Q: Is it true that Group I is not going to be around in the future, which is why it makes sense to transition to Group II now?
A: Over the past few years, various Group I refineries have closed, which has generated a sense of uncertainty about its future. Our recent ExxonMobil Basestocks 2018 Industry Pulse Report
reveals that while nearly 75 percent of base oil decision makers view Group II base oils as the “heart” of the market, Group I still remains beneficial, with one-third of base oil decision makers saying that, while demand for Group I base oils has decreased, they still see its importance. This is primarily due to certain beneficial properties of Group I, such as a broad viscosity range and solvency.
While many applications use Group II base stocks, some will continue to rely strongly on Group I well into the future. Applications like gear oils, hydraulic fluids and greases used in machine tools require the high viscosity and solvency readily provided by Group I base oils. In addition to industrial applications, marine and heavy-duty applications also strongly value the high viscosity and high solvency of Group I. Marine applications in particular value Group I heavy neutrals and bright stock since it allows marine lubricants to deliver the necessary engine protection and performance as well as stable oil life and reduced operating costs.
ExxonMobil recognizes that Group II is not a perfect fit for all applications and is committed to a reliable Group I supply for the foreseeable future.
Q: When did the switch to Group II start? Is it happening globally, or is it more North America focused?
A: The demand for Group II base stocks came into play around the 1990s when finished lubricant manufacturers, specifically in the automotive sector, were challenged to develop product formulations that offered increased fuel economy and longer drain intervals. At that same time, greater demand for diesel fuel drove increasing investments in hydrocrackers, which established a platform for Group II production growth.
Since Group II meets the needs of a wide variety of applications and its supply has increased significantly, it has recently become what we like to call the “work-horse” grade of the industry. Whether it’s for commercial, industrial or automobile applications, Group II offers enhanced oxidative stability, reduced volatility and superior low-temperature performance relative to Group I, helping lubricants meet the most rigorous technical requirements. Group II already serves a diverse number of applications, and this will only continue to expand with time.
It’s important to keep in mind, though, that while the industry has seen an overall shift to Group II base stocks, its penetration has varied across the globe. North America led the charge, while Europe was slower to adopt. In the past, European base stock needs were largely met by Group I and Group III products. Unlike North America and Asia-Pacific, Europe has lacked affordable and reliable Group II supply, making it costly to market these base stocks due to a heavy reliance on imports from areas like the U.S. Gulf Coast.
Q: If it’s not necessary to move to Group II, why does it seem to be happening so quickly?
A: Across the base stock industry there is a misperception that Group I is going away because of limited supply availability and the abundance of Group II and III. Because of this fear, we’re seeing some finished lubricant manufacturers develop new formulations based on Group II and III base stocks across several applications, mostly in automotive, but also industrial and marine, not necessarily because of technical needs but rather because of perceived supply concerns. Our team does not believe it is necessary to move from Group I to Group II because of potential supply issues, and we are happy to work with finished lubricant blenders independently to evaluate their specific situations and help determine the best path forward.
Q: Since more and more Group I base oil plants are closing, should I convert to Group II?
A: Group I’s high solvency and viscosity are still valuable for certain applications and industries. As noted previously, Group I base stocks allow lubricants for applications like marine to deliver the necessary engine protection and performance as well as stable oil life and reduced operating costs. At the end of the day, being thoughtful about transitioning formulations at a time that makes sense for your company is of the utmost importance.
Q: Do you see supply reliability being an issue for Group I in the future due to diminishing demand? I'm curious if suppliers will begin cutting back on Group I and focus more on Group II and Group III. My company relies on Group I currently, and I want to stay out in front of any supply issues.
A: Great question, especially given the fact that Group II is becoming more and more prevalent worldwide. But, regardless of all of the buzz, Group II is not always the best fit for all applications. In fact, using the base stock that is the best fit – Group I or Group II –works best to efficiently provide broad coverage across the majority of blending requirements. Together, Group I and Group II enable the efficient blending of base stocks and additives into finished lubricants to meet both specific performance and cost requirements for specific types of lubricants, including those within the automotive, industrial and marine sectors.
That’s why ExxonMobil has a balanced portfolio of assets to produce Group I and Group II base stocks – a testament to our commitment to bringing the most efficient production capacity to the marketplace. In fact, we recently announced that we will open a new hub terminal for vessel and truck loading in Valencia, Spain, in the first quarter of 2019. This expansion is part of our continued investment in our supply logistics readiness to support a robust Group I and II offer from our European refineries.
Q: What are the major legislative issues that I should be monitoring regarding Group I in North America and European markets? Are there any issues that are currently under the radar that deserve more attention from our industry?
A: As the largest global producer of Group I base stocks, ExxonMobil actively tracks the Group I base stock market to anticipate upcoming needs. One area we are paying close attention to is the upcoming legislation that will require vessel owners and operators to comply with the International Maritime Organization’s global 0.5 percent sulfur fuel cap. In light of the new fuels regulation, ExxonMobil believes that the marine industry is heading into a multi-fuel future and its effects will reverberate to affect lubricants and base stocks. As IMO 2020 takes place, each compliance option will need to be addressed by vessel owners based on their fleet, as they will need lubricants specifically designed to work with their fuel choice, engine technology and operating conditions.
Some vessel operators may choose liquefied natural gas (LNG) or the continued use of high-sulfur fuel in conjunction with an exhaust gas cleaning system (EGCS), otherwise known as scrubbers. Ultimately, we anticipate that the vast majority of the industry will choose to use low-sulfur fuels – which will affect the vessel’s lubricant formulation.
Group I base stocks, particularly Group I heavy neutral and bright stock, are well suited for lubricant formulations in the marine industry that value high viscosity and solvency, and will continue to be highly relevant in the foreseeable future. For some Group I base stocks producers, however, the cost of investment to meet the 0.5 percent sulfur fuel cap and/or the higher feedstock cost may prove to be a challenge to their continued operation in light of the new regulation. As a result, this accelerates existing concerns around Group I’s supply reliability.
The ExxonMobil Basestocks team understands the potential challenges and is well positioned to make its production adaptable to IMO 2020. The team is ready to meet customers’ marine blending needs today and in the future.
Q: As the global base stock industry continues to evolve, what is the ExxonMobil team doing to adapt with the market and customer needs?
A: First, we engage and work with our customers to understand their needs and the markets they operate in.
The ExxonMobil Basestocks team adamantly believes that while Group II is becoming more and more prevalent, Group II is not always the best fit for all applications. With that in mind, ExxonMobil’s robust product portfolio includes Core Group I base stocks, which deliver consistent quality and broad blending coverage. Our global network of refineries currently producing Group I base stocks means that we have the flexibility to meet customer needs today and well into the future.
Deciding whether Group I or Group II is the best fit for individual lubricant blenders may mean choosing the one that provides broad coverage across the majority of blending requirements. Together, Group I and Group II enable the cost-effective blending of base stocks and additives into finished lubricants to meet both specific performance and cost requirements for specific types of lubricants, including those within the automotive, industrial and marine sectors. As a global supplier committed to providing our customers continuous supply security, ExxonMobil is always investing in process, catalyst and product technologies to accommodate demand shifts.
Q: My company has been discussing this issue internally, and we agree that Group I will continue to play a vital role for lubricant applications in many industries. We focus on the marine industry. Do you think Group II will become the dominant base stock for lubricants in that segment, and when do you think the tipping point will occur?
A: Simply put, there’s no “one-size-fits-all” approach to complying with the upcoming regulation. Vessel owners and operators will need lubricants specifically designed to work with their fuel choice, engine technology and operating conditions.
While there are various compliance options that will ultimately drive the lubricant selection, we believe that Group I base stocks, particularly Group I heavy as well as bright stock, are well suited for marine applications that value high viscosity and solvency, and will continue to be highly relevant in the foreseeable future.
Q: When Group II oils were newer to the market, it was often said that they had a significant disadvantage compared to Group I when it came to additive solubility. Did the market develop any additives that dissolved better in Group II?
A: For additive diluent oils, the solubility issue is confined to a few types of additives that are highly polar. While the solubility advantages of Group I are still preferred and valued, especially in applications where solvency is critical such as marine oils, additive companies have developed tactical ways to facilitate their use with Group II base stocks across many applications.
It’s important for these technologies to be tailored to take advantage of the benefits of Group II base stocks, as Group II base stocks have become “the heart of the market.” So even though hydroprocessed base stocks do not bring the same level of solubility for either additives or oxidation byproducts as Group I base stocks do, this has been offset in some applications such as engine oils by the improved oxidation stability of hydroprocessed base stocks.
Q: I appreciate you sharing your perspective on the International Maritime Organization’s global cap of 0.5 percent sulfur on marine fuels, which is due to take effect in 2020. We agree that the industry is headed for a multi-fuel future. What steps should we be taking in advance of 2020 to prepare for this seemingly inevitable development?
A: Indeed, we believe that the marine industry is heading into a multi-fuel future. As IMO 2020 approaches, vessel owners should plan ahead for the initial transition by ensuring the availability and compatibility of compliant fuels in the areas that they serve. Finished lube marketers should also confirm that their shippers have transition plans, including contingency plans, for supply of base stocks. For compliance in the long term, finished lubricant marketers will need to work closely with OEMs and vessel owners to understand their needs as well as with additive companies and base stock suppliers to find optimized solutions to meet these needs. The selection of future compliant fuels will ultimately depend on owners’ individual vessel types, routes, age and engine.
ExxonMobil understands the challenges for marine lubricants and has a range of base stocks designed to work well across the full range of marine applications. ExxonMobil Basestocks is well positioned with reliable production and supply capabilities to meet customers’ marine lubrication needs today and into the future – be it Group I or Group II base stocks.
Q: What factor do you see bio-based base stocks having in these markets? Do you think certain regions will be quicker to adapt bio-based lubricants in this mix as we have seen in the electric vehicles market?
A: Sustainability is an area of growing interest in many aspects of the energy and lubricants industry. All sectors of the market, from commercial to consumer are looking for ways to reduce environmental impact. Steps such as more efficient manufacturing processes and lower-viscosity lubricants for fuel efficiency, are just a couple of ways the industry is working towards improved sustainability. Another area of activity is bio-derived base stocks. There are many interesting technologies currently being evaluated for creating high quality base stocks from renewable feedstocks. However, unless technology improves and costs come down, it is not certain that bio-based base stocks will be a viable, sustainable alternative. Certainly, regulatory drivers may speed adoption in some regions faster than others, but cost-effective performance and reduced carbon footprint will be the key drivers that will enable potential growth in the bio-derived base stock segment.
Q: I recently attended an industry event and heard that in Africa Group I is still the dominant choice and will continue to be so for the near and distant future. What factors do you think are contributing to this? Is it lack of supply for Group II and III? Is it facility limitations? Thank you in advance for your insight.
A: Across the region, demand for Group I II and III is growing. But you are correct in noting that Group I still has the primary market share in Africa, and we expect this to continue into the foreseeable future. In fact, in 2017 the demand for Group I base stocks accounted for about 76 percent of the total base stocks consumed in the region, a marginal decline from 79 percent share in 2016.
We wouldn’t say that any lack of supply or facility limitations for Group II and III base stocks are keeping Group I relevant, but rather that industrial growth in Africa is leading to rapidly increasing Group I opportunities and is masking the steadier growth of Group II and III. For example, in Africa we are seeing growing mining operations, heavy equipment growth from the expanding construction industry, and increased gear oil demand from the energy sector. Industrial applications like these largely rely on Group I base stocks due to its solvency and higher viscosity capability.