China Starts Shift to Group II


SEOUL, South Korea – Chinas taste for better lubricants is accelerating its shift to API Group II base oil, according to C1 Energy, and all three government-owned oil companies are working on projects to produce it in coming years.

While Group I and low-end base oils accounted for about two thirds of Chinas market share in 2010, Group II and III base oils show great potential, C1 Energy Information Manager Nancy Shi told the ICIS Asian Base Oils & Lubricants Conference here June 14, speaking Mandarin with simultaneous translation to English.

According to C1 Energy, Chinas base oil demand increased by 12.6 percent in 2010, compared to 2009. She said 39 percent of demand is Group I, 27 percent is non-standard base oils, 16 percent is naphthenic, 15 percent is Group II and 2.5 percent is Group III/+.

During the 2011 to 2015 period, PetroChina plans to install hydrocrackers in its Daquing Petrochemical, Dalian Petrochemical and Fushun Petrochemical and Lanzhou refineries to shift to Group II production. An expansion at its Dushanzi petrochemical site is expected to add 200,000 tons per year of Group II capacity, beginning this year.

Shi said Sinopecs Gaoqiao Petrochemical, Maoming Petrochemical, Jingmen Petrochemical and Jinan refineries are also mulling over expansion of Group II base oil production before 2015. This year an expansion at the Yanshan Petrochemical refinery is expected to produce 300,000 tons per year of Group II base oils.

China National Offshore Oil Corp. (CNOOC) was scheduled to complete a new plant at its Hulzhou refinery early this year to add 400,000 tons per year of Group II capacity.

Base Oil Production
Chinas base oil production totaled about 5.7 million metric tons in 2010. Shi said supplies of standard base oils fell short of demand, especially in the fourth quarter, spurring prices to historic levels.

The Group I share of Chinas domestic base oil production declined from 41.3 percent of total production in 2009 to 35.6 percent in 2010. Group II rose from 4.8 percent to 6.7 percent, while naphthenic increased from 18.8 percent to 20.3 percent. Off-spec base oils accounted for 37.3 percent of domestic output in 2010, up from 35 percent in 2009. No base oil plants in China produced Group III in 2009 or 2010.

Chinas Group I output slipped about 2 percent to 2 million tons in 2010. The decline came as PetroChina shifted focus to the lubricant market and closed down overcapacities in subsidiary refineries, like in Yumen Oilfield Refinery and Jinxi Petrochemical, Shi said.

Off-spec base oil output grew by 21.3 percent from 2009 to 2.1 million tons last year. Shi noted that domestic traders blended off-spec and naphthenic base oils into standard base oils more frequently in 2010.

Base Oil Imports
China was dependent on imports for meeting 27 percent of its base oil demand in 2010, Shi said. About 51.7 percent of imported base oil is Group I, 36.8 percent is Group II and more than 9 percent is Group III.

She said the base oil import market has become more brisk due to a variety of factors. From Singapore and from Taiwan, China keeps seeing more imported products, Shi added.

She noted that some clients are with companies affiliated with Sinopec and PetroChina. These clients said last year they could not really buy base oil from Sinopec or PetroChina, so they have a strong interest to import base oil from other countries, she said, noting that the two companies released less than 300,000 tons of base oils to the commercial market last year.

China imported approximately 2.1 million tons of base oil during 2010, according to C1 Energy. Singapore (32 percent), South Korea (24 percent) and Japan (13 percent) topped Chinas base oil import list during 2010, Shi said.

Just behind was Taiwan at 11.9 percent, supplying 250,000 metric tons in 2010, an increase from 3.2 percent in 2009. Shi noted that from 2011, the tariff on Taiwanese base oil imported into mainland China drops to 5 percent from the previous 6 percent. That tariff will decrease to zero percent in 2012. China also imported base oil from Russia (9 percent); the United States, Malysia and Thailand (2 percent each); Indonesia and Uzbekistan (each 1 percent), with others accounting for 2 percent.

Chinas naphthenic base oil output totaled 1.15 million metric tons in 2010, Shi said, up 24 percent from the nations 2009 total. PetroChina Karamay Petrochemical is Chinas largest naphthenic base oil producer, yielding 61 percent of Chinas total, Shi said. Other naphthenic producers in China in 2010 included Liache Petchem (13 percent), Panjin Northern Asphalt (13 percent), China Offshore Bitumen (9 percent) and Jinmen Petchem (4 percent).

Naphthenic imports into China totaled 50,000 metric tons in 2010, up 72 percent from 2009, according to Shi. Nynas dominated the import market with a 74 percent share, followed by Ergon at 20 percent and Idemitsu Kosan with 6 percent. Total naphthenic consumption in China reached nearly 1.2 million tons in 2010. The largest demand came from lubricant blending plants, Shi said. Most private lubricant plants use rubber processing oils in lubricant blending for lower feedstock costs. According to the presentation, the demand breakdown included 63 percent from lubricant blending plants and 16 percent for transformer oils.

Related Topics

Market Topics