Base oils pressured by VGO feedstock competition

21 February 2008 17:07  [Source: ICIS news]

LONDON (ICIS news)--Base oils supply is coming under increasing pressure from feedstock competition and the margins available in fuels production, said consultant Stephen Ames on Thursday

 

Fuels and lubricants production used to be able to exist independently, but as base oils compete for feedstock vacuum gas oil (VGO) with the diesel pool, refiners are favouring production of gas-oil as they look to maximise overall value.

 

“Two years ago, base oil margins were in the region of $300-500/tonne,” said SBA Consulting's Ames, speaking at the 12th ICIS World Base Oils Conference in London.

 

“One year ago margins were still good. Now, however, margins are marginal.” 

 

Considering the alternative margins possible through fuels production, base oils were becoming increasingly unviable.

 

Looking at gross base oils margin since 2000, current levels were slightly below average and lay just above production costs based on recent levels of crude at around $90/bbl.

 

Relative to alternative margins on gas-oil, margins were lying in negative territory.

 

According to Ames, there was evidence that refiners were diverting feedstock into the fuels business in a repeat of the scenario seen in 2004 when around 10% of light neutral capacity was diverted.

 

The conference runs from 21-22 February in London.

 

By: Shelley Kerr
+44 20 8652 3214

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