The global base oil picture is more complicated than saying API Group I capacity will shut down, says consultant Amy Claxton. Group I plants will keep running and can turn a nice profit.
Claxton, principal of consultancy My Energy in Hummelstown, Pa., offered an upbeat survey of the Group I base oil landscape at the ICIS Pan-American Base Oils & Lubricants Conference in New Jersey Dec. 5.
New capacity is changing the landscape, she said. Its stating the obvious to say opportunistic base oil capacity from fuels hydrocracker bottoms is creating oversupply. There is an oversupply of light neutrals and an undersupply of heavy neutrals, bright stock and waxes. But, she cautioned, its not a Group I problem, its a base oil viscosity grade imbalance problem.
Hydroprocessing brings collateral damage. Viscosity reduction occurs across hydrocracking, resulting in an undersupply of heavy neutrals and reduced bright stocks. Supplies of slack waxes, fully refined paraffin waxes and petrolatum and microcrystalline waxes are all reduced. And certain byproducts are also in short supply.
Further collateral damage is reflected in the oversupply of 50 N and 75 N of any quality, whether Group I, II or III, and of 95 VI 100 N, whether Group I or II, whose volatility is inadequate for low SAE engine oil grades, Claxton continued. Also facing oversupply are technical grade white oils, USP white oil feedstock, drilling fluids and agricultural spray oils.
The beneficiaries of this current situation, Claxton contended, are Group I heavy neutral and bright stock producers, heavy naphthenic producers and polyisobutene suppliers, as well as all wax producers. Whoever thought Group I plants would be beneficiaries of all these new hydroprocessing plants? Claxton asked with a smile.
Claxton cited three solid reasons why Group I plants will keep running. First, she said, Group I margins are strong. Bright stock and wax prices are running $2 per gallon more than Groups I and II in the spot market. Group I economics are helped by the shortfalls in products and byproducts.
A second reason Group I plants wont disappear is that global base oil supply will contract with higher quality requirements. The coming ILSAC GF-6 engine oil specification, for example, will actually reduce Group III supply, Claxton said. Lower yields will result from the higher processing severity needed to make a 126 to 128 viscosity index base oil for GF-6, using the same crude thats processed to 120 VI for todays 0W and 5W engine oils. Group III plants will face a 15 to 20 percent yield reduction, she said, although Group III+ producers are not affected.
Third, said Claxton, is the huge impact of China on global base oil demand. Chinas net imports, currently around 40,000 barrels per day, are growing. China needs wet barrels. Quality isnt an issue; they just want the cheapest available base oils, she said, noting that several Chinese producers have encountered operating problems recently.
Group I plants are profitable, fully depreciated assets, Claxton concluded. Group I base oils are useful in all lubricant sectors. While they cannot meet the latest engine oil specifications, they are fine for older automotive products and almost all industrial oils and are required for some applications.
