If Cosmo says it will continue to operate the base oil plant, I would say the effective capacity will be reduced by 30 to 40 percent, said Stephen B. Ames, principal of SBA Consulting in Pepperpike, Ohio, United States.

Cosmo scaled back the Yokkaichi refinery in response to a 2010 national law aimed at reducing excess refining capacity amid falling domestic demand. Last month it announced that it had cut production capacity at the refinery by 25 percent – from 155,000 barrels per day to 112,000 barrels per day. The company also operates refineries in Chiba and Sakai, but those facilities do not have base oil plants.

Ames noted that Cosmo has two crude units, and he suggested that the company probably spread the capacity reduction over both units rather than applying it to just one. He also noted that the refinery has a 31,000 b/d fluid catalytic cracker and a 24,000 b/d hydrocracker that produce gasoline and diesel and that both of these units compete with the base oil plant for vacuum gas oil (VGO).

With base oil margins at very poor levels and gasoline and diesel margins more robust, it appears that Cosmo will attempt keep both cracking units loaded as much as possible and reduce feed to the base oil plant, Ames reasoned.Thus the base oil production could be severely impacted – including shutting down.Even if the VGO is proportioned amongst all of the competing units, the reduction is apt to be around 30 percent.Trying to operate at more than a 40 percent reduction is also not feasible as flow in the solvent extraction contactors is lost.