10 October 2012 16:29 [Source: ICIS news]
By Judith Taylor
Group I base oils are keeping pace with changes in the US and global base oil markets, as the industry grinds toward a long touted metamorphosis into a prevailing Group II and III business. But while forecasts show Group I base oils production eventually disappearing, the industry is finding more value in these grades.
It is certain that the transportation horizon reveals serious work aimed at incorporating lower viscosity grades fully into the market.
Common discussions in the industry centre on longer oil change or drain intervals for auto engines, as well as tyre and engine performance versus looming increases in environmental stipulations on curbing carbon emissions and a dizzying array of evolving regulatory criteria.
But it is equally certain that there will be a continuing need for the base oil processes that produce heavy neutral grades, brightstock and waxes – Group I base oils.
Applications in the marine market are an example where lubricants for marine uses have typically been blended with Group I base oils, according to industry sources.
Sources active in additive work have mentioned potential fuel compatibility challenges in using Group II base oils with marine lubricants because of issues arising from the asphaltene content of marine fuels.
While experts in the area seem to point to solutions in formulations and additive packages, solvency performance by Group I base oils offers consistent performance supporting the ongoing use in marine applications.
Some market participants have expected Group I heavy neutral production to shrink by as much as 10% between 2011 and 2013.
A glance at capacity additions and projections indicated in the chart for 2011-2014 heavily tilts the outlook towards Group II and III output. Speculation, ranging from comments about Group I plant closures to the disappearance of the tier, has been common.
Expected paraffinic base oil capacity additions
Source: My Energy
Yet while production rate cutbacks were discussed in September this year, only one Group I producer verified it had cut rates, without being specific.
Other Group I suppliers said there was market chatter about rate cutbacks because of poor August demand.
Another factor pushing Group I rate cut discussions was some suppliers choosing to avoid spot market activity on heavy grades, especially brightstock, because buyers’ price sentiment was well below margin efficiency.
With vacuum gas oil (VGO) premiums in the $30/bbl range over West Texas Intermediate (WTI) crude, and crude oil prices on the upswing, base oil producers are looking more at margin deficiencies than at pulling back on production rates.
Group I producers came out in September with posted price hikes of 15 cents/gal across the tier, but they expected the increases to take hold only slowly.
Uncertainties about the length of time expected for the full repair and return to normal operating conditions at Chevron’s Richmond, California, refinery are abating. Ample supply in Group II inventories is now evident.
So Group I market players, considering the ups and downs tossed out about the eventual fate of the tier, possible closures, cutbacks and the growth of Group II and III seem to take it all in their stride, expecting any of these crunch-time prospects to stretch out four-to-five years, at least.
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