Asia Trends To Group II, Stays Long in Group III


Asia may produce most of the worlds API Group III base stocks, but it still clings to Group I and II in lube formulations, an industry consultant told the ICIS Base Oils & Lubricants Conference in Singapore last month. The supply base is slated to continue trending toward Group II in the next few years.

Globally, supply of high-performance base oils has increased rapidly in recent years, while Group I production continues to contract, Milind Phadke, director of Kline & Co.s Energy Practice, told the conference on May 18.

In the last five years, the share of Group II and III in overall supply has increased from 30 percent to just under 50 percent in 2015, he said. Group III will account for 16 percent of global base oil supply this year, but that will far exceed demand for that grade.

The global market also has a glut for overall supply, but numerous projects that will add capacity are still under way, and a quarter of that capacity will emerge in the Asia-Pacific region, further exacerbating the Group II and III surplus there. Phadke noted, though, that demand growth and quality improvements should absorb some of this surplus.

By contrast, numerous Group I plants have closed and will continue to do so due to high production costs and decreasing demand. This trend has affected Asia in particular, because it has a substantial deficit of Group I. The region produced slightly more than 5 million metric tons of Group I in 2015 but demanded close to 8 million tons, according to Phadke.

Availability of Group II oils continues to be long in Asia, with supply reaching slightly over 6 million tons versus close to 5 million tons of demand. Likewise, Group III production vastly outstrips requirements in the region, as supply was close to 2.3 million tons last year, compared to demand of 1 million tons.

Asia-Pacific is losing its tag of global Group III hub because new supply is emerging in other parts of the world, including Europe and the Middle East, Phadke said. Asia had 74 percent of global Group III capacity in 2004 but Kline predicts that share will fall to 44 percent by 2025.

The Middle East, on the other hand, saw its Group III share grow from zero in 2004 to 22 percent in 2015, and the number is expected to reach 27 percent by 2025.

Despite the recent slowdown in global base oil demand, several new plants are slated to come on stream in the next 10 years, with combined capacity to make 7.3 million tons per year, including 4.2 million t/y of Group II, 2.4 million t/y of Group III and 700,000 t/y of naphthenic base oils.

Most of the Group II additions within Asia will happen in China, where demand for higher-performance oils is growing, but where Group III oils are less prevalent due to cost implications and technological shortcomings. An excess of Group II production in the region allows lubricant blenders to substitute Group II oils for Group I, especially in industrial applications, and some base oil producers are going after process oils and non-lubricant applications. New Chinese Group II supply from PetroChina and CNOOC appears to be ready to come on stream soon, which will likely lead to more Group II substitution into Group I, Phadke said.

China is a large market for heavy-duty motor oil and passenger car motor oil, swiftly moving away from heavier grades to lighter grades, with greater emphasis on emissions reduction and fuel economy, he added.

Despite concerns that general base oil demand in China has slowed, there has been healthy growth in other Asian nations such as India, Indonesia, Vietnam, Thailand, Pakistan, Malaysia and the Philippines, and these are large potential markets for Group II. New growth frontiers are coming to the forefront while traditional ones take a back seat, Phadke emphasized.

A large amount of Group II supply will go to India, thanks to an accelerated timeline for meeting BS VI emissions standards, which are equivalent to Euro VI, and a growing emphasis on fuel economy.

In these developing economies, Group I base oils are still in high demand because many formulations favor Group I oils within the industrial, marine, automotive and motorcycle segments. The deficit of Group I in Asia leads to high volumes of imports from Europe.

Asked if new Group I capacity would be coming on stream to address the ongoing demand for Group I base oils, Phadke said, I doubt that new Group I plants will be built, so end-users will have to move to new products – but maybe I am wrong.

Related Topics

Base Stocks    Business