FocusDiesel crisis shakes up Asian base oils

10 June 2008 05:38  [Source: ICIS news]

By Anu Agarwal

SINGAPORE (ICIS news)--The current diesel crisis, including the tight supply and spiralling values, has hit the Asian base oils industry especially hard - resulting in acute tightness and price surges, industry participants said on Tuesday.

“We are in the midst of a diesel crisis which has not only hit the production volumes of base oils in the region but also skewed the traditional proportion of different grades of base oils produced here,” Joe Rousmaniere, CEO of Petronas Base Oils, said.

Many of the region’s group II and III base oil makers use fuel hydrocrackers which also produces diesel.

In the current environment where diesel demand and prices are spiking, these fuel hydrocrackers are run at high severity, therefore reducing not only the amount of hydrocracker bottoms to make base oils but also reducing the output of high viscosity base oils, he added.

Group I base oils, which use vacuum gasoil (VGO) as a feedstock, have already seen output shrinking as more VGO is being used to produce diesel – in line with the national priority of running the transport and truck fleets, than making lubricants.

Group I baseoils prices have surged 25-30% since end-March on the back of this unusual shrinkage in supply on the back of high diesel prices and the push to maximise diesel production across the region.

Group I solvent neutral 150 and 500 (SN 150 and SN 500) prices were pegged at $1,250-1,280/tonne (€800-819/tonne) ex-tank on Tuesday morning.

Meanwhile, 0.5% sulphur diesel prices were hovering at $171.50/bbl, around $1,300/tonne in Singapore on Monday.

Most refineries need a higher premium over diesel for producing baseoils than currently available, a regional base oils producer said.

Meanwhile, several independent lubricant blenders in Asia have reduced operations due the inability to pass on these price hikes to the end-users.

“The problems faced by the lube makers will continue till this diesel crisis goes on, and most base oils buyers and sellers are now waiting to see how things move in the diesel market,” said a key lubricant maker.

“It seems at current prices, diesel demand may start softening in the near future,” he added.

Large base oils producers in Asia include Exxon Mobil, Shell, SK Energy, S-Oil, Nippon Oil and Pertamina.

($1 = €0.64)

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By: Anu Agarwal
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