These facts and others were highlighted in the publication last month of LubesnGreases2005 Guide to Global Base Oil Refining, a 22-by-33-inch wall chart. Developed with information provided by British consulting firm Pathmaster Marketing Ltd., our chart also gives a broad view of the global market, showing who makes base oils, where, in what volumes and in what grades. And it provides context for the numerous Group II, Group III and Gas-to-Liquids projects that have been announced the past few years.

Base Oil Behemoth

LubesnGreases base oil chart includes data on 152 plants on six continents, and one of the things that jumps out is the number of facilities operated by ExxonMobil – and the large size of many of them. The U.S. based energy giant refines base oil at nine wholly owned plants and four joint ventures, plus two plants operated by Imperial Oil, a Canadian company in which ExxonMobil owns a 70 percent stake. Seven of those plants are rated at more than 10,000 barrels per day.

Add it all up and the company has capacity to make 150,000 b/d, slightly more than 16 percent of the worlds total. It is also nearly twice as much as No. 2 supplier Royal Dutch/Shell Group, which has eight wholly owned plants and five joint ventures.

ExxonMobil gained its dominant position when Exxon and Mobil merged in 2000, but its capacity has continued to swell since that time. In the past few years, it undertook significant expansions and/or upgrades at numerous plants. Next year it plans a 1,500 b/d expansion of its Tonen General joint venture in Wakayama, Japan.

Beyond that is a massive 30,800 b/d base oil plant that is part of a GTL joint venture with the government of Qatar. The base oil plant is scheduled to come on stream in 2011 and seems likely to become the companys largest facility. Clearly, ExxonMobil has no intention of relinquishing its throne on top of the hill.

ExxonMobil wants to dominate in base oils, said R. David Whitby, chief executive of Surrey, U.K., based Pathmaster. They get the economics right, they get the scale right, and they make certain that they are the most efficient producer. Thats why they are recognized as the benchmark producer for the industry.

Shells Asset Shuffle

Shell has closed several old plants in recent years, and plans to close a 5,060 b/d facility in Hamburg, Germany, by the end of this year. At the same time, it is investing in two large projects, both joint ventures. The first is the Port Arthur, Texas, plant owned by Motiva, Shells 50/50 partnership with Saudi Refining Inc. for which Shell is managing partner. Last year, a change in catalyst increased Motivas capacity by 3,000 b/d to making it the largest plant in the world. Now it is in the midst of an expansion that will add another 15,000 b/d in January. Shell has also entered a GTL joint venture with Qatar that includes a 9,600 b/d base oil plant, scheduled to be completed in 2009.

The worlds third- and fourth-largest base oil suppliers are both nationally owned refiners. PetroChina has 12 plants in China producing 60,500 b/d. Petroleos de Venezuela S.A. owns two plants in Venezuela and one in the Netherlands Antilles, while its U.S. subsidiary Citgo owns one U.S. plant and a share in another. PDVSAs 35,572 b/d total does not include its share in Nynas, a 50/50 joint venture with Norways Statoil that controls another 8,950 b/d of naphthenic capacity.

Fifth-place Lukoil operates three Russian plants in which it owns controlling shares. S-Oil owns just one plant – in Onsan, South Korea – but the 24,500 b/d facility is large enough to earn a No. 6 ranking. Chinas other major state-owned refiner, Sinopec, has six domestic plants, while Brazils Petrobras has three in its homeland and one in Bolivia. U.S. based Chevron owns one plant each in California and Australia and is part of a joint venture in South Africa. SK Corp. closes out the top 10 with a plant in South Korea.

Geography Lessons

Asia-Pacific has more capacity than any other region. It has also been the busiest area for project announcements, with four new plants or expansions scheduled to come on stream by 2008, all to produce Group II and/or Group III stocks.

To date, little expansion has occurred in China – now the second-largest lubricant consumer and the fastest-growing large lube market. With 83,500 b/d of base oil capacity, the country still has a surplus, but it is shrinking. Some observers say China is headed toward a deficit, and refiners elsewhere on the Pacific Rim are planning to help supply its burgeoning demand. Others predict new capacity will be built in-country, and that foreign suppliers will break the dual hold that PetroChina and Sinopec have on the market.

We think supply will not be a problem because more plants will be built, said Li Jia, general manager of Tongyi Beijing Petroleum Chemical Co., maker of Monarch brand oils. The company is based in Beijing and is the largest independent lubricant marketer in China. Since China entered the World Trade Organization, it must open some of its oil sector after 2006. Then foreign companies can build plants.

North America continues to shift from Group I toward Group II stocks. Besides Motivas expansion, Citgo is evaluating options for upgrading its Group I plant at Lake Charles, La., and Petro-Canada is considering expansion of its Mississauga, Ontario, facility. Western Europe is also trading Group I supply for more highly refined grades. Closure of a Shell plant in Hamburg, Germany, and BPs Coryton, U.K., facility will remove 15,360 b/d of Group I capacity this year, but expansions by Neste and Total will add 11,000 b/d of Group III by 2006.

Central and Eastern Europe, including the former Soviet Union, are losing capacity – mostly from Russia, which accounts for 50 percent of the regions total. Sharp drops in capacity have been reported at a number of plants, though some observers say they stem from production trains that stopped operating years ago.

There will be some upgrades by [refiners] that are serious in the lubricants business, said Steve Ames, principal of SBA Consulting in Pepper Pike, Ohio. But I dont think there will be expansions. Youre going to see capacity continue to drop at some plants, or at least an official acknowledgement that some of these trains will never run again.

The Middle East and Africa is one of the smallest producing regions, but another hotbed for announced projects. Besides Shell and ExxonMobil, Sasol Chevron has entered a joint venture with Qatar for a GTL project that includes a base oil plant. If completed, the three projects will turn the tiny nation into the biggest exporter of high-quality stocks. GTL base oils are said to perform on par with polyalphaolefins while holding substantial cost advantages.

Shoots and Sprouts

Analysts say new volumes of Group II, Group III and GTL base oils will create a significant surplus of highly refined stocks in coming years. Consultants at Kline and Co. say even more projects will follow those already announced. In a recently released study, Business Opportunities in the Lubricant Basestocks Industry, 2004-2014, the Little Falls, N.J., firm predicts production of highly refined oils will increase 180 percent by 2020, to 420,000 b/d.

This large expansion in supply of high-quality base stocks will put significant pressure on Group I plants in North America and Western Europe to rationalize, said Geeta Agashe, director of Klines petroleum and energy practice. Group I suppliers in both regions with a large share in the merchant market will be at significant risk as their customers will prefer to use high-performance base stocks, especially if there is little or no price premium.

Jamie Brunk, a senior consultant for Dallas, Texas, based Solomon Associates, said surpluses of highly refined products are nothing new to the base oil market. Supply necessarily precedes demand, he said, and existing Group II and Group III plants were built years before the lubricant industry required their oils. He views the lineup of looming projects as a sign that the cycle is about to repeat itself. He agreed that ultimately the market will balance the surplus by forcing plants to close, though he predicted that Group II and III plants will also be among the casualties.

The market will weed out high-cost producers no matter what quality of oil they produce, Brunk said, adding that some Group I plants are extremely efficient. He also said that markets will continue to need bright stock and wax – materials produced when making Group I oils but not more highly refined stocks. [S]ome capacity will be required to leave the market, to compensate for the new capacity being added.

All of which bodes for changes in the global base oil map. (Yes, LubesnGreases plans to publish its guide annually.) At least one characteristic, however, does not seem likely to change any time soon: ExxonMobils seat atop the market.