The U.S. lubricant industry continued holding its breath this week as four base oil plants remained closed in the wake of Hurricane Rita.
The refineryhousing one plant was scheduled to begin restarting today, but the operator for another said it would likely remained sidelined for approximately two more weeks. Ten days after the storm, the other two refiners still offered little information about their facilities and no projection of when they might be back in business.
Lube blenders generally appeared to be keeping their heads above water, but seemed anxious. Base oil shortages look increasingly likely, observers said, even under best-case scenarios.
Its looking more and more as though [production at the closed plants] is not going to resume fast enough and that there is going to be a bubble in supply, said Celeste M. Powers, executive director of the Independent Lubricant Manufacturers Association in Alexandria, Va. Theres a good chance that inventories are going to run out and that there is going to be a gap, and people need to be preparing for that.
The sites closed by Rita are Motivas plant at Port Arthur, Texas, an ExxonMobil plant at Beaumont, Texas, Citgos plant at Lake Charles, La., and the Excel Paralubes facility at Westlake, La. They have a combined capacity of 86,900 barrels per day – which is 42 percent of total paraffinic capacity in the United States.
Electricity has been the most immediate obstacle to their reopening. New Orleans-based Entergy Corp., the utility for the region, said yesterday that it has restored service to two-thirds of the 776,000 customers that were cut off after Rita bowled through the region Sept. 24. Yesterday afternoon, Citgo said power at its refinery is being re-established progressively this week, andadded that it planned today to re-start the first boiler unit – a key step of the start-up sequence.
A market source said at least some power has also been restored to Excel Paralubes, a 50-50 joint venture between ConocoPhillips and Flint Hills Resources. ConocoPhillips projected that its Lake Charles refinery, which provides feedstock for Excel Paralubes, will start up in mid-October.
Flint Hills Resources confirmed yesterday that it has declared force majeure for base oils, as Citgo did last week. Companies exercise force majeure provisions of contracts in order to obtainrelief from obligations when performance is impossible because of events beyondtheir control.
A Motiva spokesman said yesterday that power to the Port Arthur refinery has not been restored and that the company has no estimate of when that will happen, or when the facility will resume production. While noting that electricity is one of the major hurdles to reopening, the Houston-based spokesman, Stan Mays, added that the refinery was damaged by the hurricane and that the company continues to assess production units.
ExxonMobil did not respond to an inquiry about its Beaumont refinery, which includes a lube blending plants as well as the base oil plant.
Market sources said lube blenders that usually purchase from the closed plants have been scrounging to find alternative sources. Its been a real scramble for us, and Im sure its been the same for a lot of other people, an official with one blender said on condition of anonymity.
For the moment and in general, observers said, blenders have been able to continue operations by tapping inventories – both their own and those of base oil suppliers. Right now, we really dont have any problems, said Martin A. Kish, a spokesman for Valvoline in Lexington, Ky.
But industry sources predicted inventories will run out and blenders run short of base oils if supplies dont resume within one week – or three weeks from when they were shut down ahead of Ritas landfall. Several noted that the hurricane also damaged transportation networks, meaning there is likely to be an extra long lag between the resumption of base oil production and delivery to blending plants.
On Friday ILMA mailed a letter advising U.S. Secretary of Energy Samuel W. Bodman that fallout from Rita may disrupt the lube market. The association said it is especially concerned about supply of Group II oils used to make automotive and industrial lubricants. The Motiva and Excel Paralubes plants account for more than half of the nations Group II capacity.
[I]t is very possible for there to be shortages, leading to nationwide disruptions for manufacturers and consumers who need the lubricants made from Group II stocks, the letter said.
We wanted DOE to know that there may be a month’s shortfall in base oil supplies, which will have direct effects not only on our members, but also on their customers, ILMA President James Taglia said in yesterdays issue of Flashpoint, the associations weekly newsletter. At the same time, ILMAs letter to DOE should remind our members that they need to be monitoring the situation closely and talking continuously with their suppliers and customers.