Neste Oil Corp. announced Thursday that it has agreed to form a joint venture with Bahrain Petroleum Co. to build a Group III base oil plant in the tiny Middle Eastern kingdom.
The project, scheduled to come online in 2008, joins a growing list of new-generation base oil plants planned in the Middle East and along the Pacific Rim. Nevertheless, Neste officials said they are undaunted about the extent of prospective competition.
We see demand [for Group III oils] growing at such a rapid pace, that we really arent thinking about competition from other suppliers, Executive Vice President for Components Kimmo Rahkamo told Lube Report. Our bigger concern is not being able to keep up with demand.
The agreement between Neste and Bapco calls for construction of a base oil plant with capacity of 400,000 metric tons per year, or approximately 7,700 barrels per day. The plant would be built at Bapcos oil refinery south of Manama, the capital city at the northeast corner of Bahrains main island. Feedstock will be bottoms from a low-sulfur diesel fuel hydrocracking unit scheduled to begin operating in mid-2007.
The base oil joint venture does not have a name yet. Last weeks agreement covers commercial terms of the project, stipulating that Bapco operate the plant and that Fortum be responsible for marketing. Front-end engineering and design is scheduled to be completed within six months, after which the companies would have to execute a final agreement for engineering, procurement and construction.
Neste officials said they entered the agreement in order to expand their base oil business. The company currently operates a Group III plant in Porvoo, Finland. It is undergoing a small expansion that will increase capacity to 230,000 metric tons beginning next month. Rahkamo acknowledged that the plant is essentially sold out thanks to strong demand in Europe.
We are very pleased to be moving ahead with this project, which underlines Neste Oils and Bapcos commitment to new-generation, high value-added base oils, he said. Demand for these sulfur-free base oils is increasing globally thanks to their ability to meet current and future performance requirements, as well as more stringent environmental standards.
According to Bahrains Gulf Daily News, Bapco sees base oils as a market with opportunity for higher margins. The company has undertaken a number of projects aimed at raising profitability. Bahrain is already one of the few Gulf nations that exports mostly refined oil products, rather than crude oil.
Demand for Group II and Group III base oils is growing around the world and has spurred numerous companies to announce plans to build new plants. Bharat Oman Refining is due to open a Group II plant in Mumbai in December, and Petronas, Chinese Petroleum Corp. and Formosa Petrochemicals have announced plans to build plants in Malaysia and Taiwan by 2008. In addition, Sasol Chevron, Shell and ExxonMobil have all entered joint ventures with Qatar Petroleum to build gas-to-liquids base oil plants between 2008 and 2011.