The desirability that companies attach to assets rarely depends solely upon the asset itself. Equally important is the way in which that asset fits – or does not fit – with the rest of a companys business. It goes without saying that an asset that fits well is an asset thats wanted, and one that fits poorly is not.
A case in point is Neste Oils September agreement to sell its Beringen, Belgium, polyalphaolefin plant to Chevron Phillips Chemical. The plant has capacity to make 60,000 t/y of PAOs, which are used as base stocks in premium lubricants, among other applications. Terms of the transaction were not announced.
In terms of performance, PAOs are high in the base stock hierarchy. They are the sole occupants of the Group IV API category and surpass Group I, II and III mineral base oils in terms of viscosity index, cold-temperature performance and oxidation stability. Lately, however, there has been relatively little reward for those advantages.
Whereas 10 years ago the margins were very good, these days they are not so good, and there are periods when they are downright poor, said R. David Whitby, chief executive of Pathmaster Marketing, a consultancy in Woking, U.K.
Given that outlook, its no surprise that Neste would look to unload a PAO facility. The Finnish oil company opened the Beringen plant in 1991, but these days its base stock business is focusing on Group III oils. The company owns Europes largest Group III plant, a Porvoo, Finland, facility with capacity of 230,000 metric tons per year. It is also partner in two Group III joint ventures – one on the verge of opening in Bahrain, the other slated to come online by 2014.
Together the three plants have capacity of 1.3 million t/y.
Neste made no bones about the fact that it has more interest in its Group III oils – referred to as very high viscosity index oils – than in PAOs.
Neste Oils focus is on very high viscosity index base oils where the company aims at becoming a leading supplier in the global market, said Matti Lehmus, executive vice president for the companys Oil Products and Renewables division.
The focus on Group III has particular pertinence for the Beringen plant because the mediocre market success of PAOs is largely due to competition from Group III fluids, which are being used in many applications where PAOs are potential choices but where PAO advantages are not absolutely necessary. Group III stocks are significantly less expensive than PAOs.
For Neste, it makes sense to divest the PAO plant given the increase in Group III supply that they will have from the Bapco joint venture and later from the Takreer joint venture, said Milind Phadke, industry manager in the Energy Practice of Kline & Co., a consulting firm based in Parsippany, New Jersey, U.S. Group III has been eating into the PAO market due to its better availability and price.
Its easy then to see why Neste would want to sell the Beringen plant. The question is, why would Chevron Phillips want to buy it? The answer is that PAOs are a much more integral part of its business. Chevron Phillips and Neste are both refiners, but Chevron Phillips is a chemical company, while Neste deals with petroleum.
Chevron Phillips is also backward-integrated in normal alpha olefins, the building block chemical for making PAO. That means Chevron Phillips can serve as a supplier to itself, whereas Neste, with its Group III interests, was competing with itself. Last November a joint venture between Chevron Phillips and Qatar Petroleum opened an NAO plant, Q-Chem II, in Mesaieed, Qatar. When the transaction with Neste was announced, Chevron Phillips declined to discuss whether Q-Chem II ties in with Beringen, but its proximity suggests the NAO joint venture might supply the Belgium plant.
Finally, the acquisition of the Beringen plant elevates a PAO business to which Chevron Phillips certainly seems committed. Combined with its 48,000 t/y plant in Cedar Bayou, Texas, U.S., Beringen gives Chevron Phillips 108,000 t/y in PAO capacity. Assuming the purchase from Neste is completed, the PAO market will now have three large PAO producers, with Chevron Phillips ranking third. Ineos has two plants with a combined capacity of 202,500 t/y, and ExxonMobil has two plants totaling 144,500 t/y of capacity.
The Belgium plant also gives Chevron Phillips production capability in Europe, a prime market for PAOs. The continent has three other plants, although one of those – a 10,000 t/y Tatneft-Nizhnekamskneftekhim-Oil plant in Nizhnekamsk, Russia – is currently not operating. Ineos operates a 120,000 t/y plant in Feluy, Belgium, and ExxonMobil has a 60,000 t/y plant in Gravenchon, France.
We are excited about this acquisition as it represents a unique opportunity for Chevron Phillips Chemical Co. to significantly expand our presence in Europe, said Dennis Holtermann, general manager of normal alpha olefins and polyalphaolefins. The addition of this plant to our existing asset base will more than double our production capability, allowing us to better serve the growing demand for PAOs used in high performance lubricants and other applications.
The transaction between Neste and Chevron Phillips requires approval from competition authorities. The companies said they expect to receive that approval and close in a few months. If that happens, both parties will undoubtedly be pleased, and thats what deals are made of.