The Baltic Sea has become one of the most important conduits of API Group I oils for Europe and for other regions further abroad. Hailing from refiners in Russia, Belarus, Poland and occasionally Uzbekistan, the oil passing over this water now accounts for perhaps 20 percent of all European base oils. Collectively Baltic suppliers have become more dynamic players whose influence extends to other markets.
Areas such as West Africa, particularly Nigeria, have now become almost dependent on traders lifting at least some cargoes of base oils from the suppliers or distributors located in the region around the Baltic. Ports such as Tallin, Estonia, Riga and Liepaja, Latvia, as well as Gdansk, Poland, have be-come hubs for the distribution of base oils from this region.
Russian and Belarusian refiners began to export base oils regularly to Western and Central Europe 20 to 30 years ago. Group I demand in those areas was expanding at that time, but there was limited availability from major and national producers for new independent blenders or for receivers looking to procure material for export markets. Exports were also seen as a valuable dollar-earning exercise for Russian and Belarusian refineries (although now all Belarus sales are made through an online auction process in euros).
With some 10 to 12 main producing refineries such as Perm, Ufa, and Nizhny Novgorod in Russia along with Novopolotsk in Belarus, and with all these units landlocked, the only option open was to sell the production through the nearest available seaports. Whilst some Russian refiners tried to supply Far East receivers through ports such as Vladivostock, most preferred to send base oils by rail to Baltic ports where storage facilities could be made available. Baltic ports were also favored because railheads and an abundance of vacant land made expansion of port and storage facilities feasible.
The amazing railway system within the former Soviet Union was able to transport material from these refineries, sometimes thousands of miles distant, on a year round basis. With winter temperatures of minus 40 degrees C, and 50 C in the summer, the challenges facing these movements were phenomenal, but expertise gained through shipments of fuel oil made these shipments possible. Some deliveries could take as long as four weeks from refinery gate to storage terminals in the Baltic ports. One advantage of Baltic supply points is that ports are open all year round, although ice class vessels have to be used in the winter months.
Because of limited storage facilities in the ports, it made sense to minimize the number of base oil grades, so suppliers concentrated on equivalents to the two main European grades, solvent neutral 150 and SN 500. Grades called SAE 10 and SAE 30 were common, as were I classified material such as I-20A and I-40A. Other grades ranging from light-viscosity I-8A to very heavy grades such as I-50A could be moved, but exports of these had to be specially planned and were uncommon due to logistical problems. Supplies of very heavy neutrals such as Uzbek SN 900 and SN 1200 are now being offered as blending substitutes for higher priced bright stock.
In the early days, quality for the two main grades was questionable, as was the operational capability of the storage companies to prepare the oil for loading into seagoing vessels. But as the years have gone by, the various operations in the Baltic have aspired to much greater heights than others in the market may have expected. The Baltic base oil scene has developed into a sophisticated market almost detached from the mainstream European operation, and whilst this area started very much as the junior, it now plays the role of market maker, with recent price moves for base oils starting and finishing there.
There are approximately 10 sellers at the Baltic Sea, some with local or indigenous backgrounds, other sponsored by Russian or Belarus parents, while others are subsidiaries of international corporations. One supplier, of course, is a major Russian producer of base oils and finished lubricants with ties to many other international businesses.
Being made up of refiners and third party distribution companies that buy directly or through the chain of domestic traders within Russia and Belarus, these parties determined when and by how much prices are affected during recent falls and subsequent rises in the European base oil markets.
This scenario is likely to continue since Russian refinery selling prices are now established as a barometer of European base oil pricing and since the speed at which Baltic sellers can react to market changes is unusual in this day and age. Gone are the long lags in base oil price changes following crude and petroleum product movements. Instead base oil prices react almost immediately due to the flexibility of the traders located in the Baltic arena.