Reeling from Rita: Storm Stomps Base Oil Plants


The U.S. lubricant industry is on edge this week, awaiting information about four base oil plants knocked offline by Hurricane Rita. Together the plants account for 42 percent of the nations paraffinic base oil capacity. With scant information about the plants status, observers said the industry will suffer widespread disruptions if the outages last beyond two more weeks.

One operator, Citgo, declared force majeure, saying it currently cannot meet contractual obligations for base oils produced at its plant in Lake Charles, La.

Lube additive companies fared better, with several plants along the Gulf of Mexico Coast already starting to reopen. In addition, there was good news from Chevron Oronite, which has begun to restart a New Orleans area plant that had been knocked out of operation by Hurricane Katrina.

The big question is with base oils, and not much information is available right now, said James A. Taglia, president of Nor-Lakes Services Midwest Inc., a lube blender in Hugo, Minn., and president of the Independent Lubricant Manufacturers Association. Were waiting to see how long those plants are down – and whether this is going to be a hiccup or a heart attack.

Rita was a Category 3 hurricane with winds of 120 miles per hour when it reached land Saturday morning, and it struck at the heart of the U.S. base oil industry, steamrolling along the Texas-Louisiana border. The storms center passed directly over Port Arthur and Beaumont, Texas, homes to plants operated by Motiva and ExxonMobil, respectively. Rita also wreaked havoc in the Lake Charles area, located just 60 miles to the east and home to a plant operated by Excel Paralubes, as well as the Citgo facility.

Along with the refineries that feed them, all four plants shut down last week and remained closed yesterday. All four companies said they were still trying to assess damage but had not yet detected major on-site problems. There were problems aplenty in the area, though.

The biggest appeared to be lack of electricity. Energy company Entergy reported that more than 400,000 customers were still without power across southeast Texas and southwest Louisiana yesterday afternoon. Moreover, the company advised that Rita had caused extensive damage to its network, knocking out 287 substations and 290 transmission lines – some of them major. Preliminary assessment found damage to many thousands of utility poles, wire spans and transformers.

Entergy said it had 10,000 people in line crews working to repair damage. News reports said critical sites such as hospitals and police stations were expected to have power later this week, but also cited estimates that some areas might remain blacked out for months. Refineries were expected to be relatively high priorities.

Base oil producers said repairs to other infrastructure – such as transportation networks – would also have to be made before they resume operations.

Assessments are being performed, and priorities include restoring water and electricity to run the facilities, ExxonMobil said Monday in a statement about the status of its Beaumont refinery. We expect these assessments to be completed later this week, at which time we will have a better understanding of future operational schedule.

Lubricant blenders eagerly awaited such information because the four downed plants have a combined capacity of 86,900 barrels per day, accounting for 34 percent of total U.S. base oil capacity and 42 percent of paraffinic capacity.

Several industry sources speculated the industry might survive on inventories for two more weeks without serious disruptions.

A lot of inventory was already moving on rails, trucks and barges before the storm struck, said one source, who spoke on condition of anonymity. A lot of [blenders] can probably get by on that for a three-week [starting from last week] shutdown. Beyond that, I think you would start to see spot shortages of certain grades. And if it stretches to four weeks, you could have numerous blend plants that have totally depleted their inventories.

At the same time, observers said the lost production will probably have an immediate impact on some blenders that depend heavily on the closed plants. In addition to the facilities at Port Arthur, Beaumont and Lake Charles, ExxonMobils refinery and base oil plant in Baytown, Texas, began shutting down Sept. 22 and did not begin to restart until yesterday. The industry lost a weeks worth of the base oil plants 21,000-b/d capacity.

When you add it all up, thats a huge chunk of the base oil market, said Ronnie C. Walker, chief operations officer with Warren Oil Co. in Dunn, N.C. Were not affected right now, but Im sure its going to cause shortages for some companies.

Citgo confirmed yesterday that it has issued a force majeure declaration for paraffinic base oils produced at its Lake Charles plant. Companies exercise force majeure provisions of contracts in order to obtainrelief from contractual performance requirements when performance is impossible because of events beyondtheir control.

Lubricant additive plants along the Gulf Coast fared better than base oil plants because they were located outside the main path of the hurricane. Lubrizol Corp. said its plants in Deer Park and Bayport, Texas, reopened over the weekend. ILMA reported yesterday in its online newsletter, Flashpoint, that Infineums plant in Houston was operating normally. Sources said the same was true for Afton Chemical Corp.s plant in Houston.

Oronite has been working to reopen its plant in Belle Chasse, La., just east of New Orleans, since Katrina smashed the Gulf Coast Aug. 29. The company evacuated most employees again as Rita approached, but later restarted several manufacturing units and resumed shipping from existing inventory. The company said it will continue the process of returning operations to normal levels but that it expects to maintain global allocations of most lubricant additives. Oronite declared force majeure more than two weeks before Katrina, citing strong demand for additives and tight supply of raw materials.

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