The year that is winding down has been eventful for the global lubricants industry – featuring a rocky road for lubricant standards in North America and big changes in the make-up of several markets.
Once again there were significant delays to a major engine oil specification upgrade, this time ILSACs GF-6 passenger car category. Two Middle Eastern oil companies entered the ranks of base oil marketers, and U.S. refiners began producing Group III base stocks for the first time in years. There were mergers that will reshape industry supply chains.
Below are some of the biggest stories of the year.
Spec Development Sputters
While some might argue that it did not qualify as news, GF-6, North Americas first upgrade of passenger car engine oil standards since 2009, experienced more delays in 2017, primarily due to ongoing difficulties developing new engine tests. The category does seem close to completion and appears on track to come to be approved in early 2019 and come to market in 2020.
Automakers finally reached a limit with the delays, though, and called on the oil industry to fast-track a partial upgrade to the existing standard, which will tide them over until first licensing of GF-6. The supplemental category, which will be named API SN-Plus, could be approved and licensed for first use by May of next year.
These events served as more fuel for ongoing complaints that cooperative development of industry oil standards is becoming excessively difficult and expensive – as automotive engines evolve and designs diverge, as lubrication performance demands rise, as oil formulation windows shrink and as industries lean more on expensive engine tests.
The problems are compounded when the industry loses the use of existing tests and has to scramble to find new solutions. For the second year in a row, the American Petroleum Institute was forced to invoke provisional licensing in March for API SN and GF-5 because laboratories ran out of test stands used for a fuel economy test.
Lube Demand Flat, as Market Shifts to Synthetics
Global lubricant demand is expected to increase at a compound annual rate of less than 1 percent, to 41 million metric tons by 2021, according to consultancy Kline & Co., with the continued shift to synthetics both suppressing volumetric growth and boosting revenues in some countries. Kline estimated global finished lubricant demand at 39.6 million tons in 2016, including process and marine oils. The Asia-Pacific region had the most demand, followed by North America and Europe. Motor oils for passenger cars and equipment powered by two- and four-stroke engines took the lead in terms of lubricant demand by application for the first time, ahead of heavy-duty motor oil, followed by process oil.
More Base Oil Marketers
Despite the existence of a significant surplus, global base oil capacity continues to rise, reaching 1.11 million barrels per day in 2017. This year also saw the entry of several new marketers, which should increase competition.
Saudi Aramco announced the launch of a base oil marketing business, marking its shift to an active supplier rather than a somewhat passive base oil investor. The move came as Aramco was preparing to add Motivas Group II refinery in Port Arthur, Texas, to its other base oil assets, which include majority stakes in Koreas S-Oil and Luberef in Saudi Arabia.
Bahrain Petroleum Co. also entered the market after an amendment to its marketing agreement with Neste, its joint venture partner in a Group III plant in Sitra, Bahrain. Neste had marketed all of the output since the plant opened, but Bapco now has rights to sell 55 percent. On the other hand, Flint Hills Resources announced it would stop marketing its share of base stocks produced at the Excel Paralubes plant in Westlake, Louisiana.
U.S. Finished Lube Prices Rise
The U.S. finished lubricants market experienced three rounds of price increases during 2017.
One round ranging from 3 percent to 8 percent took place from around Feb. 20 through March 20. A second round of increases, most in the range of 3 percent to 9 percent, took effect mainly from mid-May into early June. A third round of price increases took effect from early through mid-December. Factors commonly cited included rising costs in base oils, additives and other raw materials, as well as for packaging and transportation.
U.S. Produces Group III
The United States is a significant consumer of Group III base stocks, but produced none at the start of this year. That is no longer the case, and domestic output will now compete with imports from the Pacific Rim, Europe and the Middle East.
In December Motiva made a much anticipated disclosure that it has begun making Group III at its refinery in Port Arthur, Texas. Earlier in the year Calumet Specialty Products Partners L.P. announced that it has begun making 400 barrels a day of API Group III base oil at its plant in Shreveport, Louisiana. Avista Oil in 2016 claimed capacity to make 8,000 tons per year of Group III at its rerefinery in Peachtree, Georgia as of the third quarter last year.
Mergers
Mergers and acquisitions are big stories almost every year, and 2017 saw one large deal in the industrial lube segment and another that fell through involving specialty chemicals.
In April Quaker Chemical announced an agreement to acquire Houghton International for $172.5 million in cash, a deal combining two of the worlds largest suppliers of metalworking fluids. The union that was not completed was Clariants proposed merger with Huntsman. The companies, both significant suppliers to the lubricants industry, announced their agreement – which would have had a market value of roughly $20 billion – in May but abandoned it November due to a lack of support from Clariants largest shareholder.
Other deals affecting the lubes industry included an announced merger of Elco Corp. parent Detrex and Italian specialty chemicals supplier Italmatch Chemicals; SK Capitals acquisition of ICLs fire safety and oil additives business units; a merger of Pugh Lubricants and Apollo Oil, which created one of the largest lubricant distribution companies in the Eastern United States; and Fuchs Petrolubs acquisition of Romanian distributor Lub Asyst.
AkzoNobel rejected a $22 billion unsolicited takeover bid in March from paints and coatings supplier PPG Industries and announced a review of strategic options for separation of its specialty chemicals business.
PAO Capacity Rising
Penetration of synthetic lubricants is rising across much of the globe, and petrochemical companies believe polyalphaolefins will be part of the solution to that increase in demand. Two plant expansions were completed in 2017, and another giant project is in the works.
Chevron Phillips Chemical Co. in June completed a 20 percent expansion of low-viscosity polyalphaolefins capacity at its Cedar Bayou plant in Baytown, Texas, bringing it to 58,000 metric tons a year. Ineos Oligomers in the summer added 20,000 tons of PAO in La Porte, Texas, bringing capacity there to 105,000 t/y, and later announced that Chocolate Bayou, Texas, would be the home of its next project: a massive 120,000 t/y PAO train due in 3Q 2019.
On the minus side of the ledger, Lanxess moved to permanently close a 15,000 t/y high-viscosity PAO plant in Ankerweg, Netherlands, as unneeded. It had acquired the facility when it bought Chemtura in April.