This is part one of a two-part article that will look at what supply security means, then consider some events that are beyond the control of lubricants blenders, marketers and additive companies, such as natural disasters and accidents at supply points further upstream.

Part two next month will look at the human threats to supply, as well as at risk and good practices that any downstream user of chemicals can put in place with its suppliers, customers and distributors to offset some of these problems from advancing further up the chain.

Setting Limits

Supply security is part of business continuity planning and involves a customer and its supplier recognizing and agreeing upon cost-effective mitigations for sudden supply disruptions. This includes natural disasters and accidents that lead to production loss, industrial action, political instability, bureaucracy and legislation, geopolitics, conflict and piracy. These factors could, individually or in combination, affect customers, suppliers, transporters, distributors, upstream manufacturers or upstream resources.

Storm Damage

One pressing challenge for the industry is to demonstrate faster recovery from natural disasters than it has previously so customers have confidence that any remedial actions are beneficial. With the devastation caused by tropical storm Harvey still fresh in everyones minds, it is worth recalling lessons from earlier weather events this century.

Hurricane Katrina in August 2005 forced the closure of Chevron Oronites Oak Point plant in the Belle Chasse district of New Orleans and several companies in nearby Metairie, including (at the time) Delta Petroleum and Shell. Hurricane Rita, which hit the Texas-Louisiana border in September the same year, shut down most of the major Gulf Coast refineries, stopping production of base oils, solvents and base chemicals at co-located or neighboring plants. Among those affected were ExxonMobil at Baytown and Beaumont, BP, Valero and Marathon in Texas City, Shell at Deer Park, Motiva at Port Arthur and Conocos Lake Charles plant. Most were similarly impacted by Hurricane Harvey this year.

Downstream plants were closed for significant amounts of time. Oak Point returned to full-scale operation eight weeks after Katrina, while Chevrons Port Arthur blending plant resumed production four weeks after Hurricane Rita. Elsewhere, Dow Chemical did not lift its force majeure on ethyleneamines production at its plant in Hahnville, Louisiana, until late January 2006.

Back On Stream

Often, resumption of operations was delayed by a lack of raw materials or solvents, including base oils used as solvents in the manufacture of additives or diluents for additive packages. Bear in mind that with the global mass migration to API Group II, additive companies already had to address tighter Group I supply coupled with their continuing reliance on Group I base oils for some processes. Group II and Group III, with their much lower solubilizing ability, will rarely be viable drop-ins for Group I in additives package production, even if designed for Group II or Group III products.

As of late September, additives companies seem to have avoided issues with base oils supply. If there are doubts, companies should ask their additives supplier what its business continuity plans are for the specific packages being bought, as every customers portfolio will be affected differently.

Some plants return to production was further delayed due to lack of utilities, which includes the process gases used by chemicals manufacturers. In 2008, following Hurricane Ike, one important chemical manufacturer reported no significant damage at its plant. On-site, over-the-fence and warehouse raw material stocks were intact and dry, and the staff were available to work as soon as the all clear was given. But they could not start up due to a lack of nitrogen for their reactors.

It has become a legitimate question to ask upstream suppliers about their arrangements for recovery from a dramatic loss of utilities, particularly from those who carry out chemical reactions.

Ineffective Contingencies

Another major outcome was the awareness that the same natural disaster could impact both the manufacturing facility and offsite storage because the two facilities were too close, rendering the contingency ineffective.

While damage to roads and railways could be anticipated and included in contingency planning, an additional human impact by Hurricane Katrina was the short supply of truck drivers. Those whose trucks were not damaged by the storm or commandeered for emergency relief efforts were unavailable because they had lost their homes and were helping their families. This limited some companies ability to service customers.

Earthquakes and Tsunamis

Another major natural disaster that has impacted the lubricants industry was Japans undersea earthquake and tsunami, which inundated the countrys Pacific coast. Base chemical manufacturing in Kashima, a few hundred kilometers south of the earthquakes epicenter, including Mitsubishi Chemicals ethylene complex and Mitsui Chemicals polyurethanes plant, were completely shut down. Fortunately, Mitsui Chemicals Lucant range of ethylene/alphaolefin oligomers (now marketed by Lubrizol) are manufactured in the far south of Japans main island.

Catastrophic Accident

Fires and explosions are unfortunately still frequent events in chemicals plants. They are common causes of upstream raw material supply issues but can also be the source of power outages or loss of other utilities. An explosion and fire at Mitsui Chemicals Iwakuni-Ohtake works in 2012 closed several plants, but not those connected with Lucan production. A fire at BASFs polyisobutylene (PIB) plant in Antwerp, Belgium, in 2015 coincided with requests from some additive companies to customers to review their forecasts due to the sudden non-availability of a key raw material. For some, this translated into we are facing force majeure on the PIB required to make our dispersants for these particular additive packages.

Large-scale incidents or those affecting the major players tend to be well-covered by the major news and information sources. However, the significance of smaller incidents can be hidden because the products affected are not widely traded. It is important to know what upstream chemicals suppliers use in order to inform a companys enquiries about whether an incident is relevant.

A case in point is that of Noroxo, a French company that in the early part of the century had a near-monopoly in Europe on the supply of branched, odd carbon-number oxo products (alcohols and acids). These found, and still do find, widespread downstream use in esters and amines that can be solvents, base fluids, thickeners or part of extreme pressure additives. The Noroxo plant suffered two enforced shut-downs by local authorities, following deaths among local people from outbreaks of Legionnaires Disease in 2003 and 2004. The sudden permanent shut-down threw the industry into chaos further downstream.

Many lubricants suppliers were two or more links in the supply chain from Noroxo, via a converter (a chemical company), compounder (an additive company) and possibly a distributor. Some chemical companies, additive companies and distributors were on the ball and made the links quickly, ensuring customers knew early that issues needed to be addressed. For other downstream users, the first they knew was when they placed their periodic order and found that there were no stocks left anywhere of their unique added-value chemical component.

It can also be helpful to know from where suppliers receive their utilities. Several lubricants additives and packages were affected in 2003 when the supplier of oxygen to Clariants plant in Gendorf, Germany, was damaged by an explosion and fire. Clariants plant makes ethylene oxide and derivatives, several of which found their way into lubricants. Fortunately, there are many suppliers of ethylene oxide, and many derivatives used in lubricants are widely traded. However, some unique Clariant products were in short supply for several weeks.

A Single Point of Supply

All the above potentially leads to a single point of supply, which is where the supply chain is weakest. The natural tendency is to find multiple suppliers that can meet the same specifications. And as they are all competitors, they will all have unique supply chains. Or will they?

As one industry colleague once explained, the apparent security perceived by having approved several sources of the major oleochemicals was diminished significantly because most suppliers shared the same set of storage tanks in one of the major European ports. Similarly, multiple buy from suppliers can also lead back to the same mine for minerals or the same chemical plants.

While commodity chemicals such as ethylene or its (co-) polymers are widely traded, and are not vulnerable to a single point of supply, it can be very difficult for converters to ship replacement material, as they are only geared up to take it through a pipeline across the fence. Even if they can take from ship, railcar or road tanker, a nearby natural disaster will probably mean that all local spare capacity is accounted for, so delivery times may be weeks. Ethylene, propylene, butene, styrene, butadiene and their polymers can be found in synthetic base fluids, viscosity modifiers, tackifiers, dispersants, detergents and antioxidants.

By mid-September, more than two weeks after Harvey had moved on, around 40 percent of U.S. Gulf Coast ethylene capacity was still shut down, 40 percent was active and 20 percent was in the process of restarting. Platts reported tight supply and record high prices for ethylene in Asia, as converters in the United States restarted ahead of the base chemicals manufacturers and sought raw materials from Asia. Some downstream forces majeure will probably trace back to ethylene supply.

Food for Thought

The intention here is to raise awareness of downstream companies – lubes marketers, blenders or additive companies – of the effects that issues further upstream have on their business in the event of a catastrophic supply disruption. It is very important to know that upstream suppliers and their suppliers have mitigations in place to address some of these issues. It is for the buyer to define the chemicals for which these issues are important. Theres more on this next time, when we will look at risk assessment, man-made issues and some more mitigation tactics.

Trevor Gauntlett has more than 25 years of experience in blue chip chemicals and oil companies, including 18 years as the technical expert on Shells lubricants additives procurement team.