Hoffman, Valeros San Antonio, Texas-based director of base oil and process oil sales, foretold the future of API Group I base oil refineries in the United States at the ICIS Pan-American Base Oils & Lubricants Conference here Nov. 30.

The reason that Group I will go away, sometime, Hoffman said, is that 50 percent of base oil demand is for motor oils, and meeting newer specifications increasingly requires use of higher quality Group II or III base stocks. For example, lower sulfur requirements for motor oils favor using Group II and III base stocks over Group I. The volatility requirements favor viscosity indices of 115 and up, requiring Group II-plus, Group III or higher base stocks. And mileage improvements require low viscosity and high VI, again calling for Group II-plus and Group III stocks.

Demand for Group II quality or better is also driven by rising base oils costs, Hoffman noted. If I have to pay more, I want more quality.

But there are some compelling reasons why Group I should survive. Industrial lubricants, including gear oils, general industrial oils, process oils, grease and metalworking fluids, are the other 50 percent of finished lube demand. Today, many of these products rely on naphthenics and bright stocks, both of which are in short supply, said Hoffman, so low-vis Group Is may move into this market.

Future shutdown of some Group I plants will maintain or expand the demand for output from the survivors, Hoffman contended. Heavy neutrals and bright stock only come from Group I plants. But to survive, our customers must be partners, not just opportunistic buyers.

Hoffman outlined steps to delay or prevent the demise of a Group I plant. Byproduct marketing may save some plants, he noted. Byproducts include slack wax as a product and feedstock, and finished paraffin and micro wax – although micro is only available if bright stock is produced.

Another byproduct that was a good business is production of aromatic extracts. However the market for rubber process oils is expected to decline by 2009 or 2010 because of European Union rules banning aromatic extracts in tires after 2010. Likewise, their use as an asphalt rejuvenator may be challenged due to emissions.

Surviving Group I plants can benefit from export opportunities, particularly if they have deep water access. Theres more product tiering now because of costs, Hoffman continued, and that creates market opportunities for Group I stocks, such as use in unlicensed passenger car motor oils. But the demand for 2003 technology will decline. Its excellent solubility supports the use of Group I in additive diluent oils. However, dil oils will shift to Group II with the arrival of the GF-5 engine oils specification. Theres already Group II used in dil oils, and ultimately, with so much base oil in the additive package, even Group II may not be good enough alone, he said.

The low viscosity of Group I oils presents a dilemma, Hoffman said. There is very little flexibility in a Group I plant, that makes 50 percent or more solvent neutral 100 to 150 stocks that have been used primarily in motor oils and automatic transmission fluids. Production flexibility could help increase heavy neutral production some, but we can only process what Mother Nature gave us. Further, bright stock production is limited by propane de-asphalting capacity, and were unlikely to get help here. No one will build pda to get more bright stock.

Plant conversion is one option for Group I refiners to survive. You can modify your processing scheme; add hydrotreating or even more, Hoffman said. For example, Ergon changed its operating conditions to make Group II; ExxonMobil added processing for Group II-plus at its Baytown refinery; Motive underwent a major upgrade to Group II; and American Refining Group is adding hydrotreating to improve quality.

Another option is to tear down everything but the tank farm and add a fuels hydrocracker or isomerization train, but this isnt practical in the United States today, Hoffman said. Its too expensive.

Other threats facing the Group I refiners are the predicted arrival of gas-to-liquids derived base stocks from the Middle East, and fuels hydrocracker-based Group III plants being developed in Asia. Im not sure whether GTL or fuels hydrocrackers are the biggest threat, Hoffman mused. Group III from the Far East may be the bigger threat.