Europe will undergo a major transformation in base oil demand, thanks to global API Group II capacity additions, Steve Ames, principal of SBA Consulting, told Decembers ICIS Base Oils & Lubricants Conference. The only question is how fast that transformation will occur.
Global Group II supply will expand about 75 percent by 2018, with some 10 million tons per year of new capacity entering the pool, primarily from Asia and the United States. Group II-deficit areas of the Middle East, Africa, South America and especially Europe will absorb these volumes.
Europe lacks an indigenous supply of Group II, Ames noted. There is currently only one small supplier, and only limited new capacity is planned. New and recent ACEA specifications are high performance, and have been all Group III formulations. However, some ACEA oils, especially on the heavy duty side, can be blended more cost effectively with some Group II or II+ content. Even the older Group I/III blends that made economic sense when in-house Group I margins were robust are now circumspect, Ames said.
Moreover, Group II base oils can mostly be used in place of Group I, often with additive treat cost savings.
Hydrocracked Group II base oils hold a significant cost-of-production advantage over Group I; so much so that Group II from North America can arrive cheaper than Europe can produce Group I, he continued. Most European Group I plants are located in older high-cost refineries. None have delayed coking facilities, and only two have residual cracking needed to upgrade low-value DAE and PDA asphaltene byproducts to higher value fuels.
In the near term, Group II will take volume from Group III in Europe, as many non-fuel-economy specifications are cheaper to blend with Group II and III rather than all Group III. However, the largest demand for Group II is apt to be as replacement for closed or curtailed Group I production, said Ames, who is based in Pepper Pike, Ohio, U.S.
Indeed, Ames concluded, Group II is the new Group I.