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A New Mississippi Queen


Long rumored and much anticipated, Chevrons scheme to build a world-scale base oil plant in Pascagoula, Miss., at last has its official green light. On Aug. 21, Chevron confirmed it has submitted an environmental permit application to the Mississippi Department of Environmental Quality for construction of a 25,000 barrel per day premium base oil facility at its Pascagoula refinery. Subject to obtaining required permits and a final investment decision, construction is expected to begin in early 2009 and be completed in 2011.

News that a Pascagoula base oil plant was on the drawing board was first reported earlier this year by LubesnGreases sister publication, Lube Report.

Chevron Global Lubricants President Dale Walsh said that with the additional manufacturing capacity from Pascagoula, the company would become the worlds largest producer of premium – API Group II and III – base oils, with 61,000 b/d of capacity. Chevrons Richmond, Calif., plant has 20,000 b/d of Group II capacity. GS Caltex, a 50-50 joint venture of Chevron and South Korean company GS Holdings, has 12,000 b/d of Group II and 4,000 b/d of Group III capacity in Yeosu, South Korea. The company also operates a 3,800 b/d Group I plant in Kurnell, Australia.

Chevron my not enjoy the lead for long, however, as Shells 28,000 b/d gas-to liquids plant in Qatar will also come onstream in 2011. Added to its 40,300 b/d Group II Motiva facility in Port Arthur, Texas, that should put the Dutch oil giant back on top.


Chevrons Brent Lok, base oil marketing and new business development manager, said Pascagoula is very much oriented around both North American and European premium base oil applications. Secondary to those two premium markets, we are also looking at Latin America, he said. Theres a lot of pent-up demand for more premium, more reliable base stocks. Its certainly a fast-growing market.

Lok pointed out that Chevrons exports of Group II base stocks, and some Group III, to Europe are well under way. Most of its from Richmond right now, he continued. After we have Pascagoula up, it will be moved to Pascagoula. A lot of activity we started almost two years ago now – integrating Richmond materials to Europe – was to prepare for Pascagoula. We couldnt say that at the time, but now we can be lot more open and say, this is why weve been shipping oil halfway around the world.

Its a clear demonstration of our commitment to the European marketplace long term, added Doug Bea, senior product manager. Chevron does not disclose the product mix at its base oil plants. Lok did say Pascagoula will emphasize Group II, just as the Richmond plant does, and will have Group III capability.


Were going to probably make a fair amount of Group II, thats the volume consumption reflected in the marketplace between Group II and Group I, Lok said. We need to adjust our product line to reflect the market demand. On the other hand, we recognize the fast-growing demand for Group III, so we clearly have well advanced activities to try to cost effectively bring Group III products into the entire mix. Its not as further developed as the Group II plans.

With Group III, the market has gravitated in certain directions, he added, and were still trying to sort out exactly how we ought to do it. We still have a strong interest in being a full-line supplier of premium base oils for our customers – so that requires a solution for a lot of these low-viscosity motor oils that currently require Group III, or transmission fluids that require Group III. So definitely were actively looking at that.

When Pascagoula streams, according to Lok, it also will change where Chevron markets base oils from the California refinery. Richmonds reach right now goes both east and west, he explained. It certainly satisfies its own home market, and then does move some materials to east of the Rockies, and west to Asia even. With east of the Rockies basically being filled by Pascagoula,Richmond will probably emphasize moving into parts of Asia. And then it will supplement our Yeosu production out of Korea.

While Pascagoula will help address a substantial portion of Chevrons internal needs, said Bea, we also are very likely intending to supply third parties, so this is not base oil captive to Chevron by any means.


Chevron is well beyond the study stage for the new plant, and has completed preliminary engineering on the project, Lok said. Weve already ordered many of the long-lead equipment this year, so the message is were pretty committed to this, he emphasized.

Pascagoulas infrastructure ends itself well to adding base oils. They had some of the things, hydroprocessing equipment, that we could basically feed back off of, Bea said. The refinery currently gets its crude oil from a variety of sources, including West Africa, the Middle East, Mexico and Latin America. It has two crude oil trains, which increase its flexibility, and help maximize consistency and yield. The sites geographic location is also appealing. Pascagoula is on major shipping lanes and in easy reach of large Group II markets. Most of Pascagoulas base oil is expected to move via ship or barge, plus some rail, the company indicates.

A base oil trader noted that Pascagoula has a deepwater location, and further concentrates U.S. base oil capacity in this region. If you look at the paraffinic base oil producers in the United States, 75 percent of the paraffinic produced in the U.S. will be produced in three states – Texas, Louisiana and Mississippi, this trader pointed out.

The trader said the new plant could put further pressure on high-cost producers, because it will enjoy very, very low operating costs as a newer plant with newer technology. The facility will use Chevrons Isodewaxing technology.

If youre a high-cost producer and you dont run your plant very well – whether Group I, II or III – youre going to be suspect to closing down, the source said. The reason Group I guys come into play is theyre not going to fit into any motor oils, or any heavyduty engine oils, once GF-5 and PC11 are in place. They really dont fit into motor oils today (perhaps a little into heavy-duty engine oil) and theyll be completely squeezed out when that next generation of [engine] oil comes onstream.

A base oil broker said there should be plenty of demand for Pascagoulas base oil, especially as more Group I players exit the market, just as Citgo and Marathon recently did.

Milind Phadke, energy industry manager for Kline and Co. in Little Falls, N.J., said Chevron currently produces about 35,000 b/d of base stocks worldwide, and consumes about 45,000 b/d for its finished lubricants business. That makes the company a net buyer of about 10,000 barrels per day now, he calculates, so the new plant will make Chevron a net seller of 15,000 b/d.


Pascagoulas new supply will add to an existing surplus in high-performance base stocks, Phadke added. Who will be impacted will be clear only once we know the production of Group II and III in the new plant, he commented. If the production is largely Group II, it would add pressure on Group I plants in North America to rationalize.

If there is a large Group III component, he continued, then Group II+, South Korean Group III plants, and Shells GTL plant will all be affected by this development.

Phadke speculated how a large component of Group III at Pascagoula might affect Group II+ production in North America. If there is easy availability of Group III in North America, Group II plants producing Group II+ may have to stop this production and maximize Group II, as this would make economic sense – for example, Motiva, Petro-Canada, Chevrons Richmond base oil plant and Excel Paralubes, he said. It might be the case that even ExxonMobils Group II+ plant at Baytown would be adversely affected. Also, the Group III exports from South Korea would be adversely affected.

If the Pascagoula plants output has a large Group III component, Phadke said, that might also free up some Group IIs from North America to compete in South America and other places. Globally, the supply of Group II/III is quite comfortable with the global demand level, he said. However, at a regional level, Europe would welcome more choice – in terms of sources/sellers – for Group III. Also, in North America, blenders for 5W and 0W multigrades would also welcome more choice for Group III.

Consultant Jamie Brunk, of Solomon Associates in Dallas, said the base oil market typically needs to rebalance itself after major expansions and additions. Traditionally when a lot of capacity like that has come on in the U.S., its created a surplus in the U.S. for some period of time, Brunk said. Im sure Motiva did that for a while, and before that Petro-Canada and Excel Paralubes when they came online.

The surplus typically results in some base oil getting exported. Now whether its going to be Chevron exporting it, or whether its going to be somebody else, somethings going to go offshore, he stated. But at the same time its going to drive margins down in the U.S. So therell be some period of time when people are going to have to suffer through some bad markets. In the past, what has happened is someone has decided to shut down, and after that period, it balances things back out again.

Brunk emphasized that refiners should be prepared for an influx of base oil from Pascagoula and other upcoming projects. Refiners worldwide need to be assessing their competitive position, and developing those strategic plans, he said. A lot of base oil is going to hit the market in the next couple of years. Although there is some forecast of demand increasing, its not in Europe, and its not in the U.S.

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