Projecting growing European demand for Group II base stocks, Shell announced last week that it will supply significant volumes of Motiva products in Europe in the second quarter of this year.
We will be bringing in significant volumes of Group II product, sufficient to meet our targeted customer needs, Shell Lubricants Jacky Freer, external affairs and media relations manager, told Lube Report yesterday. And, in terms of product availability, pending the successful launch of Motivas expansion, [Group II] products are anticipated to become available to customers in Europe in quarter two 2006.
Shelly Linkerhof, global base oil and wax marketing, Shell Nederland, announced the Shell-Motiva marketing agreement at the ICIS World Base Oils Conference in London on Feb. 17.
Linkerhof said Shell sees a significant and continuing market in Europe for Group II base oils. With Group I production declining and Group III in tight supply, she said Shell will import Group II base stocks from Motiva Enterprises Port Arthur, Texas, refinery to fill the gap between Group I and GTL [gas-to-liquid base stocks] in the 2006 to 2009 time frame. And Shell believes European demand for Group II will continue beyond the introduction of GTL.
2005 was an unprecedented year for European base oils, Linkerhof said, with price escalation, supply disruption and Group I plants closing. From January to December, last year saw a 69 percent increase in the price of light neutrals, and a 47 percent rise in bright stock prices. Base stock pricing reflected crude increases, she noted. The average Brent crude price has increased 82 percent over the past two years.
Volatile crude prices, high energy costs and distortions in supply and demand are likely to characterize 2006, Linkerhof continued. Regulations are driving demand for more high-quality base oils, but Europe lacks the Group II to meet this growing demand.
Global Group II production, including the upgrade at Motiva Enterprises, is 9.8 million tons per year, or 17 percent of the worlds total base oil capacity, Linkerhof said. Seven companies – Motiva, ExxonMobil, Chevron, Petro-Canada, S-Oil, ConocoPhillips and Flint Hills Resources – control 72 percent of Group II capacity. But Group II production is concentrated in North America and Asia. North America supplies 63 percent of the worlds Group II, the Asia-Pacific region supplies 35 percent, while Europe and the former Soviet Union each supply just 1 percent.
The shift away from Group I to high performance base oils in Europe makes importing Group II a viable option, Linkerhof concluded, despite estimated freight costs from the U.S. Gulf of Mexico region of U.S. $65 to $75 per ton. (She noted by contrast that estimated freight costs from Asia run $90 to $100 per ton.) Shell believes in looking to the future by utilizing new technology, she said, and is ready to supply Group II Motiva products to the European market.
Formed in 1998, Houston-based Motiva Enterprises is a refining and marketing joint venture of Shell Oil and Saudi Refining. Including Motivas current expansion, its operating capacity is 2 million metric tons per year, making it the worlds largest single-site Group II and II-plus producer.