OUTLOOK ’18 Americas base oil industry moves into Group III use

HOUSTON (ICIS)–The Americas base oil industry is moving strongly into Group III base stock use in 2018 as new vehicle engines will require more of the light viscosity oils.

Based upon this growing need for light viscosity base oils, 2018 will see additional Group III enter the Americas base oil market in both production and commercial presence.

Petro-Canada – located at Mississauga, Ontario, Canada, and acquired by Group I producer HollyFrontier in early 2017 – is now posting its base oil prices, broadening its position in the Group III production space for 2018.

The Petro-Canada Lubricants plant is the largest producer of base oils in Canada with 15,600 bbl/day of lubricant production capacity, and until 2017 has been is the only North American producer of Group III base oils.

With the addition of the Petro-Canada Lubricants business, HollyFrontier is now the fourth largest lubricants producer in North America with a capacity of 28,000 bbl/day, or approximately 10% of North American production.

Calumet Specialty Products, commonly known by Calumet in its Group I and Group II base oil production, announced in May 2017 that it will be producing Group III base oils. At the time of announcement, this made Calumet the first US-based virgin producer of Group III base oils.

Until the entry of Petro-Canada and Calumet, Group III base oils were imported. Imports were mostly from production in South Korea and handled by SK Lubricants and Phillips 66 for the Americas markets.  Neste also sent in Group III oils for US distribution.

However, in 2018 Petro-Canada and Calumet will not be the only Americas-based Group III production.

At the 13th ICIS Pan American Base Oil conference held in New Jersey in late November and early December, Group II producer Motiva announced it will produce Group III base oils commercially at its Port Arthur, Louisiana base oil facility and will post prices for its Group III oils.

The following graph shows price direction for two grades of Group III domestic market ranges.

Another change in Americas base oils imminent in 2018 is the retreat of Flint Hills Resources (FHR) from base oil production, handing full production responsibility at the Lake Charles, Louisiana, Excel Paralubes base oil facility to Phillips 66.

1 January 2018 is the official date of the change with FHR and Phillips 66, with teams from both companies working to facilitate changes and ensure service quality to all concerned parties.

Despite Group III base oils surging to the forefront of market discussion, Group II base oils remain the workhorse base stock of the industry. Group II oils are able to fulfill approximately 97% of motor oil requirements, according to comments over the past two years from Group II producers and from buyers.

Driven by regulatory stipulations that require reductions in carbon emissions, Original Equipment Manufacturers (OEMs) have moved to new vehicle engine designs that will continue to push the base oil industry in 2018 and beyond. Increasing use of Group II and III, with polyalphaolefins (PAOs) and other synthetics will gain more use in passenger car motor oils (PCMOs) and in heavy duty vehicle applications.

These drivers will move the Americas – and global – base oil industry toward light viscosity, premium performance, motor oils that can only be achieved by the use of Group II, II+, III, III+ and Group IV (PAO and synthetics) base stocks.

The question is often raised in the Americas base oil market concerning the fate of Group I base oils in a market zooming into light viscosity, low sulphur oils.

That question is again highlighted for 2018 when the base oil industry will need to consider changes in marine applications for base oil lubricating systems and greases.

The International Marine Organization (IMO) is setting new international regulations limiting sulphur in fuels for ocean-going vessels. This has implications for refiners and for vessel operators.

Marine applications are a main application for Group I oils, so with a 2020 timeline set for invoking the new regulations, the Group I base oil segment will be focused on these challenges in 2018.

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