Early last month Citgo Petroleums Scott Riebel, base oil group manager, wrote to his base oil and process oil customers to say that his company will reduce production at its 9,500-barrel-per-day API Group I lubricants and wax re?nery in Lake Charles, La., in order to concentrate on its finished lubricants business.
Citgo declined to provide any additional information; spokesman Fernando Garay told Lube Report that it is company policy not to comment on operations.
But Steve Ames of SBA Consulting, whose base oil market forecast is highlighted in this issue (see page 12), was happy to comment. Citgos action is a response to the growing pressures on Group I plants, from high fuels margins and competition for vacuum gas oil feedstocks, and from growing numbers of higher quality, lower-cost competitors.
Ames told Lube Report that economics and excess supply have led to a number of Group I base oil re?ners cutting back this year, without making it overt.
In todays market, it is more pro?table to upgrade VGO to fuels, Ames said, if the re?ner has the cracking capacity to do so. It depends on each individual re?nery, he said. While Citgo and certain other re?ners can buy-in VGO so as to be able to run both the base oil and fuels operations at full capacity, current market conditions are such that light and medium neutrals are not pro?table on an absolute basis, let alone on an alternative processing basis. Obviously, Citgo is cutting back Group I sales because theyre not making money on its production and would rather make fuel out of the base oil feedstock.
This year 2 millions tons of new capacity will stream globally, he pointed out, while demand will only increase by perhaps a half-million tons. Thats only going to make todays situation worse. Moreover, there will be additional capacity coming on stream in 2009, 2010 and 2011 that will again be in excess of the growth in demand.
Beyond cutbacks, are Group I closures next?
This issue is full of timely features and provocative opinions. Dont miss automotive columnist Steve Swedbergs look at the tradeoff between engine wear and oil viscosity, starting on page 6. I think it is imperative to stop the lower viscosity madness, Steve contends. See if you agree.
p.s. This month LubesnGreases is delighted to extend best wishes to STLE for a successful annual meeting in Cleveland, May 18-22. We hope to meet you there!