Base Oil: Long or Short Depends on Region


JERSEY CITY, N.J. – For lubricants as for real estate, location plays a big role in what blenders will pay for base oils, and what offerings will be in short or long supply. With the global lubricants market growing just 1 to 3 percent annually through 2010, the outlook for base oil supply differs markedly by product and region, the ICIS Pan-American Base Oils & Lubricants Conference heard here last week.

Consultant Thomas Glenn of Petroleum Trends International, Metuchen, N.J., offered his forecast of base oil supply-demand balances by region of the world.

Understanding the base oil market requires understanding the finished lubes market, he said. Global finished lubricants demand in 2005 was 36,200 kilotons, he said, driven by demand in the United States, China, Japan and India.

Glenn forecast differing rates of growth or decline in finished lubricants from 2005 to 2010 for the different regions. Asia will lead with annual growth of about 3.9 percent. Expect the North American finished lubes market to grow just 0.5 percent a year, while the market in Western Europe shrinks about 1 percent a year. The finished lubes outlook for Latin America is a little brighter, with growth of some 1.7 percent annually, but from a small base, while the rest of the world sees growth of about 1.2 percent.

Theres no stellar growth, said Glenn, but there are bright spots, including marine lubes, food-grade lubes, calcium complex greases,and some synthetics.

In North America, finished lubricants demand was 10,400 kilotons in 2005, with about 80 percent of that demand in the United States, 10 percent in Canada and 10 percent in Mexico. Demand is generally flat, but finished lubes favor higher quality base stocks, Glenn said. On the supply side, the past couple of years have been a challenge, with 2005-2006 the worst period for base stocks and for blenders in memory. But its changing. Prices have skyrocketed and the anticipated oversupply hasnt happened yet.

Base stocks supply in North America will continue to consolidate, Glenn predicted, noting that 70 percent of U.S. base stock supply, and 75 percent of its Group II, is now in the hurricane-prone Gulf of Mexico region. Rationalizations are possible among smaller paraffinic plants in Canada. At the same time, Shell has said it will move base stocks from Motiva to Europe, and others, such as Chevron and Excel Paralubes (a 50-50 joint venture of Flint Hills Resources and ConocoPhillips)may follow suit. “Any overhang in North America won’t sit here and depress prices,” Glenn pointed out. “It’ll be moved to elsewhere in the world.”

Turning to the Asia-Pacific region, where demand for lubricants totaled 11,300 kilotons in 2005 – 40 percent of that demand coming from China alone – Glenn noted the shift from monograde engine oils to multigrades is a major factor driving demand for lighter, higher quality base stocks.

Western Europe, with demand for 4,900 kilotons of lubes in 2005and its lead in technology and environmental issues, will continue to shape demand, Glenn said, although more rationalizations are likely, especially of smaller Group I and “borderline” Group IIIplants.

GTL is coming, Glenn concluded, but be cautious. Large-scale production has been pushed back from 2008 to 2011, and theres no more free natural gas. Shell, ExxonMobil and Chevron will likely be leaders in gas-to-liquids base oils eventually, said Glenn, “when significant grade shifts will change the base oil business as we know it.”

Glenn’s forecast for paraffinic base stock supply-demand balances in key regions:

North America

Western Europe


Lube demand, 2005

10,400 kilotons

4,900 kilotons


Group I

Balanced in 2007 & 2010

Long in 2007 & 2010

Short in 2007 & 2010

Group II

Long in 2007 & 2010

Balanced in 2007 & 2010

Long in 2007; balanced in 2010

Group II-Plus

Balanced in 2007 & 2010

Limited demand

Limited demand

Group III, incl. GTL

Balanced in 2007; short in 2010

Balanced in 2007 & 2010

Long in 2007 & 2010

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