Sixty-five-point-six-million barrels. 65.6 Mbbl. Or 65,629,000 barrels.
Any way you care to write it, U.S. refiners inscribed a high mark in base oil production last year, disgorging their greatest volumes since 2006.
This was only the sixth time since 1981 – the earliest year for which the government has data – that U.S. base oils have cleared the 65 million barrel mark. The impressive 2015 performance also represents an 8 percent surge over 2014, when output was 60.7 million barrels.
The entire lift can be chalked up to the paraffinics side of the market, where production for the year hit 56 million barrels, a 10 percent gain over 2014, according to the latest data released by the U.S. Energy Information Administration.
Two key events undoubtedly contributed to the increase. The first was Chevrons Pascagoula, Mississippi, base oil plant, which enjoyed its first full year of operations in 2015. Capable of making 25,000 barrels a day of base oil – all of it API Group II quality – the plant opened in mid-2014.
Another fresh volley of Group II production was lobbed into the market from ExxonMobils refinery in Baytown, Texas. Although LubesnGreases estimated this expansion at 7,000 b/d, the oil company stayed mum on the new capacity for more than a year. Its 2015 financial review last month at last offered a glimpse: It gave Baytowns base oil capacity at 28,000 b/d, an increase of 6,000 b/d. So all in, the Baytown and Pascagoula construction boosted the countrys nameplate paraffinic base oil capacity by some 20 percent.
On the naphthenics side of the business, by contrast, production remained virtually unchanged over the past two years. U.S. refiners supplied a total of 9.6 million barrels of pale oil in 2015, versus 9.7 million barrels in 2014. Naphthenic capacity has held steady for a number of years, while production has sloped gently downward since last peaking at 11.4 million barrels in 2011.
Among the other trends visible from the EIA data, which was released on Feb. 29:
Refiners in PADD 3 (the petroleum allocation district that includes the refinery-laden states of Texas, Louisiana, Arkansas and Mississippi) contributed 78 percent of the base oil volume produced in 2015. Ten years earlier, PADD 3s share was only about 70 percent of the nations base oil.
With only a few exceptions, production was higher every month in 2015 versus the same month a year earlier. The lowest points came in February and September 2015, which traditionally are when refineries schedule turnarounds and maintenance work.
Nameplate capacity utilization rates at base oil refineries bounced between an average high of 70 percent in spring 2015 and a low of 59 percent in September, possibly due to refineries being down for maintenance. Another peak production month, at 70 percent utilization, was December. Although thats not a month known for heavy base oil demand, EIA notes that some refiners increase runs in December to trim their crude inventories before the tax year closes.
The EIA data also provides insights into U.S. exports and imports of petroleum products. The country is a major supplier into the global base oil trade, shipping out 40 percent of what it produces.
Exports in 2015 totaled 26.5 million barrels, compared with 24.5 million in 2014 and 26.7 million in 2013. Until a decade ago, exports were less than 15 million barrels a year, but the volumes have risen almost every year since. Industry observers credit this to two causes: First, the U.S. has more Group II and naphthenic capacity than its domestic blenders require, leaving plenty available for export. Second, U.S. refiners have been advantaged in feedstock and energy costs since mid-2014, so they have been highly competitive on price in the global marketplace.
Much of that marketplace hovers right at the countrys doorstep. Over half of the 2015 exports found homes in the Western hemisphere, led by Mexico with 4.2 million barrels. It was followed by Brazil and Canada at 2.8 million barrels each, and then Colombia, Chile and Peru, which each absorbed roughly 1 million barrels.
Belgium, which has a hive of terminals serving European base oil buyers, is another prime destination and took 2.7 million barrels of the total. The rest floated out to other countries, coming ashore in South Africa, India, Singapore and elsewhere.
On the intake side of the trade balance, U.S. imports continued their steady rise to reach 12.4 million barrels of base oil in 2015 – 300,000 more than in the prior year. Canada was the largest source, contributing 31 percent of the total imports, followed by South Korea (30 percent), Qatar (20 percent) and Bahrain (7 percent). Other countries supplied the remaining 12 percent.
The United States is a sponge for stocks from these merchant sources, especially as it has no domestic manufacturer of the Group III that is needed to make automotive engine oils and transmission fluids. With almost 50,000 b/d, South Korea leads the world in Group III supply; Qatar has the joint-venture Pearl gas-to-liquids base oil plant operated by Shell and Qatar Petroleum, able to make 28,000 daily barrels of Group II and III stocks; and the Bapco-Neste plant in Bahrain can make 8,200 b/d of Group III. Petro-Canada also has been running more Group III at its plant in Mississauga, near Toronto, to meet demand.
The EIA does not collect data on production of rerefined base oils, although the United States has seven plants that can make a combined 15,000 b/d of paraffinic base oils, of which about 90 percent is Group II quality. So their volumes are not included in the figures above. Rerefiners that are publicly held, such as Clean Harbors (which owns Safety-Kleen) and Heritage-Crystal Clean, reported operating at close to full capacity during 2015.
EIA also reports production of wax, a co-product of Group I base oil refineries. The total produced in 2015 was less than 1.8 million barrels, a precipitous 32 percent decline from 2014, when wax output from U.S. refineries was 2.6 million barrels.
Shell, Aramco Carve Up Motiva
As this issue goes to press, Royal Dutch Shell and Saudi Aramco announced they are drawing up plans to separate their interests in U.S. refining giant Motiva Enterprises LLC, the joint venture theyve shared 50/50 since 2002. While Shell plans to take ownership of fuels refineries in Norco and Convent, Louisiana, Aramco subsidiary Saudi Refining Inc. will own and operate Motivas 600,000 barrel a day Port Arthur, Texas, crude refinery. Besides being the largest refinery in the United States, Port Arthur also has the largest base oil plant in the Americas, with three lube trains and a combined 40,300 b/d of API Group II capacity.
Saudi Aramco has other base oil interests, including two wholly owned refineries in Saudi Arabia totaling 10,700 b/d of Group I capacity. One of these, at Yanbu al Bahr, is preparing to stream a 10,000 b/d Group II upgrade in the second quarter. The state-owned enterprise also owns 63.4 percent of S-Oil, which operates a 41,800 b/d base oil refinery in Onsan, South Korea, and a 15 percent interest in Showa Shell Sekiyu, which can make 5,600 b/d of mostly Group I base oil in Yokkaichi, Japan. Together, that probably gives Saudi Aramco a larger Group II footprint worldwide than anyone, a Texas-based trader told LubesnGreases.
Base oil, however, probably had little to do with Shell and Saudi Aramcos decision, other sources suggested, and crude issues may have been a source of friction between the two partners. Refining expert Amy Claxton of My Energy Consulting & Training pointed out that Motiva has been running Eagle Ford shale oil as part of its slate for a couple of years, rather than relying on Saudi crudes as it had before. With Saudi Aramco ownership, it would be highly unlikely that tight oil, shale crude runs would continue at Port Arthur, she surmised.
Another observer suggested that Shell, which plans to sell $30 billion in assets over the next three years, has less need for Port Arthurs Group II barrels since it makes base oil elsewhere, including the massive Pearl Group III plant in Qatar. A Shell spokesperson said Port Arthur is just one of many suppliers for its North American lubricants business, and the company expects to continue being a large buyer of base oils to support its brands such as Pennzoil, Quaker State, Rotella and others.
The companies did not reveal a timeline for the division of the assets, and said they are still working towards a definitive agreement.
-Lisa Tocci