MUMBAI – As new base oil production hubs emerge, the industrys supply base is diversifying, disrupting established trade flows and intensifying competition among suppliers, particularly in the Asia-Pacific region, an expert said at an industry event here last week.
Base stock[s are] increasingly being produced in the region where they are demanded, so its altering the trade flows, Anuj Kumar Singh, a project manager for Kline & Co.s energy practice, told attendees at the ICIS Indian Base Oils & Lubricants Conference.
The emergence of new supply hubs will alter the existing trade routes and current players will be challenged by new suppliers, he emphasized. Quite naturally, we will see more intense competition in the base oils market globally, Singh said.
Saudi Aramco Base Oil Co. and Abu Dhabi National Oil Co. have already started supplying Group II and Group III products from their plants in the Middle East to players in India, potentially challenging established South Korean suppliers, Singh said at the conference. These two plants will potentially have a very big impact on India, more from the point of view of suppliers.
Additionally, Pertamina and Saudi Aramco are planning to collaborate on a plant in Indonesia, Singh said.
Singh stated that Group II/II+ base stock availability in India is also likely to improve in the coming years, as ExxonMobil, the worlds largest base oil supplier, plans to expand the capacity of its Singapore refinery. The natural market for this product would be countries like India and Thailand, he noted. ExxonMobil is also building a Group II plant in Rotterdam, and it will have an indirect impact on India as it will compete with U.S. Group II suppliers, he added.
Singh said the same can be said of two relatively new facilities in Russia – a Group II plant operated by Rosneft and a Group III plant operated by Tatneft. Again, they will have same kind of impact on India that ExxonMobils Group II plant will have. They are not directly supplying to India, but they will disrupt the market to an extent so that the existing suppliers will probably have to look at other destinations, he added.
Total global base stocks supply was estimated at 39.1 million metric tons in 2016, while global demand weighed in at 35.5 million tons, according to Kline. Global base stock production capacity is marginally higher than the overall demand but the regional supply and demand composition of base stocks is quite diverse, Singh noted. Asia-Pacific accounts for roughly 40 to 45 percent of the market.
Asia-Pacifics Group I base stock capacity falls short of actual demand, leading to imports from Europe, Africa and the Middle East. Singh added that Group I base stocks are being edged out by Group II, which is plentifully available in the market.
The regions share in API Group II global base stock supply increased to 53 percent in 2016 from 38 percent in 2010, according the Parsippany, New Jersey-based consultancy. The Asia-Pacifics share, however, is unlikely to change through 2026 as new supply hubs emerge going forward.
Asia-Pacifics share in global Group III base stock supply is expected to decline, falling from 53 percent of the global share in 2016 to 47 percent in 2026, Kline projected. The opening of several plants has turned that region into a supply hub, whereas Asia-Pacific used to be the global industrys main source of merchant Group III sales.
A lot of new options for higher quality base stocks have emerged around the Indian subcontinent, providing flexibility to Indian blenders in sourcing their products. “India has a very interesting position in the market. Its so [well] located that it has easy access from all the key supply points,” he stated.
Regions which have moved towards high-quality lubricants are expected to see demand increased amounts of better quality base oils, but there are few markets in Asia-Pacific where high quality lubricants prevail yet, he added.
India will continue to have a deficit of base stock capacity and will continue to import a significant amount of base stocks for the foreseeable future as no new supply is being planned in the country, Singh posited.
Indias annual base stock production capacity is 1.2 million tons, and it imports around 2.5 million tons every year to meet its domestic requirements, according to Kline. Imports primarily come from South Korea, the United Arab Emirates, Singapore, Spain, Taiwan and Sweden. Group II accounts for the biggest share in imports, followed by Group I, Group III and naphthenics.
Group I base stocks are slowly losing market share in India due to weakening demand, Singh noted, adding that demand is shifting mostly to Group II. [Kline] expect[s] the market potential or growth rates for Group III base stocks to be the highest in India. But of course, this is from a smaller base, he added.
Increasingly stringent emissions regulations and fuel efficiency standards are key factors driving the increase in lubricant quality and demand for quality base oils in India, Singh stated.
Passenger car motor oil and motorcycle oil viscosity grades will shift towards 5W-30s by 2021, Kline predicts, claiming 0Ws will enjoy slow growth, and demand for heavier grades, like 20Ws, will fall. Among heavy-duty motor oils, the 15W-40 viscosity grade will grow fastest and do so at the expense of monogrades and 20W oils, he said.
The quality shift trend in PCMO clearly indicates more demand for Group III base stocks, while the quality shift trend in HDMO clearly indicates more demand towards Group II stocks, Singh noted.