Middle East Base Oil Exports on Upswing

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Middle East Base Oil Exports on Upswing

MOSCOW – The Middle East has become a prominent producer and net exporter of API Group II and Group III base oil, using its glut of over 2 million tons of material to cater to demand in India, North America and Western Europe, an industry insider said at a conference here.

The regions producers ship almost 55 percent of their Group II and Group III exports to North America and Europe, a trade flow that didnt exist just 10 years ago, said Sudip Shyam, global head for base oils at Gulf Petrochem. Gulf Petrochem Group is a United Arab Emirates company with divisions in oil trading andbunkering, oilrefining,as well as lubricants and greaseproduction. At the moment, the regions total installed base oil capacity is 5 million tons per year.

Courtesy of Neste

The Bapco-Neste joint venture base oil plant in Sitra, Bahrain, has capacity to produce up to 400,000 tons per year of API Group III base oil. Neste holds a 45 percent share, with Bapco and BahrainÂ’s OGHC (Overseas Oil & Gas Holding Co.) holding the remaining 55 percent.

On the other hand, 50 percent of Iranian Group I base oils is primarily exported to U.A.E., India and Pakistan. This is creating a regional deficit, Shyam told RPIs Global Lubricants Week conference held in Moscow from Oct. 9-12.

Gulf Petrochem found that the U.A.E. exports large volumes of base oil to Africa, creating regional Group I demand there. The U.A.E. remains a trading hub for base oils and finished lubricants in the Middle East region, and it re-exports some volumes of Group II base oils since Luberefs Aramco plant commenced recently, he said.

Luberef is a joint venture between Saudi Aramco and Jadwa Investment Co. Early this year, the JV completed an upgrade at its base oil plant in Yanbu, Saudi Araba, enabling the plant to make Group II base stocks along with its existing Group I production.

Qatar, Saudi Arabia, Iran and the U.A.E. are currently the largest base oil producers in the Middle East region and control roughly 84 percent of the regions overall capacity. Iran has been dominant with more than 450,000 t/y of Group I exports, while Iraqs operational capacity is reported to be less than 45,000 t/y, Shyam said.

The Middle East has an estimated population of 412 million, and it stands at the crossroads of the global base oil trade flows of Group I, Group II and Group III base oils.

The regions Group I trade flows to North and East Africa, the Indian subcontinent and to Southeast Asia, while Group II and Group III oils go to the Indian subcontinent, Europe, North America and China.

The Middle East region has a glut of more than 2.2 million tons of high quality Group II, III and III+ base oils. The region has started catering to the demand of not only the Indian subcontinent, but also of North America and Western Europe, Shyam said.

Takreer, the refining arm of Abu Dhabi National Oil Co., produces Group II and III base oil at its plant in Ruwais, U.A.E. Korean Group II suppliers are getting stiff competition from Takreer and Luberef, though to some extent they enjoy price advantages for their approved base stocks. The Group III alternative from Takreer has become very relevant [arbitrage] material, which is largely pricing-driven, Shyam observed.

He added that Takreer base oils shipped to China might be impacted by the opening in June of Shanxi Luan Groups plant in Shanxi province with capacity to make 350,000 metric tons per year of coal-to-liquids base stocks.

Further, he anticipates uncertainty on Iranian product movements after the renewed United States sanctions. We expect an impact on the Group II base oil imports into Iran, and a shift to domestic usage of Group I base oils, Shyam said.

On the global level, Gulf Petrochem projects that Group I refineries will focus more on heavier grades that return higher margins and on shutting down uneconomical plants. Despite oversupply, there will be little or no change in global demand in the next five years, Shyam concluded.

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