With rapid developments in automotive engine technology pushing lubricants toward ever-lower viscosity in search of punishing fuel efficiency targets, base oil output is shifting from mainly API Group I to Group II and Group III oils. This reality is shaking up the industrial lubes market, which may find itself reaching for high-viscosity, heavy neutral grades and by-products such as bright stock from a nearly dry well.

Global base oil production capacity was around 54 million metric tons per year in 2016, with Group I accounting for 45 percent of that, industry consultant Ernie Henderson of Oklahoma City-based K&E Petroleum Consulting told attendees at the ICIS & ELGI North American Industrial Lubricants Congress in Chicago in September 2017. However, the actual consumption of Group I is much lower, he said.

More people are using Group II relative to Group I because of the performance features that it provides, as well as the cost advantages, said Henderson, adding that North America and Europes industrial lubes markets have started using Group II over Group I base oils from a convenience standpoint. Many countries and many regions are starting to make that transition from Group I to Group II because its a good economic buy.

Europe holds 38 percent of the worlds Group I production capacity – both virgin and re-refined – at a volume of nearly 9 million t/y. The Middle East, though a larger manufacturer of Group II and Group III base stocks, still has capacity of about 1.8 million t/y of Group I. Africa is smaller in terms of production, at 809,000 t/y, but is a major consumer of Group I products, including bright stock, something which is unlikely to change in the near future.

Industrial Lubes Depend on Group I

Lubricants blended from Group I include industrial engine oils, gear oils, hydraulic and metalworking fluids for off-highway vehicles and industrial equipment, as well as passenger car and heavy-duty diesel engine oils for the automotive segment. Because industrial lubes have multiple uses in many applications with a wide range of operating temperatures, they require the high-viscosity properties offered by Group I. This is where bright stock comes into play, Henderson said.

Bright stock is the so-called collateral damage that results from hydroprocessing Group I base oils. The orange-colored substance is at the higher end of Group I specifications and is typically used to blend gear oils, process oils, greases and other industrial oils. Its high viscosity index is a key standard for industrial lubes, allowing for a wide viscosity range, high polarity and solvency, Henderson noted.

In Demand

Worldwide bright stock demand was about 53,000 barrels per day in 2015, Henderson said. Europe produces approximately 15,000 b/d of bright stock, while the Middle East and Africa make 4,300 b/d combined.

Bright stock demand in Europe was estimated at 6,900 b/d, just under half of its output, and the Middle East and Africas at 5,400 b/d in 2015, Henderson added. Europes industrial oil segment (including greases) accounts for 52 percent of bright stock demand because of its strong industrial manufacturing base and off-highway transportation sector, which demands lubricants that can withstand extreme weather ranges and challenging operating conditions.

By comparison, the Middle East and Africas industrial sector is smaller, drawing 27 percent of total demand, but engine oils blended from bright stock make up 67 percent thanks to both regions heavy-duty road freight sector.

Since rail is not important in these regions, trucking is a key logistical tool, Henderson told LubesnGreases. There are initiatives to improve the rail system in the Middle East that will have a longer term impact on demand.

Rationalizing Rationalization

Production overcapacity in the Group I base oils market, however, is leading to rationalization, which in turn has effects on the bright stock market, said Henderson. In Europe, particularly, rationalization could hinder bright stock production in the long term.

The recent closures of Colas-ExxonMobils 6,600 b/d Group I and Group III base oil plant in Dunkirk, France, Gunvor-Kuwait Petroleums 4,650 b/d Group I facility and Shell Pernis 7,250 b/d plant, both in Rotterdam, the Netherlands, have reduced bright stock production in Europe by an estimated 3,400 b/d.

Although production [at these plants] has ceased, there may still be some available inventory to the market, at least for the near term, he said, adding that overall global supply of bright stock is balanced, meaning that declines in Europe are offset by increases other regions.

Since 2014, nine base oil plants in Europe, the Middle East and Africa have partially or entirely ceased Group I production, taking 45,000 b/d of production capacity with them. However, Group I plant closures do not necessarily mean bright stock production will be further hampered. Not every Group I refinery makes bright stock, so just because we see closures does not necessarily imply a reduction in bright stock capacity and availability to the marketplace, Henderson explained.

In fact, bright stock has become a high-value product. As we continue to see the rationalization within the Group I industry, it is starting to provide more value for that bright stock molecule. It is probably one of the few base oils right now that is in a good supply-demand position.

Bright Stock Profitability

The share of Group I in the base oil market is forecast to be around 35 percent in 2025, said Amy Claxton, refining expert and president of MyEnergy Consulting based in Hummelstown, Pennsylvania.

Due to the large number of production plants, Group I facilities across Europe are the most vulnerable to closure, which is why base oil manufacturers need to review their profitability, shut down low performers and steer production toward heavy neutrals.

Other assessment factors include the cost and quality of crude oil to determine its yield and flexibility to optimize output. One factor to consider is whether the plant makes high value by-products such as
bright stock and wax, which is used in a wide range of industrial applications. Another is to determine whether the base oil will be used locally or if it can be exported. For example, Henderson mentioned that Mexicos state-owned energy company Pemex runs a 6,000 b/d Group I refinery in Salamanca that supplies only the local lubricants market, which is a leading consumer in Latin America.

Bright stock can help Group I maintain profitability in the face of closures, said Claxton. Group I shortfalls have led to higher prices for bright stock, and it now sells for higher margins than 4 centiStoke Group III base oils, she added.

The fact that its been a cost-effective working tool is one of the reasons that people need to look [at bright stock] as they move forward. No longer can you use bright stock as just a cheap, high-viscosity base stock for a low-margin commodity product, agreed Henderson.

Because of bright stocks current profitability, refineries that still produce this by-product will continue to look for ways to increase production incrementally, he added. The exception would be Luberef in Yanbu, Saudi Arabia, which is realigning its Group I production facility to maximize bright stock production by nearly doubling capacity.

More Group I plant closures could eventually put a strain on supply if they also make bright stock. For this, either production needs to be optimized or alternatives have to be sought out, said Henderson.

He recommended that manufacturers review the technical needs of customers products to determine the value that bright stock can bring to formulations, reformulate when it makes sense to do so, and balance the performance and cost of alternatives including naphthenic bright stock and synthetic base stocks such as polyisobutene, polyalphaolefins and polyalkylene glycols, which show wide viscosity index ranges but could each have issues with solvency and seal compatibility.

Everyone says that Group I is going to go away, but I dont think so. I think there is enough demand for those high-viscosity [bright stock] molecules, enough to create an opportunity for that Group I, he said.