Solomon: Pandemic to Close Base Oil Plants


Solomon: Pandemic to Close Base Oil Plants

The economic crises created by the Covid-19 pandemic will probably trigger an overdue consolidation of global base oil capacity, an official from Solomon Associates said during a webinar last week.

The Dallas-based consulting firm forecasts that the crisis will force permanent shutdowns of 2 to 5 percent of global capacity, or 760,000 to 1.9 million metric tons per year, according to Michael Achacoso, the firm’s manager of lubricants and specialties.

“We’re looking at the covid pandemic as a great accelerator” of consolidation to the base oil supply base, Achacoso said during the May 14 webinar organized by Lubes’n’Greases about the pandemic’s impact on refining and base oil operations. “We believe anywhere from 2 to 5 percent of worldwide capacity could be at risk.”

Global mineral base oil production capacity is roughly 37 million t/y.

The refining industry has weathered numerous serious disruptions over the past several decades, but the current one is unusually severe, said the event’s other panel member, Blake Eskew, vice president of London-based information provider IHS Markit. He estimated that the pandemic caused worldwide demand for oil products to fall by more than 20 million barrels per day, far more than the Great Recession, which caused demand to decrease 3.5 million b/d during the first quarter of 2009.

“It’s absolutely unprecedented,” Eskew said of the current impact. “That’s what happens when every plane is on the ground, when every cruise ship is sitting in port, when every person who drives a car is sitting at home.”

The refining industry as a whole has responded by scaling back on operations, but Achacoso said there is significant variation in the steps taken by individual base oil producers.

“Everyone is doing different stratagies,” he said. “They are either shutting their base oil plants down, they’re either running at minimum turndown, they’re block operating or they are shutting down different units. They’re deferring [maintenance] turnarounds, they’re moving up turnarounds, they’re deferring this, deferring that.”

As a result, he said, the crisis should provide lessons about the most effective ways for operators to weather disruptions. “When the recovery finally happens, which one of these strategies would have enabled a base oil plant to ramp up to full rates and stay there reliably to take advantage of the margin rebound?”

The base oil industry has had a significant and growing surplus of production capacity for the past several years. Few plants have closed during that time, but analysts say that disruptions like the current crisis can trigger consolidation. Achacoso declined to speculate about which particular base oil plants will exit the market, but he did say that the most vulnerable facilities are those that lack diversity in their product mix, that have low utilization rates, that have high operating costs, that are coping with cash flow challenges and that are in disadvantageous locations.

Eskew predicted that the refining industry will not recover quickly, noting that IHS forecasts that global demand for oil products will remain 2 million b/d below 2019 levels by the end of 2021. He added, however, that the future of the crisis and recovery are quite cloudy because of uncertainty about how long the pandemic will last and whether it will recur; how long lockdowns will last; how much governments will act to stimulate economies; and the extent to which the crisis permanently changes behavior of consumers and businesses.

“One of the things that makes this pandemic crisis so unusual is just the many degrees of uncertainty,” he said. “There’s just so little that we know.”

A recording of Lubes’n’Greases’ webinar, “Base Oil Refining During and After Covid-19,” can be viewed at

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