U.S. Moves Toward Base Oil Balance


HOUSTON – Traditionally a net exporter of base oils, the United States in the past two years has moved closer to balance in the volumes it imports and exports, according to a presentation given here Friday during an industry meeting.

Speaking at the National Petrochemical and Refiners Association’s annual Lubricants and Waxes Meeting, Lithcon Petroleums Joe Rousmaniere said base oil exports have grown significantly the past two years as U.S. blenders consumed increasing amounts of API Group II and Group III oils, mostly from South Korea and Singapore.

Rousmaniere predicted U.S. imports of premium base stocks will continue to increase and that the nation will also cut back on exports of bright stock and naphthenic base oils. But the trend toward the market becoming a net importer, he suggested, will be counteracted by rising exports of Group I solvent neutrals.

Rousmaniere said his presentation was based on publicly available data about shipping traffic in and out of United States ports. He emphasized that his analysis excluded trade with Canada and Mexico because Lithcon was unable to distinguish between shipments of base oils and finished lubricants passing to and from the countries covered by the North American Free Trade Agreement.

Lithcon found that non-NAFTA U.S. imports and exports of base oils have grown in the past two years, although the former has increased at a faster rate. From 2000 to 2002, Rousmaniere said, the nation imported an average of 6.3 million gallons of base oil per month and exported 9.4 million gallons per month. For the period 2002 to the present, imports swelled more than 50 percent to 9.7 million gallons, while exports averaged 10.8 million gallons, a gain of just 15 percent.

Rousmaniere said the biggest factor driving rising imports has been this years adoption of GF-4, the newest passenger car motor oil standard, and the demand it creates for higher quality base oils.

What happened to increase imports so sharply? GF-4 happened and it created an enormous new market for a flood of Group II and Group III oils coming from the Far East, Rousmaniere said.

Indeed, Lithcons analysis showed that Group IIIs now account for 41 percent of non-NAFTA imports and Group IIs another 25 percent. Rousmaniere said the Group III imports come mostly from South Korean plants operated by SK Corp. and S-Oil Corp., while the Group IIs are brought in mostly by ExxonMobil from a plant in Singapore. Lithcon, based in Houston, is Americas sales agent for SK.

We project increased imports of Group II and Group III from the Far East, Rousmaniere said. This is due to the full implementation of GF-4 as well as the coming addition of new refining capacity in Asia.

Europe has in the past been the biggest source of Group I imports, but that traffic tailed off the past two years as rising freight rates removed any financial incentive. Group I prices at European docks are still lower than in the United States, but the discount is not enough currently to justify bringing oils across the Atlantic. In their place, Rousmaniere said, American blenders have begun importing a steady stream of base oils from Russia.

Sometimes there are base oil suppliers who are not yet well established in the international base oil market who are aggressively extending their markets by discounting, he said. This now appears to be the case with Russian imports into the U.S.

On the export side, Lithcon found, the biggest change of the past two years has been that Group II oils have started flowing to the Far East.

Until quite recently there was really only one source of exports and that was the [Excel Paralubes Westlake, La.] refinery which had a regular business of exporting to Italy, South Africa and India, Rousmaniere said. But in the spring of 2004 the Motiva refinery in Port Arthur [Texas] and the Chevron refinery in Richmond [Calif.] began exporting large parcels of Group II to the Philippines and Singapore.

[T]hose shiploads of export Group II are passing by cargoes of import Singapore Group II coming into the U.S. This is indeed a peculiar situation that must give great joy to the shipowners involved.

Rousmaniere said all of the shipments appear to be internal sales by ExxonMobil, Shell and ChevronTexaco, and he predicted that traffic may slow over time as the companies turn instead to swaps to meet their needs. Still, he speculated that U.S. exports of Group II may continue and even grow in order to meet surging demand in China. In the past two years, he said, U.S. Group II exports to China were surprisingly rare.

We do know that in the same period China was importing massive amounts of hydrocracked light viscosity oils from Korea and many shipments of heavy neutrals and bright stock from Asia, the Middle East, Europe and Russia, he said. As the Chinese market demands increase in both quality and quantity we expect that U.S. exports will play a greater role. In particular we think that China is ready to import water-white Group II oils.

Group I oils still constitute the biggest share of U.S. exports – averaging 6.2 million gallons per month, or 58 percent. Rousmaniere predicted the volume of Group I solvent neutrals will grow in coming years as the shifting domestic market leaves a surplus in the United States. But he also projected decreases in exports of naphthenics and bright stock, both of which have tightened considerably the past year.

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