China: Thirsty for Base Oils


KUALA LUMPUR – Chinas annual demand for base oils will jump 15 percent from 2007 to 2008, to more than 6.6 million metric tons, and will top 8.3 million tons in 2011. But domestic supply will lag, and the gap will be filled by a sharp increase in the flow of imports, an industry expert predicts.

Shen Ping, general manager of C1 Energy Ltd., a division of Shanghai-based CBI China, told the ICIS Asian Base Oils & Lubricants Conference here in June that base oil is a shining star among petroleum products in China today. Base oil consumption in China rose 14.4 percent to 5.8 million metric tons from 2006 to 2007, while overall petroleum consumption rose less than 9 percent in the same period.

China imported 1.15 million tons of base oils in 2007, Shen said, up 6.4 percent from the prior year. But in the first four months of 2008, imports jumped more than 50 percent over the year-ago period. She predicted a 50 percent increase will hold true for the full year, due to tight domestic supply and a boom in consumption.

Last year 40 percent of Chinas imported base oils came from Singapore, where Shell and ExxonMobil have large API Group I plants. South Korea supplied more than 18 percent of imports, up from 14 percent the year earlier, thanks to imports from the new GS-Caltex plant beginning in October. Other base oil sources included Japan (15 percent), Russia (12 percent) and Taiwan (7 percent), with others accounting for the remainder.

Lubricants accounted for 85 percent of Chinas total base oil demand in 2007, Shen continued. Medicine, food additives, cosmetics and other applications consumed the remaining 15 percent.

Looking at future base oil demand, Shen predicted that the growth rate will slow from this years projected 15 percent increase to a 7 percent annual rate by 2011, when demand is projected to reach 8.34 million tons. Base oil demand is expected to increase much faster than overall petroleum demand, which will grow about 5 percent per year, Shen noted.

Domestic base oil supply is a less rosy picture, however. Fuels are controlled by the Chinese government, especially gasoline and gas oil [diesel], but base oil is not. So refiners adjust production based on factors other than demand, Shen said. The government required gasoline and gas oil production in 2004 and 2005, so base oil productiontook a back seat.In addition, she added, There is lots of government focus on cleaner fuels, but not so much focus on higher quality lubricants and base oils.

In 2007, Chinas domestic base oil production capacity was 4.4 million tons per year, Shen said. She estimated that it will climb to 4.7 million tons per year this year, and 5.1 million tons per year in 2009. But that compares to estimated 2009 demand for 7.3 million tons of base oil.

To meet that demand, base oil imports will increase sharply over the next four years. The growth rate may slow down in 2009, after CNOOCs Huizhou refinery starts commercial operation, Shen said, but she estimated that China will import 2.8 million tons of base oil annually by 2011.

But, Shen cautioned, it is difficult to make money importing base oils. Importers must pay import and VAT taxes.

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