NEW YORK – While Latin America can expect its API Group I producers to be viable well past 2020, North America is braced for more Group I shutdowns – most likely Sunocos Oklahoma and Valeros New Jersey plants – an industry expert predicted earlier this month, before Sunoco’s latest announcement.
Amy Claxton, principal of My Energy, a consulting firm based in Hummelstown, Pa., outlined the challenges facing Group I producers in the Americas at the ICIS Pan-American Base Oils & Lubricants Conference here this month.
In 1988, Claxton said, North American paraffinic base oil refining capacity totaled 200,000 barrels per day at 34 plants; all was Group I capacity. By late 2008, with Citgo and Marathon already out of the picture, total paraffinic capacity stands at 190,000 b/d at 11 plants; just 70,000 b/d of that total is Group I.
ExxonMobil (including Canadas Imperial Oil) is North Americas Group I leader, with more than 39,000 b/d capacity. Valero is second, at 11,000 b/d, followed by Sunoco at 9,500. Calumet, Shell, American Refining Group and Ergon have less than 5,000 b/d capacity each.
Technical demand for higher quality Group II and III base oils is driving Group I rationalization in North America, said Claxton, although Group I is still valued in many applications.
In Latin America, Claxton said, paraffinic base oil capacity, all Group I, totaled about 50,000 b/d at 18 plants in 1988. Today, the remaining 10 plants have about 41,000 b/d of capacity, of which 40,000 is Group I. A lot of very small plants rationalized since 1988, she noted.
In Latin America, technical demand for higher quality base oils will become a factor by the 2013 to 2014 time period, said Claxton, but many lubricant companies may chose to buy rather than make the needed Group II and III base oils.
While the Americas have crude reserves that are second only to the Middle East, most are in Canadian tar sands and Venezuelas Orinoco Belt, Claxton said. Unfortunately for the regions lubes businesses, most of the Americas crudes are low paraffin and therefore uneconomic for lubes.
Most Middle East crudes are paraffinic lube-friendly, while most Americas crudes are low yield or not viable for paraffinic lubes, Claxton continued. What this means is that multiple crude segregations and greater raw material flexibility are required for lube manufacturing in the Americas compared with other regions of the world.
3 Sets of Questions
Claxton said there are three groups of questions to ask, to determine whether a given Group I plant is a candidate for survival. The first concerns crude cost and quality: Does the refinery run high-yield lube crudes? At what cost? Does it have good pipeline or waterborne access? Does it have the flexibility to optimize its crude use?
The second group of questions concerns high value byproducts: Does the Group I plant make fully refined paraffin wax? Does it make bright stock?
And finally, what is the strategic nature of the asset: Does the plant fit the parent companys portfolio?
Applying these questions to the regions Group I plants underscores the plants most likely to survive, and those most likely to be shuttered.
Virtually all of the regions Group I plants either have crude flexibility and/or access to regional high quality lube crudes. The lone exception, Claxton noted, is Sunoco, which is landlocked in Tulsa, Okla., and tied to good fuels crudes.
Looking at which plants can maximize output of wax or bright stock to improve profitability shows that Pemex, Repsol, ExxonMobil, Petrobras and Ecopetrol are strongest, with both finished wax and bright stock production. American Refining Group, Shell, PdVSA, Calumet, Sunoco, Ergon and YPF Bolivia all product bright stocks and slack waxes. Only Imperial Oil makes just slack wax and no bright stock, while only Valero makes just bright stock but no waxes.
Finally, looking at the strategic nature of the Group I plant, a Group I plant will generally be more important to specialty refiners and to national oil companies, said Claxton. At American Refining Group, Calumet and Ergon, the Group I plants themselves are very important to their owners and the parent companies have a strong base oil focus. That makes these plants unlikely candidates for closure.
The bulk of the regions plants – PdVSA, Petrobras, Pemex, Ecopetrol, Repsol, YPF Bolivia – fall in the middle: the parent companies have some base oil focus and the individual plants are fairly important. Thus these plants are less likely to shut down.
ExxonMobil (including Imperial Oil) and Shell have strong base oil focuses, although their individual Group I assets in North America may be of relatively lower importance to the companies. Its possible that the parent companies might rationalize one or more plants.
Only Sunoco and Valero fall at the weakest end of the scale, said Claxton. Their parent companies have little or no base oil focus, and the base oil plants themselves are of relatively little strategic importance to the parents.
Group I will be viable past 2020, Claxton concluded, noting its many applications. For many Group I producers, industry partnerships with Group II and III suppliers can delay, reduce or avoid the need for investment. And the high value byproducts from Group I plants are already in short supply and getting tighter.