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Base Oil Report

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For any lubricant blenders still worried about the possible development of a Group II base oil shortage, Kline and Co. offered some peace of mind last month. The market research firm forecasts that North America will maintain a surplus of more than 13,000 barrels per day through the year 2020.

Supply-demand balance for Group II was hotly debated in early 2004, when industry finalized ILSAC GF-4, the passenger car motor oil standard that went to market last summer. Everyone agreed the specification would further shift base oil demand from Group I to Group II; the question was how much. Some warned that demand would exceed supply and that some blenders would be shut out of the market. Others, including Kline, predicted a tighter balance but no shortage.

Of course, the debate took place before Motivas announcement in June of plans to expand capacity of its Port Arthur, Texas, plant by 13,700 b/d. The project, scheduled for completion in January 2006, will boost North American capacity for Group II and III by approximately 15 percent.

Kline said in February that its new study, Global Business Opportunities in the Lubricant Basestocks Industry, 2004-2020, includes a refined version of its previous projection – one that seems slightly more favorable to blenders. The Little Falls, N.J., firm said two factors will limit the amount of Group II required in GF-4 and other specification upgrades. First, most major marketers switched to Group II before GF-4. Second, Kline expects the motor oil market to continue shifting from 10W multigrades to 5W-30 and 5W-30 oils, which require Group II+ or Group III.

The firm concluded that North America had a 13,000 b/d surplus in 2004. Most, but not all of that will be consumed by demand increases over the next six to eight years, after which demand should decline. It noted, though, that its calculations were based on 2004 capacity data, and therefore do not include Motivas expansion. If factored in, that project yields a surplus of more than 13,700 b/d.

Of course, the next question is: Will there be enough Group II+ and Group III? Kline Senior Consultant Milind Phadke said demand could very well exceed supply in North America, but new plants overseas will help meet the regions needs.

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