South America Survives Without PdVSA Base Oils

The sidelining of base oil plants operated by Venezuelas national oil company may be crippling that nations lubricant industry, but markets elsewhere in South America are managing comfortably, industry insiders and observers say, thanks to dependence on other sources and plentiful supplies from the United States.

Petroleos de Venezuela S.A. operates refineries with three base oil plants - in Punta Cardon and Amuay, Venezuela, and on Curacao - which together account for 39 percent of base oil capacity in South America and the Caribbean. For more than a year they have operated no more than intermittently, beset by accidents, overdue maintenance and now a United States boycott seeking to deprive them of raw materials. Nevertheless, the impact on its South American neighbors has been minimal, due to the growing demand of Group II base oils as well as the weaning off of Venezuelan dependence over the last decade or so.

Excluding Venezuela, the largest South American lube markets are Brazil, Argentina, Colombia and Chile, and none of these markets were regular buyers of Group I base oils from Venezuela, according to Claudio Silva, the executive director of So Paulo-based consultancy LubeKem.

I dont think Brazil has been importing from Venezuela for nearly three years. And whenever they did, the quantity was very little, Silva told Lube Report.

Some years ago, Swedish producer Nynas AB was importing Curacao base oils on a regular basis to Brazil, but it was naphthenic base oils. The company still supplies naphthenics to Brazil, Silva said, but now they come from Europe.

Rio de Janeiro-based Iconic Lubrificantes, which is a joint venture between Chevron and Ipiranga, confirmed its independence from Venezuela. The JV develops and distributes lubricants, greases, fluids and coolants throughout all of Brazil.

We do not acquire Venezuelan inputs, and therefore the closing of the refineries did not impact our business. Moreover, as far as I know, the Brazilian market as a whole does not consume Group I base oils coming from Venezuela. Most of this volume is basically acquired from the national market through state-run oil company Petrobras, supply chain coordinator Guilherme Torres said during an interview.

The Andes countries have not been importing Venezuela product for a while either. According to a spokesperson of Lima, Peru-based industrial lubricant and additives company Barcino, Venezuela base oil was good in the past as it was exempt from a 15 percent import tax, but that was around 20 years ago.

We have not received product from the country for approximately eight to 10 years, and the scenario is pretty much the same for all importers in Peru. I believe the Venezuela shutdowns mainly affected business in Venezuela only, said the spokesperson, who declined to identify himself.

The service started to get bad under the administration of former President Hugo Chavez, and it did not get any better under President Nicolas Maduro, the source said.

Meanwhile, in Ecuador, the shutdowns did not make much of an impact on lubricant product and services company Swissoil del Ecuador, which is based in Guayaquil. We have not ordered product from Venezuela for a long time, a spokesperson said.

In addition to the regions independence from Venezuelas Group I base oil production, there has been a growing trend in South America for Group II base oils.

For instance, Brazil which is South Americas largest oil producer, still needs to import a lot of Group II base oils, and that is due to the rising quality requirements of finished lubricants in the country.

Brazil does have a small plant producing around 100 ktpa of re-refined Group II base oil at the Lwart Lubricantes facilities in the city of Osasco [10km west of Sao Paulo city]. This, however, is just a fraction of what the country needs, Silva said, explaining that Brazil imports both Group I and II base oils, and the preferred source is the United States Gulf Coast, because refineries there are in close proximity and offer favorable prices.

Also remember that the largest importer of base oils in the country, Cosan, is an exclusive distributor of ExxonMobil.

National oil company Petrobras operates several base oil plants: the 600,000 t/y Duque de Caxias plant in Resende, Rio de Janeiro; the 110,000 t/y Landulpho Alves plant in Mataripe, Bahia; and the 65,000 t/y Lubrificantes e Derivados do Nordeste naphthenic plant in Fortaleza.

As for the other lubricant markets in South America, Colombia - which accounts for 33 percent of the Andean regions 560,000 t/y finished lubricant demand - has a base oil deficit, according to Mark McHugh, managing partner of global investment group Entoro International. It relies on U.S. imports, he said.

Argentina is supported by local production from state company YPF, as well as the [70,000 t/y Group I] refinery of Raizen Energia in Buenos Aires. The latter is now the second-largest producer in the country after the acquisition of Shell downstream assets last year, McHugh told Lube Report.

Chile - which makes up 25 percent of the Andean regions demand - does not produce any base oil, so it imports base stocks as well as finished lubricants.

Much of the base oil imports going to Chile and the rest of the Andean coastal countries are coming from Chevron on the U.S. West Coast and Motiva and ExxonMobil on the U.S. Gulf Coast, sources said.

In the end, the only country really expected to see major challenges in 2019 is Venezuela which is facing extreme hyperinflation and a slew of other problems.

With PdVSAs output of base stocks so reduced, the supply of Group I to the region has been sharply curtailed. Fortunately the U.S. is flush in Group II, so South American lubricant producers have been able to upgrade to Group II for relatively little cost. We are mostly buying Group II as it is almost the same price as Group I right now, the Barcino spokesperson said, highlighting that some of its orders are coming from the U.S. Gulf Coast, declining to name the exporter.

That situation is expected to continue in 2019 due to ExxonMobils opening of a large Group II plant in Rotterdam. A price decrease may be seen for Group II base oils this year, and that is due to the expansion of the Rotterdam refinery which is increasing the worlds supply, said Torres.