Add another name to the growing list of Pacific Rim companies hurrying to enter the premium base oil market. Formosa Petrochemical Corp. told Lube Report yesterday that it plans to open a 10,000 barrel-per-day plant on Taiwan by the end of 2007.
The companys statement brings to five the number of API Group II and/or Group III projects that have opened this year or that are in the works. A Formosa Petrochemical official acknowledged that the field is becoming crowded but maintained that the location and scale of the companys facilities will help it measure up against rival suppliers.
Of course we are concerned, K.Y. Lin, director of the presidents office of Formosa Petrochemical, said during a telephone interview. We know there will be a lot of competition, but we are confident that our costs will make us very competitive.
Formosa Petrochemical is a subsidiary of Formosa Plastics Group, the largest private company in Taiwan, and is the nations second-largest producer of oil products, behind government-owned Chinese Petroleum Corp. The company currently has no base oil capacity but plans to build the new plant at its Mai-liao refinery on the western coast of the countrys main island.
Formosa Petrochemical had made no public announcement about its plan before yesterday, but ExxonMobil Research and Engineering Co. referred to the project in a Dec. 1 news release stating that project will employ its catalyticbase oils processingtechnology.
The base oil plant will cost approximately U.S. $250 million, according to Lin, who added that Formosa Petrochemical will avoid considerable expenses because its refinery already has large capacity for hydrogen and desulfurization – components necessary for premium base oil processing. The base oil plant will also derive cost advantages from the size of the overall refinery, which has crude capacity of 450,000 b/d.
Lin said Formosa Petrochemical decided to build a Group II/III plant because it expects demand for premium base oils to continue growing. As it does not make its own finished lubricants, the company plans to peddle its base oils on the merchant market. While stating that it will sell wherever prices are good, Lin mentioned the growing Chinese market several times.
We are very close to China, and we believe our quality and cost will make us very competitive there, he said.
Group II and Group III plants seem to be sprouting throughout the Far East. Sinopec and S.K. Corp. opened facilities in China and South Korea, respectively this year. Sinopec plans to open another in 2006, and Malaysias Petronas plans to open one the following year. In addition, S.K. is considering construction of another plant.
Our timing may not be the best because some of the other plants will begin operating before us, Lin said. Still, we believe that we can control our costs and become profitable.