Market observers expressed surprise at the size of the project and said it should be welcomed by base oil buyers, especially independent motor oil blenders.

With capacity to produce 22,000 b/d, the Port Arthur plant is already the largest base oil plant in the Western Hemisphere, though not by much. Excel Paralubes – a joint venture between ConocoPhillips and Flint Hills Resources – operates a West Lake, La., plant with capacity of 21,300 b/d, while ExxonMobils Baytown, Texas, plant is pegged at 20,500 b/d.

South Koreas S-Oil currently edges out Motiva, claiming capacity of 22,500 b/d for its plant in Onsan, South Korea. A government-owned plant in Baku, Azerbaijan, has significantly higher nameplate capacity but has not operated at near that level for years.

Port Arthur will be at least 59 percent bigger than any of those plants once the expansion there is completed. Motiva said in a June 30 news release that it plans to build a third lube hydroprocessing unit, but it did not disclose the cost of the project.

When asked to explain the reason for undertaking the expansion, Motiva officials cited the new ILSAC GF-4 passenger car motor oil specification, which is said to require increased amounts of premium base oils – at the expense of conventional Group I stocks. Commercial licensing of GF-4 oils is scheduled to begin July 31.

Besides increasing Port Arthurs output of Group II and Group II-plus oils, Motiva said the expansion will lower per-unit costs andgive itmore control over production.

The parallel operation of three world-scale lube trains and the streamlining of our product slate will allow us to move from the batch-operating mode that characterizes our industry to a largely continuous-process operation with its inherent benefits in cost, reliability, process control and product quality, officials said in response to questions from Lube Report.

Observers said they were not surprised to see more Group II capacity coming to the market, given the increased demand for premium base oils. But several seemed caught off guard by the size of Motivas project.

This is an enormous expansion, said a marketer who spoke on condition of anonymity. Im not surprised theyre doing something, but I never thought it would be this big.

The expansion will increase North American capacity for Group II and Group III base oils by approximately 15 percent, and buyers and sellers agreed that will help hold down prices. Some said it is especially good news for independent lube blenders since Motiva is a large merchant supplier. The Independent Lubricant Manufacturers Association, among others, has warned repeatedly that GF-4 could lead to a shortage of Group II oils.

At first blush, it sounds good, said James A. Taglia, president of Nor-Lakes Services Midwest Inc., of Hugo, Minn., and first vice president of ILMA. It also must mean that others agree with the analysis we did.

Besides creating more competition for other Group II suppliers, sources said the additional flow from Port Arthur could increase pressure on Group I producers to exit the market. Some predicted it would also mean more competition for Group III suppliers, who may have hoped to take advantage of a Group II shortage.

Some observers said the project could also change dynamics of the North American base oil market, which has for years been dominated by ExxonMobil. With three Gulf Coast plants with a combined 39,000 b/d of capacity, ExxonMobil currently claims 21.5 percent of North Americas paraffinic supply – nearly double second-place Motiva.

The Port Arthur expansion would give Motiva an 18.3 percent share compared to ExxonMobils 20 percent share. Perhaps more importantly, Motiva would control a whopping 38.5 percent of the continents supply of Group II and Group III. Some predicted this could shake ExxonMobils position as the supplier that usually leads price movements.

With one Gulf Coast refinery having 35,000 barrels of capacity, that has to have some impact on whos setting the trends in the market, said another marketer who asked not to be identified.