At the ICIS World Base Oils & Lubricants Conference in London in late February, this approaching phenomenon was hailed as a tidal flood or tsunami about to wash over Europe. The warning was raised that some Group I facilities would fall by the wayside during this invasion.

The consensus of opinion within the industry is that three or perhaps four additional Group I sources will disappear over the next two to three years. The void created by this fall in production will be filled by imported Group II and both indigenous and imported Group III grades.

The further demise of Group I facilities comes quickly after the closure of production at Essars Stanlow refinery (formerly owned and run by Shell). This leaves only one Group I refinery in the U.K. at Fawley, where ExxonMobil also produces Group III grades.

Some refineries such as ENI at Livorno have been politically forced to continue production in the face of mounting losses, while other dated facilities around the European coastline require large amounts of capital expenditure to update them to ensure profitable running.

Looking further afield into mainland Europe, other refiners have cut the production of light solvent neutrals. They intend to replace these grades with imported Group II oils that will be able to compete with existing Group I oils on both price and, of course, improved performance.

One anomaly in the European arena is that there is no large Group II facility in Europe, although a handful of rerefiners produce small volumes of the base oil. Group II supplies for this market will have to be imported, with Far East and U.S. suppliers being the main sources. With large quantities of Group II base oils about to flow out of Chevrons new Pascagoula production facility, with increasing output from South Korean suppliers, and with new production in Russia and Saudi Arabia, the scene is set for Group II to go long, with a number of sources chasing market share within limited parameters.

Increasing Group III availability will add to this dilemma with SKsols upcoming plant at Cartagena, Spain, set to commence production later this year. This output will obviate the need to move some material from Far East to Europe, but that material will also be searching for a home in markets such as China that are not growing according to forecast. These markets may see an oversupply situation developing over the next few years.

The scenario is one of ever growing quantities of both Group II and III base stocks looking for markets where they can substitute for Group I grades. Or they can target developing regions such as parts of Africa and South America where only finished lubes are currently used. Base stocks would be a new option for the future, with local blending starting from the grass roots. This latter option however will not yield a large market opportunity for Group II and III base oils for some years to come.

So it would appear that options are limited for Group II and III, and suppliers may have to look to traditional industrial and economic centers such as the U.S., Europe and perhaps the BRIC countries. With the U.S. more than covered by indigenous production of both groups, and producers springing up in all of the BRIC countries, the only real large scale opening would appear to be Europe. Its somewhat conservative markets may find themselves pulled kicking and screaming by emissions legislation to move away from Group I oils to the next generation of Group II and III.

This could be the end of the line for Group I production, particularly within Europe, yet Group II and III have some limitations, for example viscosity. The highest viscosity Group II oil being produced commercially is currently 600N, around 12 centiStokes. There remains an enormous gap between this viscosity and Group I bright stock at around 32 cSt, along with a considerable tranche of finished lube formulations that require these higher viscosity base stocks.

Higher viscosity Group I grades are perhaps safe from extinction, and along with this theory is a school of thought that purports that grades such as bright stock may become rarities and may hold relative values far in excess of their current position. Sources for these grades will be fewer, and the ability to produce only higher viscosity grades is limited; hence, it may be safe to assume that surviving Group I refineries may become prize possessions, producing base oil grades that will have both limited availability and higher demand.

The bottom line is that a surge of Group II and III base oils is approaching Europe. They will replace a large part of current Group I production, but there will be space for higher viscosity Group I material in EMEA markets.