Base Oils Under Fire: Chevron Allocates


Chevron imposed allocations on base oil sales in the United States yesterday, a move that reflected a worsening supply scene.Additionalsymptoms arose in the form of a force majeure declaration by a white oils supplier and a report that another base oil supplier allocated sales of heavy oils.

Meanwhile, the startup of the much-awaited expansion at Motivas Port Arthur, Texas, plant was postponed until next week, according to market sources.

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Chevron announced its allocations in a letter dated yesterday and distributed to customers. The letter, a copy of which Lube Report obtained, stated that orders of Group II 100 neutral and 600 neutral will be capped at 80 percent and 65 percent, respectively, of previous projected volumes. Other grades were capped at 100 percent of normal levels. All of the limits took effect immediately.

Chevron, which both sells and buys base oils, attributed its action to a tightening of supply caused by disruptions at other producers. Specifically it cited a Jan. 7 fire that closed part of Petro-Canadas plant in Mississauga, Ontario, and a Feb. 1 fire that completely shut down the Excel Paralubes plant in Westlake, La. Chevron stated that two of its base oil suppliers declared force majeure after the latter incident. Excel Paralubes is a 50-50 joint venture between ConocoPhillips and Flint Hills Resources, both of which declared force majeure, a declaration of their inability to meet contractual obligations.

Chevron refuted statements by others in the industry that its allocations were caused by reductions in yield at its Richmond, Calif., plant, which has capacity to make 15,000 barrels per day of mostly Group II oils. In a statement to Lube Report, Global Sales and Supply Manager Nick Livanos said the plants performance continues to rank in the industrys top quartile.

Base oil buyers said Chevrons action will be another blow to its customers on the West Coast.

This is going to cause problems for us, and in some cases we will have to turn around and pass these problems on to customers, said an official at a company with blending operations on the West Coast. Speaking on condition of anonymity, he added that his company has searched but found no alternative sources of supply. We do not see a spot market anywhere in the world right now.

Penreco confirmed today that it declared force majeure and implemented allocations for three of its white oil products Friday. In a letter of that date, the Woodlands, Texas, company attributed its action to a plant shutdown and force majeure declaration by of one of its major feedstock suppliers. It capped orders for Drakol 600 and Parol 500HP at 50 percent of normal levels and orders of Drakeol 600T at 60 percent, adding thatthose limits are based onprojections of feedstock balances through the end of April.

The supplier referred to in the letter presumably is ConocoPhillips, which owns half of Penreco. The other partner is merchant banker M.E. Zukerman and Co.

An article in yesterdays issue of Flashpoint, the weekly online newsletter of the Independent Lubricant Manufacturers Association, reported that Group I supplier Sunoco announced allocations last week on 525 and 600 neutrals. The article attributed the information to an unnamed ILMA officer. Sunoco officials did not return phone calls seeking comment yesterday.

With all of the disruptions plaguing the U.S. market, many base oil buyers have eagerly awaited the opening of Motivas massive 15,000-b/d expansion at Port Arthur. Previously scheduled for Feb. 1, the target start-up date had been pushed back to yesterday. But outside sources said the date has now been postponed another week. Motiva declined to comment.

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