JERSEY CITY, New Jersey – Domestic base oil demand in the United States has steadily declined over the past two years, pushing suppliers to boost exports in order to keep the market from being oversupplied, industry analysts told delegates at the ICIS Pan American Base Oils and Lubricants Conference in early December.
The decline began in 2023, with 10.1 million fewer barrels of base oil supplied to U.S. finished lubricant blenders and other base oil consumers, explained Amanda Hay, ICIS’ senior editor manager of base oils Americas. Another 2.4 million have been lost so far in 2024, largely driven by a decrease in automotive lubricant consumption.
Market analysts do not seem to be able to pinpoint the exact sources of the demand decrease, but cited factors such as the gradual adoption of hybrid and electric vehicles, longer drain intervals for newer passenger car models, the use of high-performance base oils in lubricant formulations, the postponement of oil changes in commercial, heavy-duty and agricultural vehicles due to financial reasons, and an increase in remote work – with fewer drivers going into the office every day.
At the same time, there has been a steady increase in domestic base oil production – mostly of paraffinic base oils – with output up by 3.6 million barrels through the third quarter of 2024, versus the same period in 2023, according to statistics from the U.S. Energy Information Administration.
Suppliers have had to find a home for the extra barrels and have turned their attention to export opportunities. Hay pointed out that U.S. exports saw two main step changes in recent years, one in 2017 and another in 2023. Annual exports rose 32% between 2016 and 2017, mainly driven by supply, and they rose by 22% between 2022 and 2023 as 6.9 million more barrels of base oil were exported. “And exports should reach a new record high this year,” Hay emphasized. Top destinations of U.S. base oil exports are Mexico, Colombia, Canada, Brazil, Chile, Belgium and Nigeria, according to the EIA.
Global Soft Demand
The U.S. is not alone in terms of softer demand, as other regions have experienced similar changes. This decline seems to come against a backdrop of growing global capacity, with several base oil plant projects and expansions expected to come to fruition over the next few years, “although some projects are likely to be delayed or cancelled,” Michael Connolly, ICIS’ head of refining and base oil analytics, noted.
Starting from the second half of 2025, a fresh wave of Group II and Group III capacities is expected to come on stream. In Europe and the Middle East, several producers plan to start up new capacity, including Lotos in Gdansk, Poland, in 2025, and Shell in Rheinland, Germany, in 2027. Luberef is also planning to bring additional output on line in Yanbu, Saudi Arabia, in 2025.
Several Indian projects have also been expedited as the country strives to attain self-sufficiency and rely less heavily on imported base oils. Indian Oil Corp. has expanded its Group II and III plant in Haldia, and plans to start up a new Group II and III plant in Gujarat next year. A third Indian Oil plant is expected to come on stream in Panipat in 2026. Hindustan Petroleum Corporation Ltd. also plans to expand its existing Group I and II plant in Mumbai by 2025 to produce additional Group II base oils, as well as Group III grades.
Elsewhere in Asia, ExxonMobil will bring additional Group II capacity on line in Singapore in 2025, while Petronas has debottlenecked its Group III+ production in Melaka, Malaysia, this year, and intends to start up additional Group III+ capacity in 2029. Pertamina plans to start Group II and III production in Indonesia, but the start-up date of this project is unknown.
Export Competition
With so many new plants coming on stream, competition among exporters is likely to grow. U.S. export volumes consist mainly of Group I and Group II grades as these cuts are very sought-after in West Coast Latin America, India, Europe, East Africa and some parts of Asia, and suppliers are able to offer competitive pricing.
“Exports will continue to key markets in Central and South America, but higher competition will be experienced in further markets as global Group II capacity expands,” Connolly said. Conversely, the U.S. continues to import large volumes of base oils, mainly of Group III 4 cSt, 6 cSt and 8 cSt grades as there is comparatively little U.S. Group III production.
At the same time, there have been Group I plant rationalizations over the last decade, leading to a tightening of Group I supplies on a global scale and keeping prices higher, with more Group I units expected to be phased out in the future. One exception might be PetroChina Fushun, which brought expanded Group I capacity of 330,000 metric tons per year on stream in Q3 2024.
Connoly noted that it is refinery economics, not base oils, which forced Group I closures as insufficient margins for fuels and other refined products drove refiners to shutter facilities. In 2021, the market witnessed the closure of the Petrogal refinery in Porto, Portugal, and that of Total in Gonfreville, France. In 2022, Eneos permanently shut down its refinery in Negishi, Japan, and Sapref in Durban, South Africa. Last year, Eneos also shuttered its refinery in Wakayama, Japan, and so did Engen in Durban, South Africa. In 2024, Eni announced it would convert its facilities in Livorno, Italy, into a biorefinery, and PetroChina plans to shut down its refinery in Dalian, China, between the second half of 2024 and mid-2025.
Whether domestic base oil demand will recover in the coming years, absorbing a larger portion of domestic base oil output and of imports remains a huge question mark and depends on a vast array of factors, but the U.S. is likely to remain a key player on the export field. “Demand may recover slightly if lower prices persist, returning to more traditional routes and market behaviors,” Connoly conjectured.