09 October 2012 14:44 [Source: ICIS news]
DUBAI (ICIS)--The Middle East is set to become a major Group III base oil production hub as new projects see capacity expand sharply over the next five years, but its demand will not keep pace, an industry analyst said on Tuesday.
As a result, base oil exports from the Middle East will likely rise significantly, delegates at the ICIS Middle East Base Oils and Lubricants Conference in Dubai, in the United Arab Emirates (UAE), heard.
In his paper entitled 'The impact of Group II and III production on Group I refinery margins', Blake Eskew, vice president of IHS Purvin and Gertz, said Middle East base oil production is expanding rapidly, with new capacity, particularly Group III, being added at an unprecedented rate.
The net result is that base oil capacity will soon outweigh demand and imports will likely decline while exports will rise.
“In our view, the Middle East will become a very important supply hub, especially for Group III,” he said.
“This means global base oils trade is going to change.”
Not just in the Middle East, but globally, base oils supply is forecast to exceed demand notably by 2017.
Eskew said Group I producers may need to invest in quality improvements as the market place becomes increasingly challenging and profitability pressures continue.
Moreover, European Group I producers will see less export opportunities to the Middle East.
In addition, some existing base oil units will likely shut down.
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