This situation has led many to declare doomsday for European Group I base oil production. However, Pathmaster Marketing is not so pessimistic about the future of Group I base oils. In a presentation at ACIs European Base Oils and Lubricants summit in Budapest, Hungary, in September, it showed how important Group I base oil production is and made a case that it will stick around in the decades to come.

Base oil manufacturers in Western Europe have many years of experience and have developed high quality Group I base oil production, while their Central and Eastern European peers are rapidly catching up with western standards, the consultancy said. An important fact is that European Group I base oil producers have to diversify their product portfolio by focusing on higher value-added products and adapt to the new market conditions.

Uniqueness

In many ways, Group I base oils are irreplaceable, according to David Whitby, Pathmasters chief consultant. Group I base oils can be used as feedstock to make technical and medicinal (food grade) white oils, and processes for making Group II and Group III base oils cannot produce bright stock or extracts, he told conference participants. Processes to make Group III base oils cannot make high-viscosity base oils. For example, to manufacture products such as heavy-grade industrial gear oils, lube producers must use Group I base stocks.

Whitby also noted that only slack waxes from Group I base oil manufacturing can be processed further to make refined (hard) waxes, either technical or food grade. These are very hard refined specialties.

Future global demand for Group I base oils is expected to shrink from their current level of 60 percent of total global base oil consumption to around 44 percent by 2020, according to Pathmaster. By the decades end, around one-half of Group I base oil sales will depend completely on the price between Group I and Group II base oils, Whitby said.

If a Group I base oil price is similar to that of Group II, people will tend to use Group II because they perceive this product as giving better performance. But, as Group II prices start to reflect the products better performance and higher demand, consumers would opt for Group I base oils. Or possibly mixed it with Group III, he observed, adding that many lubricant producers will tweak their formulations depending on raw material prices.

The consultancy expects that by 2020, Group II base oils will account for 25 percent of total global demand, up from the current 20 percent. Global demand for Group III base oil will grow to 12 percent (from the current 6 percent), synthetic base oils (Group IV) will reach to 7 percent (currently 4 percent). By the decades end naphthenic base oil will account for 10 percent of global demand, just over 1 percent gain. Base oils made with gas-to-liquid technology will reach 2 percent of the global base oil slate by 2020, from the current 1 percent.

Built to Last

Group I base oils will be a dominant global base oil stock during a quite considerable period of time. They will stay beyond 2020, up to 2030 and even longer, Whitby contended. He based this conclusion on the high number of applications that demand just one high-quality product that is made from Group I base oil; namely, bright stock. Bright stock will still be required in the future. It may not be in high quantities though, but surely it will be used in a large number of applications, Whitby said.

Bright stock can be used in industrial gear oils, high-viscosity automotive gear oils, open gear lubricants and pastes, as well as in process oils. It is further used in marine diesel engine oil, monograde gasoline and diesel engine oils, high-viscosity hydraulic fluids, mining greases and pastes and NLGI 4 and 5 industrial greases.

Other indications that Group I base oils will be around for decades are applications for refined waxes, according to Pathmaster. These applications include candles, pharmaceutical creams and lotions, cosmetics, matches and waterproofing for corrugated cardboard and food packaging. The list of applications also includes coatings for paper cups and containers, coatings and laminates for flexible packages, hot melt adhesives processing aids for thermoplastic resins and crayons.

The consultancy also found a large number of applications for extracts made of Group I base oil. They include compounded rubber for car tires, seals, gaskets, belts and hoses. Many industry observers have spoken about electric and hybrid vehicles and the decline of automotive gasoline and diesel engines that will affect the lubricants industry. But this will not have any impact on applications for compounded rubber. Electric cars still need tires, Whitby emphasized, and noted that increases in the worlds population of vehicles will increase the demand for compounded rubber.

Furthermore, Group I oils will be used to produce mold release agents for rubber manufacturing and colorants for sealants and coatings. Extracts can also be used in hot-melt and pressure sensitive adhesives used in construction and waterproofing. Additionally they can be used in inks, compounded black rubber and other rubber products.

Prospects & Alternatives

There are alternatives to bright stock, but they have shortcomings, according to Pathmaster. High-viscosity polyisobutenes cost less than high-viscosity polyalphaolefins (PAOs), but they may not be suitable in automotive engine oils and some industrial oil applications. High- viscosity PAOs and high-viscosity naphthenics are other alternatives to bright stock. The former have high cost and limited availability and are better for multigrade automotive gear oils. The later have reasonable cost but may not provide the required viscosity/temperature properties and may need supplemental viscosity index improvers, Whitby said.

Pathmaster also found that emerging economies increasingly demand products such as industrial, marine and mining lubricants and high-viscosity process oils. This will increase the demand for bright stock. These higher demands are unlikely to offset the decline in demand for bright stock in monograde automotive oils. Furthermore, possible closures of Group I base oil plants will reduce the supply of brightsock, so the current supply/demand balance will shift to tighter supply and higher prices, Whitby asserted.

Alternatives to refined waxes are synthetic waxes made of polyethylene and gas-to-liquid oils, which are unsuitable for candles. Other refined wax alternatives are beeswax, wool waxes, carnauba and candelila waxes, all made by natural processes. These waxes are made in relatively small volumes, have limited availability and high cost, according to Pathmaster.

As for bright stock, future prospects for refined waxes are also bright. Increasing wealth in emerging markets will boost the demand for these waxes, particularly in application for candles, food grade packaging, pharmaceuticals and cosmetics. Candles are very important in religious and social settings, as many European restaurants and bars are lit only in candlelight, Whitby said.

Group I extracts and white oils also have prospective markets as demand for tires and black rubber goods will continue to increase globally, according to Pathmaster. Electric and hybrid cars, vans, trucks, busses and taxis all need tires that need to be replaced regularly during the life of the vehicle, he said. Alternatives to extracts are naphthenic base oils.

The consultancy also expects that increasing wealth in emerging markets will increase the demand for white oils, particularly food-grade oils and greases, pharmaceuticals and cosmetics. Western and Central European markets for white oils have continued to grow during the last ten years despite the economic downturn. White oils made from Group I base oil will compete with Group II and Group III based oils, Whitby said.

Right Turns

Pathmaster found that competitive strategies for European Group I base oil plants should include reduced production and distribution costs for lower viscosity Group I base oils to be competitive with those for Group II base oils. Group I manufacturers should focus their business development on higher-value products, particularly bright stock, slack waxes, process oils, treated residual and treated distillate aromatic extracts or extraction compounds. They should also explore options for making refined waxes and technical medicinal white oils, Whitby said.

European Group I base oil manufacturers should further consider using lower viscosity vacuum distillates as feedstock for fuel hydrocrackers or catalytic crackers or as fuel oil blending components. The consultancy believes that if European Group I base oil plant owners fail to focus on diversification, such as manufacturing more specialties and other high value-added products, and if they are slow in adapting to new market realities, they cant continue to operate profitably. Ultimately, they are at risk of closure. Other plants at risk are those that lack economies of scale with capacities below 250,000 tons per year, or plants that do not have a powerful national defense interest, Whitby concluded.