Steve Renfroe, spokesman for Chevron in Mississippi, said final approval for its air permit was received in December, which was required before base oil plant construction could commence. Weve done some foundation work, and its already under way, Renfroe told Lube Report.

With the addition of the Pascagoula facilitys capacity, Chevron will become the worlds largest producer of premium – Group II and III – base oil, said Mike Wirth, executive vice president for Chevron downstream and chemicals, with about 67,600 b/d of capacity.

Chevrons Richmond, Calif. plant has 20,000 b/d of Group II capacity. GS Caltex, a 50-50 joint venture of Chevron and South Korean firm GS Holdings, has 17,000 b/d of Group II and 5,600 b/d of Group III capacity in Yeosu, South Korea.

Chevrons Leigh said Pascagoulas Group II product slate will – with one exception – be the same as that at the Richmond facility and at the GS Caltex plant in South Korea. So it will be 100 percent Group II – the 100, the 220, and the 600, the common slate of Group II products, she stated. We will also be making a 60 neutral at this facility, which is something we dont make at the other ones.

She explained that because of the way the Pascagoula facility is set up, 60 neutral was an available product stream. We also saw that customers showed an interest in it, so it made sense for us there, Leigh added.

Leigh said Chevrons view is that in general, the Richmond base oil plant will serve North America, Latin America and Asia, while the Pascagoula facility will serve North America, South America, Europe and probably a little bit to Africa.

We see strong demand growth for Group IIs and all premium base oils in Latin America and in Europe, Leigh stated. This is something our customers want. We did our due diligence around, does this project make sense? We think were serving a market where demand is growing, and this product is wanted and needed. Also, with two owned and operated facilities, and our joint venture interest in Korea, that will provide reliability in supply and a global product slate that we can offer our customers – to have one product thats globally available.

The Pascagoula site was also appealing from a transportation and supply perspective. You have rail, pipe, truck, and barge and ship capability out of Pascagoula, Leigh pointed out. We think its a great site.

While Chevron has some terminal capacity in areas where Pascagoulas products will be going, Leigh said a project is underway to address the infrastructure needs globally. Our goal is to have the infrastructure in place that guarantees or maximizes the reliable supply we want to have to our customers, she added.

She noted that Chevron already has a global base oil sales force, with people in Houston, Brazil, Europe, the Middle East and Asia.

Stephen Ames, principal of SBA Consulting, Pepper Pike, Ohio, noted that purpose built Group II base oil plants generally have a material production cost advantage over Group I due to lower operating expenses, a net hydrocarbon cost advantage and their scale advantage.

The net hydrocarbon cost advantage arises from the more valuable nature of their byproducts – mostly low sulphur diesel versus aromatic extracts, he continued. Purpose built Group II plants are often larger than their Group I counterparts, leading to scale benefits. The planned Chevron Pascagoula plant, at 1.25 million metric tons per year, will be more than three times the average size of Group I plants.

The market for Group II is growing very rapidly, he observed.

Group II is superior to Group I in most all competing formulations Ames told Lube Report. It can be used for many of the latest engine oil specifications that Group I base oils no longer are able to meet. It can also be a direct replacement in most Group I applications including industrial fluids, often providing higher performance lubricants and sometimes with attendant additive cost savings.

He noted that with the exception of those formulations requiring bright stock, Group II is usually more economical workhorse base oil quality within a blending plant. It is only a matter of time and availability before many blenders make the change, Ames opined.

Milind Phadke, Energy Practice project manager for Parsippany, N.J.-based Kline and Co., noted that when Pascagoula comes on stream and reaches full capacity, Chevron will surpass Motiva as the largest Group II supplier. It will definitely have a very cost-competitive position as opposed to the other suppliers in the market, he observed.

He pointed out that while four main suppliers – SK, Shell, Neste and S-Oil – together account for about 80 percent of Group III capacity, Group II has a much more fragmented supply base. Among the pure merchant marketers of Group II, Chevron would be the largest, Phadke told Lube Report. Having a uniform product and having that available in all parts of the world would definitely be a big strength for them.

He recalled that Chevron has announced on a number of occasions its intentions to focus on base oil sales to Europe. It is more difficult to move product there from the Richmond plant, he added, so the addition of the Pascagoula plant is going to be a big advantage.

Globally, he said the key product likely to be targeted by Pascagoulas Group II would be top-tier heavy duty motor oil grades such as 15W, and mid-tier passenger car motor oil grades. For the top tier PCMO grades, Group II is now being edged out by Group III and II+, Phadke noted. For example, most of the market is now shifting to 5W-30, and there using a Group II is difficult. You can use it, but the preferred product would be a Group II+ or Group III.

Group II will also start moving into some other product areas that havent typically used it. Marine oil is one area which people are trying to convert to a Group II formulation, along with railroad engine oils, and other industrial fluids, Phadke added.

As Chevrons largest wholly-owned refinery, the Pascagoula facility has 1,610 workers and processes up to 330,000 b/d of crude oil to produce gasoline, jet fuel, diesel and other products. The refinery began operating in October 1963.