Base oils 2014: Move to lighter base stocks accelerates

Tighter specification requirements and the increased availability of Group II and III base oils are beginning to reshape the lubricants landscape in North America

Group II base oils are getting all the ­attention right now in the US market because of growing supply. Group III grades are on the near horizon, while Group I materials are holding their own on the strength of heavy grades and waxes.

The advent of Group II has been talked about for quite a while, fostered by expected additional production capacities; more stringent environmental requirements; and the expanding slate of formulations and products that must evolve to meet new regulatory and emissions criteria.

Chevron’s new Group II facility in Pascagoula is now starting up Copyright: Chevron

Chevron’s Pascagoula, Mississippi, Group II refinery project has hogged a good portion of the spotlight for many months. Announced in 2008, the refinery was targeted for start-up in the fourth quarter of 2013. It entered the mechanical start-up phase in January this year, with normal testing and start-up procedures underway, according to Chevron company representatives.

Dubbed the Pascagoula Base Oil Project, or PBOP, the new facility is expected to produce 25,000 bbl/day of premium Group II base oils when fully operational. Chevron currently produces 20,000 bbl/day of Group II base oils at its Richmond, California, refinery location.

MARKET ENTRY
PBOP’s presence underscores the significant additional volumes of Group II entering the markets of the North American Free Trade Agreement (NAFTA) region, covering the US, Canada and Mexico. Chevron has said that output from Pascagoula is largely intended to serve markets in North America, Latin America and Europe.

Chevron is not alone in the US in seeking, and finding, ways to bring more premium base oil production to this key global supply and consumption region. ExxonMobil in February 2013 announced plans to expand Group II and II+ base oil production capacity at its Baytown, Texas, refinery.

Following completion of regulatory ­appro­vals and funding, construction on the expansion was scheduled to begin in late 2013, with a 2015 target set for start-up of the base oil units, according to ExxonMobil’s announcement. While no specific volumes were released by the company, it did say the expansion will significantly increase its output of Group II and II+ base stocks.

Commenting on the expansion, George Arndt, general manager of global base stock and specialties for ExxonMobil Fuels, Lubricants & Specialties Marketing Company, said: “We are committed to the base stock business and remain confident in our integration, ­technologies and product slate. In fact, ExxonMobil’s technical analysis has shown that our EHC 45 Group II+ base stocks can be used in many cases in place of Group III, which reduces cost and operational complexity.

“Likewise, EHC 65 is an efficient grade to blend heavy duty engine oils, which can reduce the need for additional higher viscosity components. We have designed our 
EHC products to meet the heart of the market passenger and commercial vehicle lubricant applications.”

ExxonMobil’s Baytown refinery currently has 9,800 bbl/day of Group I base oil production capacity and 11,700 bbl/day of Group II output. The company also has Group I and Group II base oil production at Baton Rouge, Louisiana.

According to any number of US market participants, Group II and other premium base stocks are necessary to move ahead on formulations that can meet new regulatory and environmental performance requirements. One example, amid an array of evolving regulatory items that are pressuring base oil producers to make decisions that shift the market metrics in the US, is the Corporate Average Fuel Economy, or CAFE, standards.

CAFE standards were first introduced in 1975 when the Energy Policy Conservation Act added Title V – Improving Automotive Efficiency – to the Motor Vehicle Information and Cost Savings Act. The standards are intended to drive changes in the average fuel economy for passenger cars and light trucks, including sports utility vehicles (SUVs), for all vehicles sold in the US.

CAFE CULTURE
The table (below) sets out the upgraded fuel economy criteria that are mandated under CAFE. Changes in lubricant formulations and products will be needed in order to meet these performance standards.

The average fuel economy values for the vehicles that Americans drive is steadily improving, according to a 2013 data report released by the Environmental Protection Agency (EPA). In the report, the EPA estimates that from 2007 to 2012 fuel economy values increased 16%, while carbon dioxide emissions fell by 13%, also leading to lower oil consumption.

Additionally, the EPA release shows an increase in average fuel economy to 23.8 miles/gal in 2012, which is the largest yearly improvement since the EPA began reporting on fuel economy. Fuel economy is expected to continue to increase under the National Clean Car Program.

The Group III influence on global supply is part of the industry trend towards lighter oil grades, adding another light viscosity option to the swell of Group II stocks. Group III production from gas-to-liquids (GTL) technology has significantly increased overall Group III production capacities with the recent start up of Shell’s plant in Qatar.

Several sources comment that Group III volumes are now in excess of global demand, causing these high quality oils to be blended into Group I and Group II base stocks as well as finding their way into applications that might not require these premium grades.

“The volumes are huge and the quality is very high – it is like drinking brandy from a fire hose,” comments one industry expert. This year will see further capacity additions that increasingly include Group III production.

New projects in South Korea and eastern Europe are slated to add more than 20,000 bbl/day of Group III production capacity through new units or expansions. Additionally, there are a number of other capacity additions that combine Group II with Group III production, although specific barrels per day by type are not readily available.

PERSISTENT PRESSURE
Driving the move to these light viscosity base oils are the upgrades needed because of regulatory and environmental requirements and the insistent pressure applied on the industry to meet these issues.

The International Lubricants Standardization and Approval Committee (ILSAC) has developed the GF-6 passenger car outline for the purposes of increasing fuel economy; enhancing oil robustness; expanding overall fuel efficiency and several other such initiatives within this specification.

In order to begin to achieve the goals of GF-6, lower viscosity grades of base oils will be necessary. This necessity has been under industry attention for a while, certainly since December 2012 and throughout 2013. The timeline ILSAC gives for GF-6 development is shown in the table above.

With the development of GF-6 over the next three years, the increased availability of Group II and II+ base stocks in the US becomes a necessary step in making possible the required changes to lubricant formulations. Group III base oils will also find increasing use from this year, so that the current period of excess supply is likely to be seen as helping industry meet the requirements of the future.

Judith Taylor is a senior editor in the ICIS Houston office. She reports on several market segments, including base oils