Alain Faure, Total Lubricants Paris-based director of base oils and waxes, described the worlds base oil supply picture at the 11th ICIS World Base Oils Conference here on Feb. 15. He began by taking a broad look at finished lubricant demand, which he pegged at 40 million metric tons worldwide in 2005, including marine oils.

Geographically, he observed, the Asia-Pacific region leads the world in finished lubricant demand, accounting for almost a third. By 2010, the total market will have grown to 42.6 million metric tons, and Asia-Pacifics share will be 34 percent of the total. North America and Europe, meanwhile, will see little volume growth.

In fact, said Faure, lubricant demand in Western Europe actually will decline about 1.3 percent per year, and the North American market will be virtually flat, creeping up perhaps 0.3 percent annually. On the other hand, the Asia-Pacific region will see strong 3 percent annual growth from 2005 to 2010.

Turning to base oils, Faure expects these patterns to be repeated, with demand in Asia-Pacific surging about 3 percent a year, and other regions experiencing little demand change.

Having the right grade and type of base oil at the right time will continue to be a challenge, though. Key factors affecting base oil supply include plant capacity (plant downtime, debottlenecking, capacity creep, and new capacities); supplier strategies (in-house use, homologation, interchangeability, slate); plant economics (competition for feedstocks, competition with fuels, crude oil selection); and logistics. There is a problem of logistics, Faure said. Everyone wants inventory as low as possible.

World base oil capacity today totals nearly 46 million tons from 143 refineries, Faure said. Group I capacity totals nearly 28 million tons, Group II totals just over 10 million, Group III is nearly 3 million, and naphthenic is just under 4 million tons. However, with demand for base oils in 2005 being only 34 million tons, that suggests that capacity utilization rates hovered around 73 percent.

Faure expects the lubricants industry to depend increasingly on highly refined base oils to make automotive engine oils that help reduce air pollution.

Everybody knows that the key problem for the planet for the time being is [air] emissions, he said. You cannot succeed [in meeting engine oil specifications] in the future without having high-quality base oil.

Eleven announced projects for new base oil plants scheduled to come on stream from 2007 to 2013 would have brought the marketplace another 6.5 million tons of capacity for making high-quality base oils, Faure said.

All of the projects are in the Asia-Pacific region; all will rely on catalytic dewaxing (or gas-to-liquids); and all will produce Group II and/or Group III stocks. Faures list has already been whittled to 10 projects (see table below), but even excluding the now-cancelled Exxon Mobil/Qatar GTL venture, at least 5 million tons per year of high-end base stocks remain on the drawing board.

Looking at global base oil balances, Faure predicted that todays excess supply of wax isomerized base oils will decline over the next five years, from more than 3 million tons surplus today to less than 2 million by 2012. At the same time the words Group I deficit will also contract, from more than 2 million tons today to just 1 million by 2012. Overall, two million tons of excess is possible by 2012, Faure said.

He predicted that a Group I base oil plant will never again be built. Group III is a better product and is no more expensive to make than Group I, he said. We will never see any new investment in solvent dewaxing.

Zooming in to focus just on Northwestern Europe, the picture reverses. The regions Group I excess will rise slowly from about 1 million tons today to nearly 2 million by 2012, while its deficit of catalytically dewaxed base oils grows from less than a million to nearly 2 million tons in 2012.

What impact will base oil manufacturing costs have on supply? Group II is cheaper to produce than Group I, Faure said. And [wax isomerized] Group III is cheaper to produce than solvent dewaxed Group III.

The threat from GTL oils to polyalphaolefin (PAO) synthetics is even more pronounced. Producing a GTL base oil will cost only about 25 percent more than making a Group I base oil, while the cost to make PAO is more than double. So GTL will replace PAO, Faure predicted. Summarizing the global outlook for base oils, Faure said:

Northwestern Europe remains long on Group I, but that excess is balanced by exports to Africa. Groups III and PAOs are short. Plant closures may happen. Group II could become a substitute for Group I in automotive applications. But, he said, Russian base oils may change the balance of the area.

In Asia, the base oil market will remain short for heavy grades; demand will grow and there will be a chronic Group I deficit. Group III could become a substitute for Group I and II base oils.

Finally, in North America, Faure said, the Group II surplus will move to Europe and further east, while demand from Latin America will be strong.

Overall, he pointed out, some particular stocks will come up short. There will be no new investment to build solvent dewaxing units, he noted, and catalytic dewaxing units cannot produce heavy grades, from 500 to bright stocks.