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Base Oils Hold Their Own

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U.S. refiners produced 59.8 million barrels of virgin base oils in 2013, chalking up a 3.9 percent improvement over 2012, according to recent data from the U.S. Energy Information Administration.

Paraffinic base oil output rose 5 percent in 2013 to reach 49.5 million barrels, compared to 47.2 million barrels in 2012.

The countrys naphthenic base oil producers supplied 10.3 million barrels, essentially matching their 2012 volume.

Looking back, last year was pretty fair, remarked Jeremy Kriska of base oil marketing company Tulstar Oils. For naphthenics, pricing was stable throughout the year, and there was good availability – especially on the heavy and low ends, like SN2000 and bright stock. Demand was fine all along, and while nobody was desperate to sell, customers could get it when they needed it.

All told, the 2013 scorecard showed a gain of 2.3 million barrels over 2012s tally of 57.5 million barrels. A large share of this year-on-year gain – 1.1 million barrels – can be attributed to one plant alone: Chevrons API Group II base oil plant in Richmond, Calif.

Richmond can make 20,700 barrels a day of base oil – more than 11 percent of domestic paraffinic capacity – but the lube plant there was forced to throttle back to less than half its normal operations when a fire crippled the mother refinerys crude unit in August 2012.

For nine months the lube unit sustained a feeble pace, until roaring back to full-throttled operation in May 2013. After that, it seemed determined to make up for lost time and barrels. Richmonds base oil production in first-half 2013 was 1.8 million barrels, the EIA data shows; in the second half it nearly doubled that by streaming 3.5 million barrels.

Other paraffinic refiners quickened their stride as well in the second half of 2013. Of the total 49.5 million barrels of paraffinic base oil reported to the EIA, 22.8 million was manufactured in the first six months, while 26.7 million gushed in the years last six months.

The Energy Information Administration includes only virgin base oil in its refinery production data, so the numbers above do not include rerefined base oil output. Rerefining accounts now for 5 percent of U.S. nameplate capacity, according to LubesnGreasess annual Guide to Global Base Oil Refining. Only a couple of rerefiners disclose their actual base oil output, but more than one boasted of running at near-capacity rates during 2013.

EIA also collects and publishes data on refinery output of wax, a byproduct of API Group I base oil manufacturing. For 2013, U.S. wax output was reported to total 3.0 million barrels, virtually unchanged since settling at that mark in 2010.

Domestic base oil production and consumption are not the full supply picture, of course. Imports and exports play a significant role as well.

After climbing steadily for more than a decade, U.S. imports of base oils flattened out in 2013, which was the first year in 10 not to see a gain. From January through December, 11.3 million barrels poured into the U.S., versus 11.4 million barrels in 2012.

The U.S. ships out more than twice the volume of base oil than it takes in, and exports in 2013 were 26.6 million barrels. That amounted to approximately 44 percent of domestic production in 2013.

The U.S. is the worlds leading supplier of Group II base oils, as Steve Ames of SBA Consulting pointed out in December to the ICIS Pan American Base Oils & Lubricants Conference. About two-thirds of the paraffinics pool in North America is Group II, and with expansions that will rise to three-quarters in 2015.

U.S. Group II production also is largely clustered on the Gulf of Mexico coast, he added, so they have ready access to marine shipping and relatively low cost transportation. Since the volume produced well exceeds current domestic demand, some 30 percent of the U.S. Group II stock is exported now, Ames noted, and it will be moving to 50 percent in the next few years as more production comes on stream.

Thats in the future, though, and in 2013 exports dipped very slightly, compared to the all-time record of 27.3 million barrels in 2012. So 2013 had to settle for being the second-best year ever for U.S. exports.

These flat year-on-year results for imports and exports might make the U.S. trading scene appear tranquil, like a swan gliding across a lake. But players report furious activity was under way below the surface, especially on the import side where base oils from the Middle East strove energetically to snag market share from more established suppliers.

Together, Canada and South Korea accounted for the majority of U.S. base oil imports in 2013, the EIA data show. No surprise, since theyve been the leaders for some time. Some 2.7 million barrels of lube oil came from Canada, giving it a 24 percent share and a volume gain of 5 percent over 2012.

South Korea remained the number one source of U.S. imports, with 35 percent of the total. However, base oil shipments from that country fell by some 10 percent, to 4.0 million barrels in 2013 versus 4.4 million the year before.

South Koreas merchant refiners, who include SK Lubricants, S-Oil and GS-Caltex, are primarily suppliers of API Group III base stocks for U.S. lubricant blenders. An unusual number of refinery turnarounds were performed in that country last year, though, which base oil traders believe cut into the volumes available for sale to the United States.

Aside from last years minor blip, Mike Brown of SK Lubricants says that the global delivery of base oils from South Korea continues to be good and strong, and its also more complicated overall. The global market is growing for synthetics at 10 to 15 percent a year, and so youre seeing more competition overall. Were seeing Neste pushing more, and Shell is bringing in more GTL base oil.

In late summer, SK and Repsol will open a new joint-venture refinery in Cartagena, Spain, to make Group III base oils. Most of that will go to Europe, but we also expect to have some available to our global pipeline, Brown added. So the dynamic continues, year in and year out.

While South Koreas volumes slackened a bit last year, two Middle Eastern countries, Bahrain and Qatar, seemed eager to take up the slack. Each has targeted the U.S. market with output from refineries that didnt exist before 2011.

Bahrain is where Neste and Bapco operate their 8,200 b/d Group III plant, completed in 2011. Bahrain sent 600,000 barrels to the United States in 2012, and in 2013 its shipments hit 660,000 barrels, coming ashore with monthly punctuality. Roughly 6 percent of U.S. base oil imports came from this locale.

Qatar is home to the Pearl gas-to-liquids joint venture of Shell and Qatar Petroleum. It has capacity to make 6,000 barrels a day of API Group II and 22,000 barrels of Group III. Since its own 2011 startup, Pearl has increased the size and frequency of its U.S. shipments, too. It landed 1.7 million barrels in the United States in 2012, and bumped that up to 2.3 million barrels in 2013. Qatar now accounts for a bit over 20 percent of all base oil imports.

Glancing at the outbound side of the ledger, the EIA data show Mexico rose to become the largest recipient of U.S. lube oil exports in 2013, taking 4.1 million barrels. Brazil was the next-largest (3.4 million barrels), followed by Canada (3.1 million).

Of course, our proximity to Canada gives us some freight advantages for exports, and we also send a lot of Group II to Europe and Latin America, said the base oil sales manager at one U.S. refinery, who was speaking off the record.

Also, China and India took a lot of volume from us last year, this supplier continued. Globally, Asia-Pacific was short on base oil because of those turnarounds in Korea and Taiwan, and so they were pulling more barrels from the U.S.

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