Solvent refineries, using older technology, are characterized by solvent extraction and solvent dewaxing processes, said Brunk. They require lube crude: sweet (low-sulfur), highly paraffinic crudes. They primarily produce API Group I base oils and bright stocks, and typically product slack or finished waxes. Their low-value byproducts (typically priced lower than crude) include extracts and asphaltenes. The typical solvent refinery produces 5,000 to 5,500 barrels per day of base oils.

The yield of a solvent refinery, Brunk said, is typically a total of about 14 percent high-value base oils and refined wax.

The second basic refinery type is the lube hydrocracker, characterized by hydrocracking and catalytic dewaxing processes. This allows wider crude selection, so crude can be cheaper, Brunk continued. These plants can produce Groups II, II+ and III base oils, although they typically produce Group II and lower viscosity index extra-light streams, which are lower value. Any higher quality production comes at the cost of yield loss or higher feedstock cost. The hydrocracker produces no wax or bright stock, but it does produce high value byproducts (low-sulfur gasoline and diesel components) as well as a small volume of low-value byproducts.

With lube hydrocracking, you get 10 percent more barrels out than you put in, said Brunk, because the process changes the density of the oil, so the volume expands. A typical hydrocracking plant produces 20,000 b/d of base oils, huge compared to solvent refineries.

The hydrocrackers yield, said Brunk, at about 12 percent, is almost the same as for solvent refining, for high-value lube products.

The worlds newer base oil plants stick a catalytic dewaxer on the back of a fuels hydrocracking refinery, said Brunk. These newer designs, using, for example, Chevrons trademarked Isodewaxing technology, are justified based on low-sulfur diesel fuel production, offering a relatively inexpensive route to base oil production. Crude selection is of no concern, Brunk noted. The plants typically produce Group III base oils, only light and mid neutrals, with no wax or bright stocks.

With the Isodewaxing-type technology, said Brunk, almost all the byproducts are high value, mainly low-sulfur gasoline and diesel components. The plants typically produce less than 10,000 b/d of base oils.

And, Brunk said, they have much lower base oil yields, typically around 5 percent.

Comparing base oil refining to fuels refining, Brunk noted that fuels have a much higher yield, typically around 26 percent, due in part to volume expansion.

Turning to construction costs, Brunk said that, for 10,000 b/d of base oil production, an Isodewaxing-type plant is cheap compared to solvent, at less than 40 percent of the solvent refinerys cost. The lubes hydrocrackers construction cost, for that 10,000 b/d of production, is about 60 percent of the cost of the solvent refinery.

Feedstocks are three fourths of the cost of base oil, Brunk pointed out. Solvent plants are tied to traditional low-sulfur lube crudes, while newer technology plants can use heavy, sour and nontraditional crudes. There is a big increase in margins – as much as $7 per barrel in 2008 – using Arab heavy vs. Arab light, Brunk said.

Operating expenses, the other 25 percent of the cost to produce base oils, include energy, maintenance, manpower and the chemicals for solvent plants or catalysts for hydrocrackers and catalytic dewaxers. Here again the newer technology has advantages, Brunk noted. On a 2006 basis, a lube hydrocrackers operating expenses were typically about 60 percent of a solvent plants. And an Isodewaxing-type plants expenses were a miserly 30 percent.

Product value, said Brunk, is the final basic factor to consider to understand base oil refining economics. Solvent plants must have high value byproducts – bright stock and waxes – to compete, he said, while hydrocrackers and Isodewaxers produce premium priced base oils.

Looking at historic base oil pricing data, there is not much difference between Group I and II, noted Brunk. But Group III prices are higher, and today both bright stocks and wax have become premium products.

Comparing well run plants, Brunk concluded, there is a hydrocracker advantage over solvent refining amounting to pennies per gallon. But solvent plants can compete if they are well run, he emphasized.

I dont expect any new solvent plants to be built, and there will be minimal efforts to improve the technology, said Brunk. Any new plants, like the Chevron plant in Pascagoula, Miss., will be Group II/III, creating supply pressure in the base oil market. Lower cost plants will have the competitive edge in an oversupplied market. Low cost plants can supply the world and make a profit.

To compete, well run solvent plants must get everything out but the squeal, Brunk chuckled, and they must control operating expenses. While cost isnt always the deciding factor, high cost plants are in danger.