.
In contrast, the United States experienced a period of stagnation where production levels plateaued. However, recent trends indicate renewed growth. While there are signs of movement toward Group III, the U.S. continues to focus mainly on Group II production. Russia, meanwhile, suffered a sharp decline in Group I capacity, but has regained some ground by investing in Group II and Group III facilities.
Western and Central Europe have followed a similar path to Russia, phasing out much of their Group I capacity. The gap has been partially filled by the development of two major Group II and III plants, which now play a critical role in the region’s production landscape. South Korea, once a rapidly expanding producer, has seen its growth level off. Its base oil capacity has remained relatively stable for several years, indicating a mature market.
Japan has gone in the opposite direction, with a noticeable decline in domestic production. To maintain its market position, the country has made at least one significant investment overseas. India is working to eliminate its long-standing deficit in base oil production. Through capacity additions and possibly increased imports of higher-quality oils, it is closing the gap between supply and demand.
Finally, the Middle East has emerged as a major force in the global base oil market. The region has invested heavily in upgrading its refining infrastructure and now serves as a key hub, particularly for Group III base oils. This development has positioned the region as a significant exporter and a growing influence on global supply chains.
Overall, the global trend is a clear shift away from Group I base oils toward more advanced Group II and III materials. This transition reflects technological progress and the rising quality demands of modern engines and industrial machinery.
Demand for Group I has fallen enough to make it economically unviable. But regional trends for Group I on its own paint a more nuanced picture. Europe still has the most capacity, despite successive closures of Group I units over the past 20 years. Since 2017, capacity in rest of the world stayed the same.
The reverse is happening with Group II, as more units come on line, both virgin and rerefined. Now considered as a “workhorse grade,” Group II has taken on many of the applications once occupied by Group I. The opening of the Exxon Rotterdam unit in 2019 accounts for the noticeable step up in Europe.
Similarly, Group III is also increasing, chiefly in East Asia yet still has little uptake in North America, when the big players are still all in on Group II.
Naphthenics production has remained fairly constant.