Industry will absolutely face a bright stock deficit, Agashe said. Last year, global bright stock supply and demand were in balance at about 70,000 barrels per day, but by 2020, demand will top 82,000 b/d, while supply will decline to about 60,000 b/d.

Demand will continue to rise, especially due to markets in Asia Pacific and [elsewhere] which are growing and which continue to use monogrades, metalworking fluids, marine engine oils and other products blended from bright stocks, said Agashe, who is based in Little Falls, N.J.

Supply is expected to decline, due to closure of Group I plants in North America and Western Europe. No new Group I plants are being built, she said. Hence there is no new supply of bright stock.

Group I plant closures will contribute about 10,000 b/d to the overall deficit, Agashe predicted, while growth in demand in the Asia-Pacific region, particularly China and India, will contribute about 12,000 b/d to the deficit.

Shrinking Supply
Group I plants face the threat of closure in Western Europe because of the decline in finished lubricant demand as well as the shift toward use of Group III stocks in formulations.

In North America, said Agashe, changing motor oil specifications are driving the decline in Group I demand. A surplus of Group II, which will increase with Motivas expansion in 2006, and resulting lower Group II prices, are also pushing formulators to shift to Group II.

The situation will only worsen with the arrival of GTL [gas to liquids] base stocks, which will be marketed in these regions, Agashe said.

Some North American Group I refiners – perhaps Citgo? – may upgrade to Group II or II-plus production, Agashe speculated, but why do it, given GTL base stocks on the horizon? And its possible ExxonMobil Group I plants might process GTL waxy gas oil to make Group III.

Other North American Group I refiners may choose to do nothing, taking advantage of the market for nonlicensed motor oils. For these refiners, the tightness in bright stocks and wax is a current boost, Agashe noted. Others may try to export surplus Group I to Latin America or Asia-Pacific, but Agashe doubts exports can be ramped up significantly.

Finally, closing might be the best option for some North American and European Group I refiners if the companies are more focused on fuels or the plants are too small, said Agashe. The bottom line seems clear. Some Group I plants will close, reducing bright stock supply, and closure of Group I plants will accelerate, depending on the amount of GTL base stocks produced.

Turning to the demand side of the growing deficit, Agashe noted that the new base stock plants being built in the Asia-Pacific region are all Group II and III.

Most of the bright stock demand in Asia Pacific is sticky, said Agashe. In other words, there is no easy substitute, and demand will persist despite high prices for use in marine oils and many gear oils.

The region uses monograde motor oils mainly for price reasons, but high bright stock prices coupled with lower Group II/III prices due to surplus, will bring a swing to multigrades. Such a shift could lower the projected bright stock deficit, Agashe emphasized.

Refiners are generally aware of the coming bright stock deficit, but are unwilling or unable to do anything about it, Agashe contended. The bright stock market is viewed to be very narrow and not attractive or large enough to pull in new investments. At the same time, the newer Group II/III refiners do not have a position in the market, and have no reason to invest.

Closing the Gap?
So do bright stocks have a dark future? No moves are expected to address the shortage, at least in the short to mid-term, said Agashe. There will be no new investment. But as prices rise, supply will increase from existing Group I refiners and from substitutions from PIB (polyisobutene), PAO (polyalphaolefins), naphthenics and other sources. And as noted above, demand for monograde motor oils will drop, decreasing the deficit.

Group I refiners in Latin America, Russia and Eastern Europe, with low capacity utilization rates, can be made more efficient, said Agashe, improving bright stock production. But this increase in supply is unlikely to provide more than 4,000 to 5,000 b/d.

Another alternative for refiners, said Agashe, would be to invest in expanding de-asphalting units to increase bright stock production. But the investment is substantial, about $80 million for a 2,000 b/d unit, hence there is low potential that this option will be selected.

There are fuel de-asphalting units which can be modified and converted to lubes de-asphalting, Agashe noted, but in such a case, bright stock is competing with fuels, and if fuel prices are high in the long term, this is unlikely to happen. In any case, this would not increase supply beyond 2,000 to 3,000 b/d worldwide.

Substitutions are another option for dealing with the bright stock shortfall. PIB is already being used in some applications as a substitute for bright stocks, said Agashe. However, PIB is priced five to six times the price of bright stocks, it is difficult to handle … and most important, PIB supply is also constrained and cannot be ramped up at short notice.

About 20 kilotons per year of PIB are currently used in the lubricants industry worldwide, Agashe noted. To accommodate the entire bright stock deficit, this number will have to double. That is unlikely to happen.

Higher viscosity PAO can also be used as a substitute for bright stock, but on a ton-for-ton basis, equivalent amounts of PAO will be required, dramatically increasing the formulation cost, said Agashe.

Substitution by naphthenic bright stocks is possible, but likely to be limited as the naphthenic market is tight, she said. Finally, Group II plants will be unwilling to produce bright stocks, even at higher prices, due to the fear of fouling their wax isomerization catalysts with the excess sulfur which in inherent in the material.

Bright stock buyers behavior will change, Agashe concluded, although for some applications like marine oils and gear oils, buyers will have to bear the higher price and may shift to substitutes like PIB. Applications like monogrades in Asia will disappear.

Group I suppliers are happy right now. Mostly suppliers will seek to benefit from the shortage by fine-tuning their product offerings to the extent possible.

In Klines view, there is definitely an opportunity in the bright stocks market for substitute products in certain applications, like PIB, naphthenics and others.