Chinese oil giant Sinopec announced last week that it has finished upgrading its Gaoqiao base oil plant and expects this month to begin making Group II base oils there. The plant will be the biggest premium base oil producer in China, with capacity to make 5,800 barrels per day of Group II and Group III stocks.
In an Aug. 24 announcement in its own newspaper, China Petrochemical News, Sinopec said the new oils will help meet rising demands for quality in the Chinese finished lubricant market. It added that it plans to raise the quality of its own lubes for sale in China and abroad.
Observers agreed that the upgrade is a significant development for Chinas burgeoning lube market.
This facility will be an important addition that will allow the Chinese market to shift to higher-quality finished lubricant formulations that will be needed to serve rapidly growing new vehicle sales, said Bruce F. Burke, vice president of petroleum and chemicals for Nexant Inc., an international consulting firm based in White Plains, N.Y.
Chinas oil industry has gained a modest amount of Group II capacity in recent years, but Gaoqiao is now the largest source. The main step in the upgrade was the installation of Sinopecs first lube hydrogenation equipment.
East Asia and the Pacific Rim already have excess capacity for premium base oils – the biggest facilities being in South Korea, Singapore and Japan. Analysts say, however, that the region will need more Group II and Group III oils in the future, largely because demand is rising in China – in terms of both volume and quality. Burke said finished lube demand in China – already the worlds second-largest market – is projected to grow at an annual rate of 5 percent to 7 percent for the next decade. Asian demand for lubricants made with premium base oils, he added, is expected to grow 6 percent per year to 2.4 million metric tons by 2010.
Essentially all new base oil capacity that will be built in the region will be Group II and higher, Burke said.
Sinopec and PetroChina claim the biggest shares of Chinas lubricant market, but both are desperate to competemore successfullyin the high-quality part of the market, which has most of the profit. To date, foreign companies have dominated in sales of high-quality products.
Both Sinopec and PetroChina have been pressured by competitors in both the high and low ends of the market, said Kang Wu, a research program fellow at the East-West Center think tank in Honolulu. Companies making low-quality products can beat them on price, and the foreign companies have the reputation, at least, of beating them on quality. This project should help Sinopec compete better in the high end of the market.