Automotive

Base oil demand is, of course, greatly impacted by changes in overall demand for all engine oils, but it’s far more complex given how base stock technology has advanced to enable improvements. In fact, demand for some base stocks has grown significantly while demand for others has rapidly declined. It should be noted that year-to-year change is subtle and began decades ago. Although I have been asked many times what will replace the decreasing engine oil demand, my response is that there is nothing that I’m aware of. There are new applications, and battery electric vehicles use some lubricants, but the volumes and oil drain intervals do not come close to the volumes lost, especially for light-duty vehicles. Many new applications are also fill-for-life or have extended service recommendations, making oil changes less frequent, if needed at all.

Throughout my career, base stocks have had an impact on the work I performed—from my days in manufacturing, operations and procurement of large bulk supplies for the plant, to my days formulating lubricants and meeting the needs of industry. It started in the early 1980s when I first learned about base stocks, and it continues today! Let’s look at what comes next.

It seems that Group II base stock will continue to thrive. Although it first displaced Group I in North America, we see how that trend has expanded globally and will continue to do so. Gerry Jackson, vice president of business development at Renkert Oil and longtime player in the base stock industry, noted: “Base stock supply and demand need to go hand in hand. Group II plants are dominant in the U.S., and new Group II plants have been built in Asia, Europe and the Middle East. Therefore, Group II will continue to be the leading product around the globe largely because of the dominant Group II applications and supply around the world.”

Group II is easily the best base stock to formulate the most common products used globally. Today, SAE 5W-20 and 5W-30 PCMOs are ideal for Group II base stock, along with SAE 15W-40 and 10W-30 for heavy-duty diesel engines. These products are still growing as less developed nations upgrade their lubricating needs and utilize more fuel-efficient viscosities. It is also worth noting that Group II has evolved with higher VI to meet more stringent lubricant specifications and isn’t forcing the use of Group III correction fluids.  

“Higher VI Group II products protect the dominant supply position of Group II against Group III displacement,” Jackson said. “We saw this in virgin Group II 100/110 viscosity supply in the U.S. as nearly all Group II plants raised the VI of their 100/110 products to protect their supply position against Group III. It’s a win-win reducing Group II 100/110 at higher yield to balance the market and making a desirable diesel side stream, which can easily be marketed as a fuel product.”

Many ask about how the growth of SAE 0W-XX products, which are widely specified for most new passenger cars, are expected to dominate the North American market by 2030 and represent as much as a third of all passenger car engine oil around the globe. From my own investigations and confirmed by multiple sources, basic SAE 0W-20s can be formulated with combinations of Group II and Group III, with the optimum being a high VI Group II with a high VI Group III, also known as Group II+ and III+. As 5W-XX demand goes down, Group II will find its way into SAE 0W-XX products—certainly your basic GF-7 or future GF-8 SAE 0W-20.

The next question concerns capacity. Surely there is enough capacity, but again, the answer is way more complex. Is the capacity in the right place, and are the underlying products the right ones? 

Let’s consider the additives example first: There is huge capacity in North America and Europe, but the growth is in Asia and the developing world. North America and Europe are both declining in demand, so how will regional needs be handled going forward? It’s difficult to say what tomorrow will bring, but it’s something being closely watched. Western adcos have already added significant capacity in Singapore, India and to a lesser extent China. Base stock producers are doing the same. Base stocks are readily transported, but as demand for higher-quality base stock grows in developing regions, supply chain economics will continue to be evaluated. For example, we’ve already seen ExxonMobil expand its Jurong base stock manufacturing capability in Singapore and build a world-class plant in Rotterdam to supply the growing Group II demand in Europe.

Group I is the easiest to predict. This supply has been declining and will continue to dip. It’s not that there are no more uses—there are some valuable applications such as bright stock or light process oils—but the plants are older, generally have poorer economics and may ultimately be tied to fuel demand. Use in engine oils is rapidly going away, as it is more efficient to use Group II to meet modern specifications. Alternatives to bright stock exist, including PIB or such innovative Group II as EHC340 from ExxonMobil. 

“It is possible Group I value could even exceed Group II value as more Group I plants shut down because those applications that require Group I will have less supply and competition,” Jackson said. “We have seen this recently as some Group I products advanced in price while Group II did not move. Group I plants have survived so far due to higher value for wax, bright stock and specialty aromatics, and ties to an efficient refinery! But times change, and wax demand is moving toward natural and synthetic derived products, bright stock can be replaced by PIB and a portion of aromatic demand has been replaced by naphthenics. Group I plants are also more energy-dependent, less efficient and have more downtime than newer Group II/III plants.”   

Group II, on the other hand, is growing globally and can be used in key SAE viscosity grades in every region. We also know that Group II plants have the capability to raise VI and, at some point, may be able to make Group III or III+. Group III is harder to predict, and the need for it is growing with a move toward SAE 0W-XX and ever higher-performing, longer-life lubricants. There are also significant differences seen from products with VI as low as 120 to over 135. This provides almost endless formulating options! How applications evolve and in what region will also play a role.

Regarding capacity, Jackson said: “I would expect limited new standard production Group II or Group III base oil plants to be built globally after recent production was added in India that was needed due to that country being short on base oil production. Saudi Arabia recently announced new Group III production coming onstream, but that is a crude oil supply play as much as a new base stock supply play. Global supply already exceeds global demand, and there is enough manufacturing flexibility to make Group III at Group II plants, so no new world-scale base oil plants are needed. The exception to this rule might be a plant with a distinct competitive cost/quality advantage such as a GTL plant located on a lower-cost natural gas field, a rerefined base oil plant, a plant with competitive crude or feed availability, or a national oil company that manufactures lubricants and has a refinery with no base oil production.”

Rerefining will also grow the supply of base stock as industry seeks the highest value from waste oil. We also are seeing marketers and adcos using rerefined to help reduce their caron footprint. For many years, marketers have tried to get value from more sustainable finished oils, but individual consumers have not valued this marketing concept and have not been willing to even pay the same price as a virgin oil, let alone a premium. Today, large truck fleets, rental car companies and others managing fleets of vehicles see this as a benefit for their businesses. Adcos and large marketers such as Shell—which invested in Blue Tide, a newer rerefiner—are inclined to agree. There is no doubt that demand for rerefined base oil is increasing!

In North America alone, it is estimated that there are around a billion gallons of used engine oil from all applications that can be recovered to produce rerefined base stock. Not all of this is useable, as some are mixed with industrial oils or waste products that contaminate the streams. One must also remember that some fresh oil lubricant volatizes during use and engines are designed to allow some leakage. At one point, a key rerefiner estimated for Infineum Trends that maybe 7%-8% might be the maximum rerefiners could produce, but with changing economics and regulations, many feel it has grown to more than 10%-12% of base oil consumed in North America. 

“If you assume 50% of this finished lube is ‘collectible,’ and this is just a guess, then perhaps 450 million gallons of used oil can be collected. Then you must process it and there will be a yield loss, as not all goes back to base oils. Asphalt, for example, is a byproduct. Perhaps 300 million gallons of rerefined base oil could be made,” Jackson said. “Rerefiners primarily make 110 Neutral, with 110 dominating, followed by 220N and some 60/70N. Total demand for lubricants for all applications, as well as process oil, is in the 2.2-2.3-billion-gallon range, so best case scenario is perhaps rerefined could meet 20% of a limited total demand, and that may be a stretch. This observation is also for North America, where rerefining and waste oil collection is well developed and accepted. Even then, economics and the regulatory market will all have to pull in the same direction to maximize production.” 

He added that “the tide has certainly turned on rerefined base oil. There was a time ‘branded’ lubricants would never consider using rerefined. But now many companies want rerefined base oil to make a business claim for sustainability. Plus, rerefined has been very competitively priced compared with virgin oils. Let’s also remember that many rerefined oils are as good or better than virgin quality—not all but most.” 

To summarize, base stock demand will continue far into the future, and supply will adjust to the industry’s needs globally. In North America, Group II has already adjusted to domestic needs and has already found export opportunities to Europe, Latin America and Asia. Large plants, which are very economical, will continue to compete and thrive while less efficient plants may struggle. Formulation options will help manage demand for Group III, with products like Group III+ enabling further options with Group II+. As always, all stakeholders will need to adjust to demand, which continues to change due to extended oil drains, fill-for-life applications and the use of fully electric vehicles.  

Steve Haffner is president of SGH Consulting LLC. He has over 40 years of experience in the chemical industry, primarily with Exxon Chemicals Paramins and Infineum USA. Contact him at sghaffn2015@gmail.com or 908-672-8012.