Ready for Its Close-up

PASCAGOULA, Miss. – When you grow your global base oil footprint seemingly overnight by 75 percent, it calls for some celebrating. Which is exactly what Chevron did at the official commissioning of its new 25,000 barrel per day API Group II base oil plant here on the Gulf Coast.

Over the course of two days in late August, company officials regaled state, local and media visitors (including Mississippi Gov. Phil Bryant) with the story of how it came to build the facility and its plans for the freshly minted barrels.

The growth spurt of course didnt happen overnight, as Joe Robison, the refinerys operations manager, reminded the guests. Chevron first began considering the investments necessary for a base oil plant in the mid 2000s. Public hearings began in 2009, and the company made the investment decision on the $1.4 billion project in 2011.

The mechanical completion was in April of this year, Robison related over breakfast on Aug. 21. We actually began startup of the primary units in June. And we actually made and shipped our first base oil product in July. Its been a wonderful startup for us – very safe, very smooth. Were excited to see the actual finished product that these years of investment have brought us to.

As a world-scale refinery (total capacity 330,000 b/d), Pascagoula already had a primary wharf with berths for bringing in crude oil and sending out refined products, Robison explained, but a new berth was built to serve the specific needs of the Pascagoula Base Oil Plant, or PBOP as Chevron calls it.

That really was to enable us to bring in feedstocks – vacuum gas oils – and then to export the base oil product, he remarked to LubesnGreases. We were pretty congested with the current wharf facilities, just handling the crude coming in and the products going out. Now we had an additional amount of interim feedstocks and additional amount of products to send out, so essentially that brought about the need for upgrading the infrastructure.

Chevron Lubricants President Colleen Cervantes also spoke at the event. Advancing specifications and quality standards are driving demand growth for lubricants containing premium base oils, much faster than the overall market, she said. These increased engine demands require lower viscosity lubricants and are formulated with the latest additive technology. In fact, industry estimates predict that a compounded growth rate of roughly 10 percent a year will take premium base oils from approximately 30 percent of the global market today to more than half of the market by 2020.

Cervantes declared proudly that to the companys entire downstream, lubricants and chemicals organization, Pascagoula represents a giant step forward in their long-term growth strategy.

To Market, to Market

PBOPs slate includes 60, 100, 220 and 600 viscosity grades, all Group II. The latter three grades are also made at Chevrons Richmond, Calif., refinery (capacity: 20,700 b/d) and at the 50/50 joint venture GS-Caltex (26,000 b/d) in Yeosu, South Korea. Together they give it nearly 60,000 b/d of Group II capacity, enabling Chevron to bill itself as the worlds largest producer of premium base oils.

Where are PBOPs barrels headed? As with each of its plants, the closer to home it can place the output, the better, Cary Knuth, Chevron Lubricants general manager, base oils, remarked to LubesnGreases during the visit. He observed that the Gulf Coast itself has a lot of base oil demand.

Sometimes people forget the Gulf Coast because they just jump to where were going to export to, Knuth pointed out. The reality is the journey starts there, and then we start looking for other places. With that in mind, the refinery has added rail capacity to transport product not only into storage but also to customer facilities. And weve got additional tankage throughout the Gulf Coast.

Market changes in Europe make it a clear target as well. A lot of that is because Europe is going through a transition in terms of [lubricant] specifications, and the demand there for Group II base oil is climbing, Knuth said. Wed like to continue to invest there and continue to build our business in Europe.

With Pascagoula, the thought process was, what are the markets it can service overall? he continued. Certainly Latin America is one of those, Europe is another, and then the Gulf Coast is a third. It comes down to geography and shipping lanes – the basics of where you can send it economically – and then we match it up with where demand is.

Down to Rio

Early last month, a Chevron Brazilian affiliate established the companys first API Group II base oil supply hub in South America. Located at Rio de Janeiro, its the companys 14th such hub globally, and will carry viscosity grades 100, 220 and 600.

Brent Lok, base oil marketing and new business development manager, noted that Chevron had been busy setting up a global network of base oil hubs over the last five to six years. If you look at the map of the world, were pretty well covered; on all continents we have at least one or two hubs. But in Latin America we didnt have any. So it was really something missing there.

Weve had a very strong desire, driven by our customers, to have inventory out of Brazil, he said. Its the largest economy in Latin America, and it has probably one of the fastest growth rates in Latin America.

Lok observed that the hurdle historically has been to find storage thats convenient to lubricant blenders in Brazil. Finding shore tanks available for delivery of base oils there is extremely difficult, he said. Theres just nothing available. So its been taking a long time to find a partner that will work with us to establish inventory in Brazil.

Knuth added that Chevron created hubs in regions where it expects to compete. If youre going to build something right next to where someone has a facility there already, that will be challenging, he acknowledged. But we think theres opportunities in each of these markets, and we can get product there, and we can compete.

With any of the base oils were going to look at marketplaces were going into, and then well price it as what we view reflects the competitive nature of the marketplace, he went on. Regardless of where the plant is, well look at who were competing against, and well price it based off of what the dynamics are.

Security of Supply…

The most important factor has been the global footprint, Lok said. You dont need the largest capacity to have a global footprint, you just need to have the broadest geographic reach. And thats what were really very much focused on, so that customers – wherever they pick up base oil from us – know its the same stuff. They dont care which plant its coming from.

Having suffered outages before, most painfully after a fire in 2012 damaged Richmonds crude unit and hobbled base oil production there for months, the company is acutely sensitive to the need for supply security. And Lok emphasized that having a third base oil plant online brings added assurance of that.

Probably the most important thing we have is the security of supply – if one plant goes down, we have two other ones that can come right in and back that up, Lok commented. That security of supply factor from multiple plants, thats one thing that draws customers to our supply right now. With a few exceptions, almost all other suppliers are dependent on one plant. Its very much a big concern of customers.

…and of Interchange

Having multiple plants also minimizes product qualification and approval costs, especially for customers making engine oils, Lok explained. Blenders of API licensed engine oils who want or need to switch among base oils in their formulations usually must perform costly engine test programs first. But Pascagoulas base oils and those from Richmond and Yeosu all may be interchanged freely under the American Petroleum Institutes Base Oil Interchange guidelines, he asserted, without triggering the need for additional engine tests.

API Document 1509 has a broad set of guidelines related to what we call a base oil slate. Its primary focus is on the interchange rule, he said. Under the guidelines, if a slate of base oils is considered to be totally substitutable, then you dont have to do anything with the interchange rules.

There are criteria regarding what is substitutable, though. They have to have the same brand name, same manufacturer, same specifications, same product code, Lok said. So when you order a product with a certain product code, you dont care whether its coming from one location or another. Weve met all those criteria.

Knuth noted the company did extensive testing to get the performance data to back up the slate, performing more than a hundred different tests. Then we worked with each of our customers as needed to also get them comfortable that these base oils are interchangeable, he said. Its important for us to be able to say not that this is Pascagoula or Richmond or Yeosu base oil but this is Chevron base oil. You dont have to worry about your qualifications. One of the key selling points for us is what we call a global slate.

Zero to 60 Vis

Among the offerings from Chevrons three base oil plants, the 60 viscosity grade is unique to Pascagoula and intended mainly for process oils.

On the sidelines at the August celebration there, the companys Brent Lok told LubesnGreases that process oils is really an umbrella category covering a broad array of specialty uses: If its not lubricants, its process oils. Its a catch-all term for all those other non-lubricant applications.

While 60 neutral can be used in some very unique lubricants, it primarily goes into other applications, with electrical insulating oils, or transformer oils, being by far the most common. Its used as an agricultural spray oil, as a white oil feedstock, and in drilling muds for offshore and onshore wells. Right now, because of the shale boom, that whole industry is pushing for more of this kind of base oil, Lok added.

Still, he estimated about 80 percent of the 60 vis volume will end up in insulating oils. The reason for that is its very proportional to economic growth, Lok said. Any country in the world that has a lot of economic growth has strong demand for insulating oil as they build new transformers, power lines and other infrastructure. So India and China are by far the biggest consumers in terms of growth in insulating oil use, he said.

Existing transformers have to be refilled every so often, too. The U.S. is by far the biggest for this, and then Asia; two very large markets consuming a lot of insulating oil. The U.S. is generally long on base oils that go into insulating oil, so its actually a net exporter of these kinds of base oils. – George Gill