ILMA: Keep that Base Oil on the Market


The Independent Lubricant Manufacturers Association told the U.S. Federal Trade Commission Monday that it has no objections to Shell Oil Co.s plans to sell its stake in Excel Paralubes to Flint Hills Resources L.P., as long asFlint Hills doesnot enter an agreement with Shell or another major oil company to exchange base oil for finished industrial lubes.

The associations comments were part of a letter submitted two days before the commissions deadline for public input on the proposed sale. The letter offered no evidence that such an agreement exists, but asked the commission to assure that Flint Hills will supply sufficient Group II to the market to stimulate competition. Officials at Shell and Flint Hills Resources could not be reached for comment.

Shell is selling its 50 percent stake in Excel Paralubes to comply with the commissions biggest condition for approving Shells acquisition last year of Pennzoil-Quaker State Co. A joint venture between Pennzoil-Quaker State and ConocoPhillips, Excel Paralubes owns North Americas second-biggest base oil refinery, a Westlake, La., plant with capacity to produce 21,500 barrels per day of Group II stocks. The commission told Shell to divest its stake out of concern it would give the company too large a share of the Group II market in the United States and Canada.

Shell and Flint Hills Resources announced their deal April 23 and are waiting only for the commissions approval. ILMAs letter said the association welcomes the fact that the deal would increase the number of suppliers in the market. Flint Hills Resources parent company is oil and chemical conglomerate Koch Industries Inc., which is new to the lubricants industry.

But ILMA also contended that competition would not be protected if Flint Hills Resources were to give Shell or another major oil company base oil in exchange for pump and compressor lubes thatKoch Industries needs for its extensive pipelines.

Given its wholesale marketing and trading of petroleum products, FHR likely has relationships with most, if not all, major oil companies and refiners, the letter states. As a result, it would be easy for FHR to enter into exchange agreements with these major oil companies and refiners, swapping barrels of Group II base oils for finished pump and compressor lubricants and keeping the Group II base oils out of the market. Similarly, FHR and a refiner could swap Group II base oils for other petroleum products, such as gasoline.

In ordering Shell to divest its stake last year, the commission stipulated that it could enter an agreement to buy base oil from the buyer, but only for one year.

ILMAs letter contended it would do nothing to maintain a competitive Group II base oils market, if Shell purchases back the Excel Paralubes output from FHR during the first year and subsequently enters into exchange agreements (rather than purchases) to continue to receive the Excel Paralubes product. In order to maintain the spirit, if not the letter, of the Order in this matter, the Commission should satisfy itself that FHR will supply Group II base oils into the market in sufficient quantities to stimulate the market before approving the application.

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