The next five years will see big changes in the availability of base oils for the lubricants market. Refiners are expected to continue adding capacity to produce API Group II and Group III base oils, and most observers agree that this will lead to more closures of Group I plants. This will result in an upward shift of base oil viscosity index and a downward shift of volatility – trends that should help meet rising performance demands in engine oils and numerous other types of lubricants.
But the capacity changes will also have unintended consequences that may create challenges for the industry. As speakers at two recent conferences noted, the shift toward Group II and III production means lower volumes of heavy base oils and poorer solubility, which hamper formulation of some lubricants.
According to Valentina Serra-Holm, marketing director of Nynas Naphthenics, Stockholm, Sweden, global capacity of API Group II and III base oils is expected to increase significantly in the next five years. Group III capacity will double from 4.1 million metric tons per year to 8.2 million t/y, and Group II capacity will grow by more than 60 percent from 13.8 million t/y to 22.4 million t/y. Speaking in April at the UNITI Conference in Stuttgart, Germany, she said, In total, there will be over 12 million t/y of new capacity, and the question is whether base oil demand will grow at the same pace.
Geeta Agashe, of Kline & Co., Parsippany, New Jersey, United States, said, In theory, supply should equal demand, at least over a period of time. If there is too much of a supply overhang, high-cost producers will be forced to shut down or dial down their production.
Serra-Holm estimated that upcoming plant construction and expansion could create excess capacity of between 6 million t/y and more than 10 million t/y, depending on a variety of market factors. While this could lead refiners to put some projects on hold, most analysts believe demand and supply balance will be achieved mostly by closure of Group I plants.
A shift toward Group II and III oils creates technical issues due to differences between the viscosity ranges, oxidation stability, volatility, solvency, sulfur content and low-temperature properties of oils in different categories. For example, Group II and III paraffinic oils are excellent base stocks for formulating modern engine oils; however, they have lower solvency compared to Group I oils. Moreover, Group II and III plants have a lower yield of high-viscosity products because there is a limit to the maximum viscosity they can produce. Typically Group II and III plants do not produce bright stocks, and Group III plants do not produce heavy neutrals. Usually, the yield of heavy neutrals in Group II plants is lower than that in Group I plants.
As Group II and III displace Group I oils, the relative scarcity of heavy neutrals and bright stock is increasing, Agashe said. As a result, heavy grades are commanding premium prices in the marketplace.
Serra-Holm cited heavy naphthenic oils and naphthenic bright stock as possible alternatives to paraffinic bright stock for applications ranging from grease to metal forming fluids and some marine oils. She also recommended blending naphthenic base oils with Group II and III for applications such as greases, soluble and neat metalworking fluids and additive carriers. By comparison, the main applications for straight naphthenic base oils are greases, soluble metalworking fluids, additive carriers and process oils.
Developing blends is not without challenges, though. The main challenge to using naphthenics is higher volatility compared to paraffinic oils. Also, pale oils have a lower viscosity index than Group I oils, although it is sufficient for industrial applications such as metalworking fluids, quenching oils and transformer oils.
The evolving demand-supply balance will affect relative prices for different categories, Agashe said. Historically, the premium for Group II over Group I has been low to encourage its use by blenders that would otherwise use Group I.
As the market for Group II is established and blenders realize supply chain cost savings from using Group II, Group II has been able to increase its premium over Group I. However, large additions to Group II capacity run the risk of narrowing Group II premiums. I think it is as important to look at viscosity grade balances across the various API grades in addition to API grade balances, Agashe said.
Lube Report Asia will occasionally include articles originally published in sister publications of LNG Publishing Co. This article appeared in the July 2013 issue of LubesnGreases – Volume 49 – under the headline, Base Oil Shifts Create Formulation Gaps.