Chevron has slowed construction on its 25,000 barrels per day Pascagoula, Miss., base oil plant to take advantage of the current lower cost environment, a Chevron official said. It now estimates completion in 2013 instead of 2011.
In August last year, Chevron announced it had submitted an environmental permit application to the Mississippi Department of Environmental Quality for construction of the premium base oil facility at the refinery. The company said the facility will focus on the North American and European premium base oil markets, with Latin America also in the mix.
Brent Lok, base oil marketing and new business development manager, last week emphasized Chevron was not postponing the project. Were not putting it on hold, were not delaying it – were just slowing down the pace, Lok told Lube Report. Thats an important distinction I want to make. Construction completion is expected to be about a year to 18 months later than originally anticipated, he added.
Lok said slowing down the project will help Chevron take advantage of the current lower cost environment. We did a tremendous amount of these contracts for both labor and for fabrication last summer, right at the peak of costs, he explained. Right now, its a much better cost environment, much more of a buyers market, and we want to take advantage of that to lower the cost of the facility.
Chevron crews continue to prepare the Pascagoula site. It probably wont be as large a staff, and will probably have slightly smaller staff, but there has not been any halt in activity.
He noted that Chevron has not rebid all of its reactors. Those are the ones with the longest lead times, he said. They are one of the most expensive items. Because theyre long lead items, we want to make sure we get those on time. So weve kept those, and those reactors will be [constructed] on schedule.
The company wants to manage costs, he noted, and is not reacting to base oil market forecasts. Its not a reflection of what we think the Group II base oil market projections are, Lok continued. Were not thinking Group II demand is going down; we think demand is continuing to increase. If we could do it more cost effectively sooner, we would definitely do it sooner.
Chevron is very much committed to continuing to supply API Group II base oils on a global basis to all regions, especially to European customers, Lok emphasized. We want to re-emphasize our commitment to Europe, he stated. Through this whole period, up until and including the start of Pascagoula, were very much committed.
To try to ease some of the pain that may ensue because of issues around the availability of its base stocks, Lok said, Chevron is looking at options to increase production at its Richmond, Calif. base oil plant, which has about 20,000 b/d of Group II capacity. Were aggressively looking at that, in fact, he stated. So that will give us more barrels to address our customers growing demand for Group II base oil.
Slowing the projects pace has also given Chevron more leeway to look at its design and options, according to Lok, including whether the Pascagoula site could have the ability to produce Group II+ or Group III base oils. GS Caltex, a 50-50 joint venture of Chevron and South Korean company GS Holdings, has 12,750 b/d of Group II and 4,250 b/d of Group III capacity in Yeosu, South Korea.
Lok noted that some companies that use Group II+ or III base oils in manufacturing finished lubricants in the United States and then ship them to Mexico and Canada are interested in domestically manufactured Group II+ and Group III base oils because that would make their products tariff-free under the North American Free Trade Agreement.
He pointed out that most Group III base oils in North America today are imported. The only North American base oil plant with Group III capacity today is the Petro-Canada base oil plant in Mississauga, Canada, with 2,000 barrels per day. Theres a subset of people who would like to see more domestic availability of Group III base oils, Lok continued. We are looking at it.