ICIS Base Oils & Lubricants 2017

Publication prepared by For the 21st ICIS Global Base & Lubricants Conference 15-17 February 2017 | London, UK ICIS Base Oils & Lubricants 2017

MARKETS IN TRANSITION GLOBAL TRENDS POSE INDUSTRY CHALLENGES Low oil prices, overcapacity, new standards and sustainability keep producers on their toes

FEBRUARY 2017

COMMENTARY JOHN BAKER LONDON [email protected]

“The impact on ome years can seem much longer than others. Some, on the other hand, markets has been appear to fly by. Perhaps 2016 was one of the latter – with markets relatively steady Sand with most issues largely under control, or at least recognised and understood. variable, with local There is no doubt, though, that the base oils industry is working through a period of factors determining... transition, just as discussed in this Commentary in the 2016 issue of this publication. material availability And indeed, “markets in transition” is the theme of this year’s 21st Global Base Oils and demand... and & Lubricants Conference being held as usual in London. Speakers and delegates will the pace of transition be exploring the drivers for change and coming away with a more informed and, hope- between grades” fully, certain view of where the sector is heading. The low oil price and sluggish growth in base oils demand and for national economies are a continuing backdrop to what is happening. On top of this are overlaid the shift to lower viscosity engine oils, increasing capacities for premium Group II products, and rationalisation by and amongst producers and blenders and formulators, through plant closures and M&A activity. The impact on markets has been variable, with local factors determining not only material availability and demand, and hence pricing trends, but also the pace of transition between grades. In many regions of the globe, as we report in a series of regional market reviews beginning on page 18, price ideas are firming as we enter 2017, but not on any underlying improvement in demand, which remains flat if not slightly negative, especially in the more developed economies. And indeed, in some grades, where supply is longer at present, we are seeing some softness, in brightstock in Europe, for example, and Group III in Asia. All of which promises to make the ICIS base oils event a fascinating one, as industry experts seek to make sense of it all for delegates. I hope you find this publication informative and that you enjoy the conference if you are attending it.

TRANSITION TIME FOR growing, with potentially big impacts on GLOBAL BASE OILS base oil usage in the automotive sector 4 A number of factors are coming together Editor +1 212 791 4251 to change the landscape for producers BRIGHTSTOCK SUPPLY John Baker [email protected] EASES IN EUROPE +44 20 8652 3153 Europe, Middle East and 18 Despite recent plant closures, product is [email protected] Asia sales manager RUSSIAN LUBE OILS Contributors ARE ON THE RISE readily available, causing prices to soften Cynthia Challener, Cuckoo John Hill James, Jasmine Khoo, +44 20 8652 3893 8 Refiners are investing to add higher value Veena Pathare, Whitney [email protected] products to their production slates CRUDE OIL PRICE RISE Shi, Judith Taylor and EMEA sales executive SUPPORTS US HIKES Sarah Trinder Tom Iredale ENGINE OIL VISCOSITIES 21 The year has started with upwards price Production and design +44 20 8652 3812 CONTINUE TO HEAD LOWER adjustments across the US market Rachel Warner, Terence [email protected] 11 Fuel economy and reduced emissions are Burke, Monica Lugo and Ethel Ong Managing director, ICIS driving the shift to thinner engine oils Rob Kolkman MIDDLE EAST GROUP II Americas sales manager SET TO EXPAND Bernard Petersen Printing Newman Thomson CHEVRON MARKS 10 YEARS +1 646 961 0708 Front cover Getty Images 23 New production and rising car sales in the [email protected] ICIS, The Quadrant, Sutton, WITH GROUP II IN EUROPE region will see Group II more widely used Americas sales executive Surrey SM2 5AS, UK 15 The US company has built its presence in Karen Yaniro www.icis.com the market with an effective supply chain TIGHT SUPPLY GIVES FIRM ©2017 by Reed Business Information. All rights reserved. No part of this publication may be reprinted, or reproduced or utilized in any form or by ASIAN PRICING electronic, mechanical or other means, now known or hereafter invented, 25 A heavy maintenance programme in Asia including photocopying and recording or in any information storage and THE FUTURE IS ELECTRIC! retrieval system without prior permission in writing from the publisher. 17 Sales of electric and hybrid vehicle are has supported year-end prices www.icis.com February 2017 | Base Oils Supplement | 3 BASE OILS 2017 SECTOR OVERVIEW Jeff Tzu-chao Lin/imageBROKER/REX/Shutterstock Time of transition for global base oils Lower crude oil prices, overcapacity, the shift to premium base oils and consolidation in the market are all impacting base oil producers around the globe

CYNTHIA CHALLENER VERMONT, US oil prices in 2017 may exacerbate some of than expected rates of expansion in countries these trends. And last, but not least, sustaina- like China, India, Brazil and Russia. he theme of this year’s ICIS World bility has also entered the mindset of the In 2017, whether or not any overall growth Base Oils & Lubricants conference is European lubricants industry. is seen will once again depend on these “Markets in transition” – and for a Overall, global demand for base oils and emerging economies, according to Valentina good reason. It is not just market fun- finished lubricants was flat in 2016 com- Serra-Holm, marketing and technology direc- T damentals that are shifting. pared to 2015, according to several different tor for naphthenics with Nynas. The geographic distribution of production industry experts. In mature economies (the facilities is also changing rapidly due to ongo- US and EU), demand actually declined OVERSUPPLY IN THE MARKET ing investments in new capacity despite an slightly due to ongoing efforts to increase This flat growth in demand is occurring at a oversupply situation. performance and efficiency and thus reduce time when base oils are in a 5m tonne/year Mergers and acquisitions across the supply the need for lubricants. “oversupply” position, according to Geeta chain – among base oil manufacturers, While slight growth in demand in emerg- Agashe, president of Geeta Agashe & Associ- lubricant producers and distributors – are also ing economies balanced these losses, the ates. This is despite five recent closures and changing the market landscape. Higher crude overall market remained flat due to lower has resulted in an average plant capacity utili-

4 | Base Oils Supplement | February 2017 www.icis.com BASE OILS 2017 SECTOR OVERVIEW

sation rate of around 70%. Looking at the numbers, API Group I previ- tonne/year of Group I disappearing in the next Looking at specific base ously represented the majority of capacity, two to three years. As a result, all of the leading oil groups, the shift away but today accounts for just 41%, while there economies are actively pursuing the shift away from Group I to Group II/III have been significant increases in API Groups from Group I base oils,” she states. continued in 2016, even in II (34%) and III (13%), as well as re-refining China. “The base oil mar- capacity, according to Outhwaite. Indeed, a LOW GROUP II PRICES ket continues to be total of 36,000 barrels/day (1.8m tonnes/year) One result of this shift, however, has been from of Group I capacity was lost in 2016 alone, a technical demand standpoint the under- “These changes in regional according to Serra-Holm, and she expects fur- supply of Group I base oils, particularly in the base oil capacities and local ther rationalisation, including significant high viscosities, according to Agashe. On the reductions in Group I capacity in Japan in other hand, Group II and III base oils are over- demand are creating new 2017, with more to come in Europe as well. supplied, particularly in the low viscosity dynamics in the global market” “This trend toward higher-quality base oils grades. “Group II base oils are in fact being is also being increasingly observed in emerging used in applications that could in theory be ALAN OUTHWAITE Manager, base oil business development Europe, economies. India has expressed interest in formulated using Group I, because currently Chevron Lubricants adopting European-like emissions legislation Group II base oils are sold at lower or similar that will drive the shift. China is already mov- prices in many geographies, as compared to ing to Group II base oils, and in Russia several Group I’s,” she comments. Meanwhile, naph- very dynamic,” says Alan Outhwaite, man- producers have announced capacity upgrades thenics and poly-alphaolefins (PAOs) are bal- ager of base oil business development in from Group I to Group II, with around 600,000 anced currently on a global basis. ❯❯ Europe for Chevron Lubricants. “Whilst overall capacity has increased, there is a signifi- SUSTAINABILITY CYNTHIA CHALLENER VERMONT, US cant shift in the ratio of produced API groups driven by the demand for premium base oils EU LUBRICANT MAKERS DRAW UP STANDARDS required to meet increasingly stringent lubri- SUSTAINABILITY IS another issues that are unique to our all aspects of a lubricant pro- cant specifications,” he adds. area that the lubricant industry industry. It is important that the ducer’s business, according to In addition to evolving specifications as a is finally beginning to address, lubricants industry develops a Gosalia. “Number one is the driver for increased use of premium base oils, most notably in Europe. sustainability standard specifi- reduction of the carbon foot- formulators are also trying to optimise additive Inspired by Fuchs Petrolub cally for the industry before print, both on a company level treat rates given improved base oil properties, winning an award for some regulatory body estab- and as an industry. It is impor- according to Outhwaite. He adds that Group II “Germany’s most sustainable lishes requirements that are tant today to be able to measure base oils are required for certain applications medium-sized company” in unsuitable or impractical,” our performance in the respect, and are capable of replacing Group I in some, 2016, the German Lubricant Gosalia states. and Fuchs is in the process of as well as optimising levels of Group III in Manufacturers Association Already in developing tools for doing so.” selected automotive applications. (VSI), including Fuchs, Avia the EU, com- Second, because the lubri- A separate factor leading to the displace- Bantleon, Klueber Lubrication panies with cant industry blends raw mate- ment of Group I and II with Group III and IV and Zeller + Gmelin, is devel- more than rials (base oils, additives, etc) base oils is a migration to lower viscosity oping a standard specifically 500 employ- from various sourcing partners, motor oils, which is driven by fuel economy for evaluating the sustainabil- ees must the sustainability of a lubricant needs. An additional watch point for 2017 ity of lubricant suppliers with prepare producer will depend largely on and beyond, according to Outhwaite, is the respect to carbon footprint, the sustainability of those sup- supply/demand balance of heavy base oils, energy and water consump- “It is important pliers and their products. notably brightstock, of which the European tion, waste generation and today to be able “Seeking raw materials that region is a net exporter. other aspects. to measure our are more sustainable - with Higher crude oil prices in 2017 may also Apu Gosalia, vice president lower carbon footprints that impact the shift in production to Group II/III sustainability & global com- performance” are perhaps renewable and of base oils. Serra-Holm observes that “base oils petitive intelligence with Fuchs APU GOSALIA higher quality, for example – prices are likely to increase, but it is uncertain Petrolub, met with the board of Vice president sustainability & from suppliers that are com- whether producers will benefit due to the in- directors of the Union of the global competitive intelligence, mitted to sustainability, is an Fuchs Petrolub creased cost of capital they will face.” European Lubricants Industry important component of our Group II/III base oil producers, she adds, (UEIL) at the end of January to sustainability initiatives at “will however likely be less impacted than discuss what actions the a sustainability report for the Fuchs,” Gosalia observes. Group I producers because the former process- association should take with fiscal year 2017 (to be reported Third, sustainability can im- es are coat-tailed on to other refinery opera- respect to developing a sus- for the first time in the begin- pact sales and profitability. More tions and carry a lower portion of the total cost. tainability standard. ning of 2018). Gosalia expects sustainable lubricants can help Group II/III producers also have greater flexi- “When it comes to regula- there will eventually be similar end users improve their sustain- bility when it comes to crude selection and tions, the lubricants industry is requirements for smaller com- ability. “Whether in the automo- hence higher negotiation power, which helps often included with the mineral panies as well. The EU Ecolabel tive, energy, or other sectors, further minimise the impact of changes in oil and/or chemical industry, for lubricants also has a sus- end users can benefit from lubri- crude oil prices.” but because we are at the very tainability component. cants that last longer, are more On the other hand, she notes that base oils end of the value chain and our As importantly, sustainability efficient, and/or are biodegrad- producers may, in response to crude futures, processes largely involve mixing has significant business and able – among many other pos- elect to switch to gasoline or diesel fuel pro- and heating, we have some market implications; it impacts sibilities,” says Gosalia. duction, which could impact base oils supply. www.icis.com February 2017 | Base Oils Supplement | 5 BASE OILS 2017 SECTOR OVERVIEW

MARKET STRUCTURE CYNTHIA CHALLENER VERMONT, US M&A ACTIVITY CONTINUES TO DRIVE CONSOLIDATION MERGERS AND acquisitions among tices in all their global locations, and ing some markets) or because they RelaDyne, Pilot Thomas Logistics, base oil and lubricant producers a desire to quickly bolster market do not fit with the company’s overall Brenntag and Flyers Energy. and distributors, the latter particu- share among others. strategy (ie Suncor’s sale of Many of the smaller firms that larly in the US, are having a signifi- “Most importantly,” she asserts, PetroCanada to Holly Frontier and have been swallowed up served lo- cant impact on a local level. “consolidation in our industry is Ashland establishing Valvoline as a cal geographic markets – consolida- “We see two overall trends: the accelerating as participants look to standalone business). tion grows their area of influence. major oil companies are exiting spe- build scale in a fragmented land- The need for smaller, family-owned cialties businesses, including base scape. Strategic acquisitions have “Consolidation in distributors to sell to either strategic oils and lubricants, and in the cur- centred on expanding technology our industry is of financial buyers when the next rent complex regulatory environment and engineering resources, broad- generation is not interested in taking and highly competitive market, such ening product portfolios, and diver- accelerating as over the business may also be a as exist today, smaller actors find it sifying into growing end markets.” participants look factor. In addition, when crude prices challenging to survive and are often Some of those participants, fell further than lubricant prices, consumed by larger players,” Nynas’ notes Gosalia, are new to the mar- to build scale these firms became more attractive. Valentina Serra-Holm notes. ket. Private equity is also entering in a fragmented Some of this activity has been Fuch’s Apu Gosalia adds that the the lubricants industry. landscape” funded by private equity, which often activities of the major oil companies In the base oils segment, joint comes in with stronger IT and man- are providing increasing opportuni- ventures have been notable: SK GEETA AGASHE agement systems and can achieve President, Geeta Agashe & Associates ties for independent players. Other with Pertamina and Repsol; Neste greater efficiencies, says Agashe. drivers, according to Geeta Agashe, with BAPCO; Chevron with GS “The US has always led the way in include increasing globalisation, a Caltex; and Saudi Aramco with Players like Fuchs, on the other the lubricants industry, such as with move to global specification plat- Luberef, Motiva, and S Oil. hand, have grown dramatically Group I rationalisation, production forms by the industrial and automo- Globalisation is a real driver through strategic acquisitions of technology upgrades, etc. It is pos- tive OEMs, a desire to capture here. “These base oil suppliers can many of these divested assets. sible, therefore, that we will see simi- greater economies of scale, a desire assure their customers base oils There is also significant consoli- lar consolidation of the distribution to diversify across geographies to that can be sourced from multiple dation occurring in the distribution segment in other parts of the world in decrease risks, a desire to make the refineries in multiple locations with segment of the value chain. Many the coming years,” Serra-Holm notes. big even bigger, a desire to capture ‘read across’ capabilities, which larger jobbers/distributors are buy- “In my opinion,” adds Agashe, efficiencies and synergies, a de- has become a very positive selling ing smaller players, with, according “we will continue to see a height- mand by some of the larger custom- point for them,” Agashe says. to Agashe, approximately 70 deals ened M&A, joint venture, alliance, ers (mining companies, automotive Lubricant marketers, meanwhile, having been closed in the past 20 divestiture environment in all seg- OEMs, primary metal plants, etc) to are letting go of underperforming years in the US alone by just five ments of our industry. We are only at follow the same maintenance prac- assets (ie Shell and ExxonMobil exit- leading distributors: PetroChoice, the beginning.”

❯❯ Despite the oversupply situation and the picture,” Agashe notes. “The most likely waxy crude as an ideal raw material; to meet closure of 2.6m tonne/year of Group I impact on the market will be tierisation of overall corporate strategic objectives; and in capacity in the past two years due to supply- base oil suppliers.” some cases due to geopolitical considerations. demand mismatch, technical obsolescence, What is driving these There is another impact of these recent clo- declining supply of “lube friendly” crudes, or investments in an sures and capacity investments beyond the shift changes in refiner strategies, base oil capacity oversupply situation? away from Group I to Groups II/III that will be is expected to increase significantly in the Agashe points to sev- further magnified if all of this additional capaci- next few years, according to Agashe. eral possible reasons: ty is realised: the shift of production from the the addition of Group EU and the US to Asia and the Middle East. GRASSROOTS EXPANSIONS III base oil produc- In 2016 alone, 12,000 and 14,200 barrels/day “Even though many projects have been can- of new Group II capacity and 12,300 barrels/day celled or postponed (close to 4.5m tonnes/ “Base oils prices are likely to of mostly Group III capacity were respectively year) due to the oversupply situation, the nega- increase, but it is uncertain added in China, Saudi Arabia and the UAE, tive impact of low crude prices on new invest- according to Serra-Holm. ments and the impact of sanctions on Russian whether producers will “These changes in regional base oil capacities refiners, a number of planned capacity addi- benefit due to the increased and local demand are creating new dynamics in tions/new facilities are still on the books and the global market,” asserts Outhwaite. expected to be operating by 2020,” she says. cost of capital they will face” In the end, Agashe concludes that “those sup- These include huge projects by Exxon- VALENTINA SERRA-HOLM pliers that are more sustainable and have ‘read Mobil in Rotterdam, Luberef in Yanbu, Panjin Marketing and technology director, naphthenics, Nynas across’ their multiple refineries, have all the N Asphalt in Panjin, Hengli Petrochemical in necessary approvals in place, collaborate with Dalian, Hainan Handi in Hainan and many additive companies and offer more economical others in Asia and Russia. If all of them go for- tion from diesel hydrocracker bottoms to im- logistics solutions will win the day.” ■ ward, base oil capacity will increase by close prove the overall economics for large diesel Cynthia Challener is a freelance technical writer, editor to 10m tonnes/year. “ refineries; construction in geographies where and market researcher specialising in topics related to Against flat demand that creates a sobering base oils are currently imported and that have the chemical and allied industries

6 | Base Oils Supplement | February 2017 www.icis.com ConnectingChemistry

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Visit me at www.brenntag.com/jonbirrell BASE OILS 2017 RUSSIA Russian lube oil demand on the up Russia’s two dominant base oil producers, Lukoil and Rosneft, have been investing in an effort to produce more value-added products from their refineries. The effect is being felt in eastern Europe and the CIS states

CUCKOO JAMES LONDON The government has also introduced higher port government coffers in the wake of the oil export taxes on fuel oil to steer refiners away price crash. This has dented the refinery mar- move towards high-end, premium from production of the heavier grades and gins of Russian companies in recent months. oil products and a renewed focus towards output of lighter, premium products. on domestic markets in Russia The move has in effect encouraged Rus- REFINERY MARGINS ARE DOWN could bring about changes to the sian oil companies to take on massive refin- Russian oil major Lukoil’s total production Awider eastern European base oils industry in ery upgrading commitments. Many of these volumes of refined products fell for the first the coming years. “maintenance” projects were undertaken in nine months of 2016 compared with the pre- Russia’s president Vladmir Putin has exe- 2015 and 2016. vious year as a result of the poorer margins. cuted a “big tax manoeuvre” in recent years to In addition, excise duty – a form of inland tax Lukoil said during the announcement of its reorganise the country’s refining industry. – on many oil products was pushed up to sup- third-quarter results: “In Russia, our produc- Dacology/Alamy Stock Photo Dacology/Alamy Russia plays a major role in the eastern European base oils market

8 | Base Oils Supplement | February 2017 www.icis.com BASE OILS 2017 RUSSIA

tion volumes decreased by 1.4% due to throughput optimisation as a result of a general weakening of refining margins in Russia driven by excise tax increases in January and April 2016.” Lukoil says it has completed essential refinery upgrades. “[The] launch of new sec- ondary processing units in 2015 and 2016 enabled us to substantially enhance our refined product slate by reducing production of fuel oil and vacuum gasoil in favour of light products,” it noted. Lukoil’s production of fuel oil fell to 4.2m tonnes in the first nine months of 2016 from 6.0m tonnes over the same period in 2015. However, its motor oils production in Rus- sia rose from 681,000 tonnes to 767,000 tonnes during the timeframe because of the push

towards value-added products. Excise duty via Getty Images Rudakov/Bloomberg Andrey paid on motor oils also fell, unlike for other oil Lukoil has been upgrading its refineries and has increased motor oils production products. Lukoil revealed that the sales volumes of its premium branded motor oils and Russian base oils supply is important for and global competitive intelligence, at Fuchs industrial oils rose by 30% from last year. the wider Commonwealth of Independent Petrolub, points out that 90% of capacity in Lukoil’s share of lubricants production in States (CIS). Lukoil and Rosneft are the largest eastern Europe is Group I. Russia is typically 45% of total national producers in the region, which accounts for capacity at 1.2m tonnes/year, of which only 6-8% of global base oil capacity. Polish refiner GROUP II SWITCH IS SLOW 30,000 tonnes/year is Group III base oils. PKN Orlen has a production capacity of “Switching to Group II formulations is a time- Average base oils sales volume is 600,000 300,000 tonnes/year. Refinery run rates at the consuming process and may result in tonnes/year, with the rest used in formula- plants can vary considerably. reformulation costs as well,” says Kumar. tions of the company’s finished lubricants. “Operating rates for base oil refineries can Trade in Group II and III base oils is low in vary depending on a set of factors,” says Anuj the region. “Russia imports small quantities BALTIC DIVESTMENTS Kumar, project manager at consultancy Kline of these base oils to meet its blending The company’s base oils exports for the whole & Co. “In some cases it could be as low as requirements,” Kumar says. “Most of the of last year are yet to be estimated, but there 60%, while well-run refineries can register premium oils required by newer cars are could be some negative impact from its rates of 80% to 85%. The average operating imported from west Europe. Consequently, it divestment of retail outlets in the Baltics and rate for Group I refineries ranges from 65% to creates demand for premium base oils in Poland early this year. Lukoil sold approxi- 70% currently.” west Europe,” says Kline. mately 230 petrol stations in Poland, Latvia “There is room for greater demand for premi- and Lithuania. “The Russian market has um base oils. In response to this, there have Regarding its overall motor fuel sales, it been some announcements to set up Group II/III said: “During the first nine months of 2016, slowly picked up consumption facilities in the country,” Kumar says. “The Rus- retail sales outside Russia decreased to 3.1m of premium base oils since sian market has slowly picked up consumption tonnes, or by 8.7%, mostly as a result of multinational blenders have of premium base oils since multinational blend- divestment of our retail networks in Poland ers have started using these base oils to produce and the Baltic states.” Its wholesale exports started using these base oils” finished lubricants. However, over the past two are also down. ANUJ KUMAR years the volumes have stagnated due to the On the other hand, its domestic wholesale Project manager, Kline & Co weak economic performance.” and retail sales volumes rose. Some estimate “There are isolated cases where countries this shift to the domestic market could have with large expat communities – [that is,] the been a consequence of US sanctions. However, Kline & Co estimates that Russia exports Balkan states – have had higher finished lube specific export figures on base oils when we get about 600,000-650,000 tonnes of base oils consumption rates than GDP growth rates due our hands on them might tell a different story. every year, mostly via the Baltic states. It to the second hand car imports,” says Kumar. Meanwhile, Rosneft – Russia’s second big- exports not only to the wider eastern Europe- Otherwise, consumption in the region has gest base oils producer, with an output of an region, but also to western Europe largely traditionally been below GDP. Car ownership 500,000 tonnes/year of base oils – has multi- via spot contracts. Other key destinations are is certainly helping base oils consumption ple projects underway to extend its lubes west Africa and northern Africa. growth, but that trend is more prominent in presence in the Russian market. These It also sends product to Latin America and the EU countries than in the CIS. include TV, radio and outdoor advertising Asia. Exports are dependent on economic Kumar says: “EU’s eastern European mem- campaigns and agreements with major growth in these countries. bers are boosting finished lube consumption domestic businesses to substitute imported “The export market depends on the EU through second hand car imports from north- lubricants with its products. economic performance, as well as emerging ern Europe. The CIS new car and second In 2015, a lube sales development pro- markets such as west Africa, India and Bra- hand car markets have remained sluggish.” ■ gramme was launched to sell lubricants at zil,” says Kumar. Cuckoo Susan James is a senior editor for crude futures official Avtovaz service stations. Apu Gosalia, vice president, sustainability and refined products at ICIS, based in London www.icis.com February 2017 | Base Oils Supplement | 9 TOUGH QUESTIONS, SPECIAL APPLICATIONS, TIGHT DEADLINES? CALL RENKERT OIL.

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10 | Base Oils Supplement | February 2017 www.icis.com BASE OILS 2017 ENGINE OILS

NORTH AMERICAN LIGHT-DUTY Consumer vehicle ENGINE OIL VISCOSITY TRENDS oils are shifting to Other SAE 0W-XX SAE 5W-20 SAE 5W-30 lower viscosities SAE 10W-30 SAE 10W-40 SAE 20W-50 Monograde 100%

80%

60%

40%

20%

0% 2000 Today 2018 2022 SOURCE: Inneum International forecast forecast

ASIAN LIGHT-DUTY ENGINE OIL VISCOSITY TRENDS Other SAE 5W-40 / 5W-50 SAE 20W-40 / SAE 0W-XX SAE 10W-30 20W-50 SAE 30 SAE 40 SAE 5W-20 SAE 10W-40 SAE 5W-30 SAE 15W-50 / 15W-40 SAE 50 100%

80%

60%

40%

20%

0% 2014 2018 2023 SOURCE: Inneum International Getty Images

time for new viscosity grades to make up a significant portion of the overall market. While SAE 5W-30 is now the most popular grade in North America, it took from the late Driving down 1980s until 2006 for it to rise to this top market- share position. In our view, it will take a long time for it to exit the market – despite the fact that SAE 5W-20 and 0W-20 are now the most widely recommended grades for new cars. While future trends are tough to call, we ex- viscosity pect the thinner 0W grades to account for about 20% of the market by 2022, with the once popu- The trend to lower-viscosity engine oils is set to continue. lar SAE 10W-30 and heavier grades pushed right out to somewhere around 12% – quite a shift. Chris Locke of Infineum looks at what’s happening in Asia The introduction of SAE 0W-16 in North and the US and the impacts on base stock demand America with International Lubricants Stand- ardization and Approval Committee (ILSAC) GF-6, expected sometime in 2018, means this hile trends in lubricant viscosity globe, further driving the move to thinner and grade is likely to displace SAE 0W-20 in this grades are hard to predict, the thinner engine oils. region as opposed to 5W-XX or higher grades. fuel economy improvements Over the past 15 years in North America, we that can be gained from using have seen the light-duty market move from FRAGMENTED ASIA MARKET thinnerW engine oils, with reduced hydro- around 50% SAE 10W-30 to almost 50% SAE In Asia, the market is much more fragmented. dynamic friction, means we expect the shift to 5W-30 today. That might seem like quite a slow In the light-duty market, the picture is quite lower viscosity to continue. change, but vehicle population age and OEM different from that in North America, where Legislation to improve fuel economy and (original equipment manufacturer) market today SAE 5W-30 and lighter grades reduce carbon dioxide (CO2) emissions is share both impact viscosity grade trends, which account for over 80% of the market. In Asia, being introduced or tightened across the is why it can take a considerable amount of these grades account for only about 20%. And, ❯❯ www.icis.com February 2017 | Base Oils Supplement | 11 BASE OILS 2017 ENGINE OILS

❯❯ although some growth in these very light NORTH AMERICAN HEAVY-DUTY ASIAN HEAVY-DUTY ENGINE grades is expected, they will still hold only ENGINE OIL VISCOSITY TRENDS OIL VISCOSITY TRENDS around 25% share of the market by 2023. Enhanced fuel economy SAE 5W-40 SAE 15W-40 Other SAE 0W-XX SAE 5W-30 SAE 5W-40 Other SAE 10W-30 FA-4 Monogrades SAE 10W-30 SAE 10W-40 SAE 15W-40 SAE 20W-40 SAE 5W-30 SAE 10W-30 Just as we have seen in North America, the SAE 20W-50 SAE 30 SAE 40 SAE 50 shift to lower viscosity in Asia is being driven 100% 100% by the desire for fuel economy and is being enabled by the increased availability of higher 80% 80% quality Group II, III and even Group III+ base stocks. However, while the shift to lower vis- 60% 60% cosities is happening quite quickly for factory fill oils, end-users are only slowly adopting 40% these grades as service-fill oils and this contin- 40% ues to limit their penetration. When we talk to base stock suppliers in Asia, 20% 20% they predict a slow growth for viscosity grades 0% using Group III, but much larger growth for 2000 Today 2018 2022 0% forecast forecast 2014 2018 2023 grades and quality levels that can use Group II. SOURCE: Inneum International SOURCE: Inneum International While many OEMs suggest SAE 0W-20 and 5W-20 will continue to meet their needs, some This means monogrades have almost com- line with general industry specifications. In Japanese OEMs are already driving the intro- pletely disappeared from the market. And, addition, unmet demand capacity for Group III duction of ultra-low SAE viscosity grades to although SAE 15W-40 will remain the mainstay offers base oil suppliers an opportunity to con- capture further fuel economy benefits. grade for the foreseeable future, sales of SAE sider manufacturing Group III+, where eco- 10W-30 have doubled in the past five years. nomically viable, in order to differentiate “Although the trends are tough Now that Proposed Category 11 (PC-11) has themselves even further. to call, we expect the thinner been approved, we expect this trend to contin- However, the introduction of ultra-low vis- ue and can accelerate in the near term. Looking cosity oils or lubricants with 0W grades to account for about further ahead, although it is likely that we will tighter volatility require- 20% of the market by 2022” see more uptake of low-viscosity oils in HDD ments will require very applications, Infineum believes limited back high VI or low viscosity serviceability may impact the uptake of the poly-alphaolefin (PAO) SAE 0W-16 oils are emerging, and some new lower-viscosity API FA-4 oils. base stocks to maintain OEMs are looking to go even lower. SAE has In Asia, we see a similar highly fragmented performance. It is now approved the definition of SAE 0W-8 and picture in the heavy-duty market as reported not clear if there 0W-12, defining new limits for engine oils built for consumer vehicles. Here, as in North will be enough for even better fuel economy, which means the America, SAE 15W-40 is the mainstay grade move to low-viscosity grades may accelerate. in these applications. However, the “The... move to lower-viscosity uptake of lower-viscosity grades is much HEAVY-DUTY DIESEL TRENDS slower. While the use of monogrades will lubricants will be influenced by The trend to lighter viscosity can also be seen decrease slightly in the coming years, we do the availability and cost of in the North American heavy-duty diesel not expect there to be any significant growth high-quality base stocks” (HDD) market. The desire for fuel economy in the use of SAE 10W-30 or lighter grades. CHRIS LOCKE here is driven both by end-user demand for Executive vice president, marketing and technology, lower operating costs and by greenhouse gas IMPACT ON BASE STOCKS Infineum legislation. To meet these requirements, As the value of improving fuel economy to OEMs have introduced new hardware and reduce CO2 emissions and running costs begun to look at lower-viscosity lubricants. becomes increasingly important, a continued of these products to meet demand, which In- move to lower-viscosity lubricants seems infineum believes could increase investment GLOBAL GROUP III CAPACITIES, evitable. To produce these products, the need challenges for all stakeholders. '000 TONNES/YEAR for high-quality base stocks with lower viscos- We can expect regional quality demands to 8,000 ity, higher viscosity index (VI) and lower vol- drive an increase in the global movement of EMEA US Asia-Paci c atility will increase. This means the pace at high-quality base stocks. However, this is a 7,000 which the markets move to lower-viscosity very complex area and the rate of growth of

6,000 lubricants will be influenced by the availabil- high-quality base stock demand is inexorably ity and cost of high-quality base stocks. linked to the change in the vehicle population. 5,000 Right now, the Group III market is long. While new cars with high-specification lubri-

4,000 Capacity from the Repsol-SK Cartagena refinery cants will replace older cars using lower-speci- in Spain and Takreer’s refinery in Abu Dhabi is fication lubricants, this will be a slow process. 3,000 already on stream. This, combined with future All this uncertainty means the growth of

2,000 volumes from Russia and North America, these low-viscosity grades and their impact means there should be plenty available to meet on base stock demand over the next decade is 1,000 the anticipated demand for premium products. very hard to predict. ■

0 Current Group III base oils should be fit for Dr Chris Locke is executive vice president of marketing 2011 2014 2015 2020 outlook purpose to formulate SAE 0W-16 and 0W-20 and technology at Infineum. For more information on SOURCE: Inneum International viscosity grades with volatility performance in Infineum, go to www.InfineumInsight.com

12 | Base Oils Supplement | February 2017 www.icis.com Give your applications the lubricants they deserve! Anderol® Specialty lubricants offers tailored solutions to demanding industrial environments, achieving reduced maintenance, longer service life and optimum performance. Specialized in gas compression, vacuum applications and a comprehensive range of H1 food grade lubricants, we can assist in optimizing every lubrication aspect of your manufacturing process.

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©2015 Phillips 66 Company. Phillips 66, Pure Performance and their respective logos are trademarks of Phillips 66 Company in the U.S.A. and other countries. Ultra-S is a trademark of S-Oil Corporation. BASE OILS 2017 CHEVRON Chevron Chevron established its first European base oils hub in Antwerp, with storage facilities operated by Noord Natie Qualifications and supply chain are key This year, Chevron celebrates 10 years of development of its European Group II base oils presence. Product quality, technical qualifications and an effective supply chain are essential elements in its approach to the market

JOHN BAKER LOND0N “With regular, reliable delivery, customers ade, it has added further hubs in Hamburg, can minimise their base oils inventory Germany, Liverpool, UK, and most recently hevron’s announcement at the end while blending higher-performing lubri- Istanbul in Turkey, as demand for its premi- of last year that it is adding a fifth cants,” Chevron noted in its announcement. um grade materials has grown. hub in Europe for Group II base oils Initially, grades held at the facility will “We have quite a footprint in Europe now,” import, storage and distribution is a include Neutral Oil 100R and 220R. Neutral notes Alan Outhwaite, manager of base oil busi- Csign of how positively the company views Oil 600R tankage may be added later. ness development for Europe. “We have a market development in the region. The investment marks 10 years of activity strong technical story [with our high-specifica- Located in Le Havre, France, and owned in Europe for the US Group II base oils pro- tion product], but the logistical network is a key and operated by LBC Sogestrol, the facility ducer, which made its first investment within strategic requirement. Our customers, lubricant will allow Chevron to offer customers along the region in 2007 with the opening of its first blenders supplying into the automotive sector the river Seine a shorter supply chain. hub in Antwerp, Belgium. Over the past dec- and industrial sectors, are under pressure to ❯❯ www.icis.com February 2017 | Base Oils Supplement | 15 BASE OILS 2017 CHEVRON

❯❯ deliver on time and at low cost.” even greater certainty in the supply chain. “Our base oil team has”, says Lok, “very little Chevron made the decision to target the Lok and Outhwaite both stress the impor- direct contact with the end lubricant custom- European market in conjunction with its tance of offering an efficient and reliable ers.” The key issues that always come up, he commitment to expand Group II capacity in supply chain when it comes to serving notes, “are quality and availability”. the US by building a $1bn facility in Pasca- customers across Europe. In many cases, In terms of supply into Europe and the goula, Mississippi. This came on stream in says Lok, supply chain issues can drive deci- global Chevron network, which was recently 2014, complementing its existing facilities in sion making by formulators as to which base enhanced by the opening of further storage Richmond, California, and a joint venture oils to use. and distribution hubs in South Africa and plant in Yeosu, South Korea, taking global “The issues are very complex and a num- Brazil, Lok indicates that the company is now capacity to nearly 60,000 bbl/day. ber of factors have to be juggled – but if cus- focusing its marketing efforts on where the tomers make a wrong decision they can end demand is greatest. GLOBAL BASE OIL SLATE up with higher costs [mainly as they have to “We are upgrading our portfolio these days. All three plants offer the same Chevron base hold larger inventory as they are not able to Europe really values our prod- oil slate, enabling customers to use the same rely on timely deliveries],” he explains. ucts and so if customers approved formulations in various geographies Hence, the investment in the local hubs need the product we will with different Chevron supply sources. This across the region. ship it to them,” he says. simplifies formulation complexity and greatly Outhwaite adds: “We work very closely “Chevron recognises its improves supply reliability, says Chevron. with our customers to help them meet their leadership role in the sup- “Europe has been a major investment for formulation requirements. One of our key ply and marketing of base us in terms of people and specifications,” competitive differentiators in Europe is that oils and has the tech- says Brent Lok, manager, marketing and busi- we undertake a lot of specification approval nical knowledge ness development at Chevron in North Amer- work with additive suppliers, so that lubri- ica. “It was driven by Chevron’s decision to cant users do not need to invest time and “One of our key competitive invest in Pascagoula and the identification of money to do this themselves. differentiators in Europe is Europe as a key location for the use of Group “We now have an extensive portfolio of II base oils.” product qualifications, the use of which can that we undertake a lot of The move has proved a success story, he save several millions of dollars of develop- specification-approval work” adds, with volume sales beginning steadily ment costs for our customers.” ALAN OUTHWAITE and now really picking up. “The reception by In terms of customers, he adds, the auto- Manager, base oil business development for Europe, customers, and we have over 100 of them motive sector is key and largely drives discus- Chevron now, has been very positive. Our Group II sions and helps justify inventorying of our base products are a very nice fit for Europe, where oils, but then there is a cascade possible to a high-tier specifications are leading the way.” wide range of industrial and other lubricant to bring value. We are constantly looking at our Europe, he adds, will con- applications. “We have enabled our customers assets to see if we need to upgrade them or tinue to be a net importer to develop some really good end-products to increase capacity,” Lok adds. At the present of Group II base oils as the take to their clients,” says Outhwaite. time, however, he declines to say whether any region moves away from such decisions are imminent. Group I, which it has tra- FLEXIBLE SOLUTION The main emphasis at present is to make ditionally produced and Lok points out that Chevron’s Group II base sure the 15 global supply hubs are optimised used. The situation will oils can be used in over 90% of a blend plant’s to meet customers’ needs. It is, he thinks, un- likely change, however, formulations, making them a flexible solution precedented to have five hubs to serve the when ExxonMobil for a wide range of technical needs. In many European market. cases, he says, they are backward compatible Further afield, Chevron is seeing fairly “Europe really values our in that they are capable of being used in con- sizeable growth in premium base oils in mar- products and so if customers ventional Group I applications as well as kets such as Brazil, South Africa and the rest many formulations where the use of Group I of Africa, Asia and Australia. need the product we will is no longer possible. Lubricant specifications are changing – ship it to them” In the 10 years Chevron has been active in especially in heavy-duty areas – and OEMs Europe, adds Lok, the use of premium base are going for global specifications. This, and BRENT LOK Manager, marketing and business development, oils, including Group II, has moved from automotive emission-control regulations, ex- Chevron niche applications to the mainstream. “When plains Outhwaite, are all driving the move to we came in, we were a novelty and customers Group II and III base oils as formulators were not sure where [our products] fit into cannot use Group I to achieve the technical brings onstream a new Group II facility in its their portfolio. This is not an issue now.” requirements. Rotterdam refinery in the Netherlands around Now, customers are more concerned about The result, he concludes, is that while late 2018 or early 2019 and “the market will how to optimise the supply chain and their overall base oil markets are seeing only move into a new phase”, Lok says. formulations. There is, adds Lok, a lot of moderate growth globally, Group II materi- While there is still plenty of Group I avail- emphasis on the total cost of ownership and als are enjoying higher growth levels as ability in Europe, demand will continue to Chevron has worked closely with all custom- they penetrate the market by displacing decline steadily. Once there is a second major er types to show how Group II base oils can be Group I. Europe is a prime example of this, supplier in the market, argues Lok, the pace used efficiently. adds Lok, making it a focus for Chevron at of decline may well increase as suppliers will Chevron focuses primarily on engagement the present. ■ be happier to switch to Group II once they with additive and lubricant suppliers, but For more details on Chevron’s base oils business, have a credible alternative supply source and also occasionally seeks to influence OEMs. go to: www.chevronbaseoils.com/

16 | Base Oils Supplement | February 2017 www.icis.com BASE OILS 2017 ELECTRIC VEHICLES

introduced at a more affordable price. The automobile could now be part of the rural home. Gasoline was cheap, thanks to the con- current Texas oil boom, which came right on the heels of the Pennsylvania oil rush. The commercial electric vehicle died a premature death as the US entered the oil age. It sputtered back to life briefly in the 1970s at the time of the Arab oil embargo. But it is only since 2000 that the electric car has con- sistently hit headlines for its environmental benefits, as fresh life was breathed into it from all directions. National governments are seducing their populations back to the humble electric vehi- “Most experts are saying that hybrid vehicles penetration is going to be faster than electric vehicles” BILL DOWNEY Senior vice president, business development, Novvi

cle. In the US,for instance, buyers are offered a federal tax credit for purchasing one. Policy makers in China and India are providing purchase rebates and tax exemptions. Sweden is offering five years of road tax exemption.

WestEnd61/Rex/Shutterstock More importantly, from the consumers’ point of view, owning an electric car has become a status symbol. Car maker Tesla suc- ceeded in making the electric car an object of desire, with celebrity owners like actor and environmentalist Leonardo di Caprio drawing The future attention to it. Tesla’s model S is a refined, red hot version of the electric car complete with self-driving functionality. It comes packaged with a home charging installation and access is electric! to the firm’s expanding supercharger network. ADOPTION IS BESET BY PROBLEMS Electric and hybrid vehicles are making inroads into Is that enough for widespread uptake? Carl Larry, consultant at research firm Frost and the automotive market as battery technology Sullivan, is quick to point to the US govern- improves and environmental concerns grow, with ment’s underlying lack of will to push the electric car forward. “Here in the US, the outlook long-term impacts on base oil demand and usage for EVs [electric vehicles] is not even close to as good as most would think. There is a lack of infrastructure to build-out charging stations CUCKOO JAMES LONDON ued to be in demand for the next 10 years. So and that is the biggest hurdle in front of us.” much so that the prolific Thomas Edison con- The International Energy Agency (IEA) n 1904, the first underground subway line fidently set out to create an improved version seems to agree with him. Tax credit or not, it opened in New York. Above ground, elec- of the electric vehicle battery. estimates that although the US is the second tric cars already accounted for one-third of If anyone cared for them, there were steam largest market after China, electric cars would all US automobiles. A succession of discov- and gasoline cars on the market too. The stage come to constitute only 8% of total light duty I eries in the 1800s – such as the battery and the was set for the rise of the electric vehicle. vehicle (LDV) stock in 2040 – a far cry from electric motor – had propelled the new tech- But Edison’s friend – and competitor – the 38% penetration in 1900. nology into the homes of affluent Americans. Henry Ford had other ideas. Ford’s mass-pro- “Higher uptake is held back by lower Sales soared and the noiseless cars contin- duced, gasoline-powered Model T was soon gasoline taxes, which limit the possible fuel ❯❯ www.icis.com February 2017 | Base Oils Supplement | 17 BASE OILS 2017 EUROPE

❯❯ cost savings from EVs, and vehicle sizes that are larger than in any other region,” the IEA said in its “World Energy Outlook 2016”. If you zoom out to see the bigger picture, the global stock of electric cars increases rap- Brightstock idly from 1.3m in 2015 to over 30m in 2025, and to about 150m or 8% of global car fleet by 2040. The momentum is held back only by the time required to recoup the high investment cost, although battery costs fall to less than half of today’s level. Deployment is faster supply eases if there is additional policy support, with penetration at 710m in 2040. In China, one out of nine cars could be electric by 2040. It is the largest market for new electric vehicles from now until then, the IEA says. in Europe The IEA clarifies that the impact on oil consumption is limited. Its first scenario would displace 1.3m barrels of oil by 2040 and the second While Group I SN150 and SN500 grades are in relatively 6m. Around two-thirds of the 150m electric vehicles would be plug-in hybrids, which is short supply in Europe right now, brightstock availability good news for base oils. Plug-in hybrid cars are is healthy, with prices softening at the start of the year the best of both worlds. They include an electric motor, but also an internal combustion engine, which demands lubricant use. SARAH TRINDER LONDON down, with lower prices still noted on the William Downey, senior vice president of export market. business development at Novvi, says it is he European Group I base oils market One market player says that strong demand important to keep the distinction between elec- got off to an unexpectedly bullish from the Middle East, India and East Asia tric and hybrid cars in mind while talking of start in 2017 amid continued tight should underpin brightstock prices and limit base oil consumption. Electric vehicles have market supply of SN150 and SN500 decreases. However, other players believe that no need for engine oils. “Most experts are say- T grades. Issues at certain European refineries healthy supply and a lack for demand for ing that hybrid vehicles penetration is going to towards the end of 2016 brought about tight brightstock from Nigeria means that price be faster than electric vehicles,” he says. market conditions which have carried over drops are to be expected. “With hybrid vehicles you still have an into the start of 2017. internal combustion engine. Typically, the Although issues at the refineries are thought CAPACITY CLOSURES lubricant it uses will be of lower viscosity and to have been resolved, some refiners say they The current scenario is worlds apart from mar- higher performance.” are focusing on increasing inventories and cov- ket expectations following a spate of Group I Lubricant providers need to work closely ering contractual obligations and will not be capacity closures in Europe over the past few with original equipment manufacturers (OEMs) back in the spot market until February or March. years, brought about by increasing market to come up with the right kind of base oil neces- Domestic European SN150 and SN500 pric- share of Group II and Group III base oils. There sary to produce premium brands for hybrid es firmed at the start of 2017 because of the lim- were two large Group I capacity closures vehicles. “OW-20 is what we are seeing as the ited availability of both grades, with players on towards the end of 2015 and the start of 2016. typical grade that would be used in a hybrid the European export market negotiating at The first was the Kuwait Petroleum unit vehicle,” Downey says. levels above the ICIS European export highs. located in its Europoort refinery in Rotterdam. Premium lubricants necessitate the use of a Conversely, brightstock remains healthy in The refinery was sold to Gunvor, which different grade of base oil. For ordinary engines, availability, with price decreases seen by the ceased operating the site’s base oil, wax and formulators can use a Group II, III or both, but majority of sources. As a result, domestic and bitumen production by the end of December not for hybrid vehicle engines. This alone can export prices for brightstock have come 2015. The refinery had a base oil capacity of trigger change and fresh opportunities. “You 235,000 tonnes/year. can’t do a OW-20 with just a Group II or a Group EUROPEAN BRIGHTSTOCK PRICES HAVE Shell also closed the base oil unit at its SOFTENED SINCE EARLY 2016 III, you need a Group III plus or a high-perfor- Pernis refinery, also in the Netherlands, $/tonne mance synthetic base oil,” Downey says. which had a capacity of 370,000 tonnes/year, 1,200 An electric car also offers opportunities for Group I spot SN150 FOB NWE domestic at the same time. These followed other capac- Group I spot SN500 FOB NWE domestic base oils producers. All electric vehicles have Group I spot brightstock FOB NWE domestic ity closures or rationalisations, such as the a battery, which needs maintenance. “When 1,000 base oils unit at the Colas refinery in Dunker- we talk to oil suppliers, they are concerned. que, France, in April 2015, and Total closing They see [electric vehicles] as a negative. Our 800 half of the base oil capacity at its Gonfreville, view is that it is an opportunity. There are France, refinery in November 2015. some unique fluids that OEMs are looking at Group I capacity closures in 2015 amount- 600 for cooling the battery pack. Specialty fluid ed to a loss of around 1.5m tonnes/year for battery pack cooling is an opportunity for according to one market player. This left most 400 companies,” Downey says. ■ Jan Jul Jan Jul Jan people expecting brightstock to become Cuckoo Susan James is a senior editor for crude 2015 2015 2016 2016 2017 extremely tight in supply and even becoming futures and refined products at ICIS, based in London SOURCE: ICIS a niche product further down the line. Bright-

18 | Base Oils Supplement | February 2017 www.icis.com BASE OILS 2017 EUROPE

stock is unique in that there are no grades in Group II and Group III set to increase in market share going forwards the other groups with an equivalent viscosity. amid the need for lighter viscosities and regu- Evidently, this has not been the case, with base oils are set to increase lation-driven changes in engine and transmis- Fertnig/Getty the market surprised by the gradual tighten- in market share going sion designs which merit new approaches to ing of supply of SN150 and SN500 and finished lubricants. lengthening of brightstock. Players have forwards amid the need It remains to be seen whether tight market attributed this lengthy supply of brightstock for lighter viscosities conditions for Group I base oils are here to to a number of factors. stay or whether this is just a temporary blip First, it is suggested that producers have following production issues, but with the maximised brightstock production in the ex- ket quiet following the annual licence renew- refinery maintenance season on the horizon, pectation that prices would soar amid the ex- al process taking place in the key Turkish the first half of 2017 looks as though it could pected tight conditions. Second, buyers are market. Values for SN150 have shown signs remain tight. said to have covered their needs in advance of of softening in the region on the back of We could therefore be looking at a scenario the closures amid suggestions of a tight mar- healthier availability, but again, price trajec- of robust Group I base oil prices for at least the ket supply to come, therefore needing less tory going forwards is unclear. first half of 2017, with support for higher val- spot material later on. Third, a lot of Europe- The seasonal refinery maintenance season is ues also possible, should OPEC’s plan to curb an brightstock tended to go to countries in set to take place during the second quarter of crude oil production result in firmer vacuum Africa, Nigeria in particular, but demand has this year so this could lend support to firm pric- gasoil (VGO) prices. ■ dropped from this country amid credit is- es in the Baltic and Black Sea export market but Sarah Trinder is senior editor, manager, at ICIS, sues, making deals difficult to finance. this depends on how strong market demand is. based in the London office, covering base oils, Whether brightstock remains widely avail- On the other hand, supply of both Group II paraffin wax and glycerine/biodiesel able for the rest of the year remains to be seen, and Group III base oils in Europe is healthy, par- but sources do tend to see limited supply of ticularly so for the latter. New Group III SN150 and SN500 as an ongoing situation, at capacity come onstream during the first half of least during the first half of the year, especial- 2016, with Abu Dhabi National Oil Compa- ly with the seasonal refinery maintenance sea- ny (ADNOC) opening its 500,000 son due to take place in the coming months. tonnes/year Group III and 100,000 The Baltic and Black Sea export markets have tonnes/year Group II plant in Ru- also experienced tight conditions on SN150 and wais, Abu Dhabi. As a result, sup- SN500 in recent months, with one major refiner ply of Group III and Group II base not offering export volumes towards the end of oils increased in Europe, with 2016 and others said to be focusing volumes on prices there decreasing as a result. the domestic Russian market. Additional Group III base oil supply in Europe was also Sources do tend to see noted from Russia towards the limited supply of SN150 end of 2016 and in early 2017. Although this material is un- and SN500 as an ongoing approved by original equip- situation, at least during ment manufacturers (OEMs) and therefore not suitable for the first half of the year all buyers in the market, it is said to be of good quality and has put pressure on Group III prices Prices increased in both the Baltic and amid an abundance of material. Black Sea export markets as a result of the aforementioned tightness but there was some INCREASED PRODUCTION slight erosion as conditions seemed to bal- Russian refiner Gazprom Neft is ance out more at the start of 2017. planning to begin producing in- However, opinions differ on price trajecto- creasing amounts of primarily ry in the two regions, particularly in the Bal- Group III but also Group II base oils tic. Some believe that more balanced supply at its refineries. A company source and unexceptional demand mean that prices said that by 2020 it expects to be pro- should decrease as the year moves on. ducing Group II and Group III base Elsewhere, others see prices reaching levels oils at the Omsk refinery, with the above those seen on the European export mar- capacity for these products ultimately ket, buoyed by firmer feedstock costs and increasing to 300,000 tonnes/year. what they see as tightly supplied market con- Group II product also remains ditions in the Baltic. healthy, with product being supplied The Black Sea market had been fairly illiq- from within Europe and also via the uid during 2016 but towards the end of the US. However, with Europe thought to Supplies of year, the absence of a major supplier to the re- be a net short on Group II base oils, it is brightstock are gion had resulted in extremely tight market likely that the region will continue to flowing more freely conditions and prices increased as a result. rely on imports. in Europe despite Supply has since improved, with the mar- Group II and Group III base oils are plant closures www.icis.com February 2017 | Base Oils Supplement | 19 Exclusive ICIS Market Outlooks

Gain expert insight and commentary on the likely direction of the European and Middle Eastern chemicals markets in 2017

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‘Brexit’, a Trump presidency and EU policy changes are just some of the major developments that pose uncertainty to the global petrochemicals market.

How will these developments influence price and market movements in 2017? Download our exclusive Europe Chemicals Market Outlook for a more detailed and extended expert analysis of the key markets.

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Currency fluctuations, slow downstream demand, new supply from China, ‘Brexit’ and a Trump presidency are some of the major factors likely to affect the key Middle Eastern commodity markets in 2017.

Download our exclusive Middle East Market Outlook for a more detailed and extended review of the key commodity markets.

Download your free copy at www.icis.com/meoutlook2017/ BASE OILS 2017 AMERICAS Crude rise supports US base oil hikes North American base oil prices were steady in the final quarter of 2016, but the New Year has seen posted price hikes on the back of crude oil’s climb

JUDITH TAYLOR HOUSTON

orth American posted base oil prices were steady in the final quarter of 2016, exhibiting significantly improved stability compared with price Ntrends seen in the fourth quarter of 2015. Lower volatility in the upstream crude oil markets are the underlying reason for the steadier base oil prices. But the year end saw price hikes, based on late-2016 crude oil price rises. Posted prices set the top mark for base oil prices, while contract and market pricing can see wide discounting. Discounts and temporary voluntary allowances (TVAs) did indeed take place during the fourth quarter of last year, driven partly by the typical seasonal slowdown in demand and partially by a few pockets of supply length. Light grades in Group I and also in Group II

tended to experience supply length more than Mohamed Messara/EPA/REX/Shutterstock heavy grades. One reason for this is that light OPEC’s recent decision to curtail oil production has supported prices above $52/bbl and mid-viscosity base oils in Group I and in Group II were often priced at or near parity in that closely tracks the Brent basket. Both by 20 cents/gal and all price changes were the competitive market of 2016. crude oil slates enjoyed the price boost and effective 1 January. ExxonMobil does not dis- Where fourth-quarter 2015 was peppered steadier fundamentals. cuss or confirm its prices. All price moves are with posted price decreases, fourth-quarter made based upon market participant and 2016 was notably stable in the posted pricing. By mid-January all North buyer inputs. Flint Hills Resources (FHR) Chevron increased its Group II posted prices raised its Group II prices by 10 cents/gal effec- in August but others did not follow, leaving American base oil producers tive 19 December and by mid-January all most posted prices unchanged to the end of had increased posted North American base oil producers had in- the third quarter. creased posted prices, with 20 cents/gal the Posted prices were then unchanged until prices, with 20 cents/gal common number. October when Motiva dropped prices on all the common number its posted grades. Phillips 66 raised posted REGULATIONS AND APPROVALS prices on only heavy 600 grade, creating a A number of topical issues in the base oils mixed price perspective. The two charts (page 22) show the WTI and sector were aired at last year’s ICIS Pan Amer- the LLS price trends from January 2015 to ican base oil conference in December and the IMPACT OF CRUDE OIL STABILITY January 2017, reflecting earlier volatility, and inaugural North American Lubricants con- Benchmark West Texas Intermediate (WTI) a sample of base oil posted prices alongside gress in September. crude oil maintained prices in the high-$40s/ WTI (in $/gal), demonstrating the lower vola- Gabe Rhoads from Lubrizol touched upon a bbl range, bumping into the low $50s/bbl for tility factor in the second half of 2016. topic of great concern to the US industry – several weeks in October before achieving On the strength of crude oil prices consist- regulations and approvals – and pointed out $50s/bbl points in November and December. ently in the $50s/bbl, ExxonMobil recently that the US lubricants certification system is By January 2017, $50s/bbl became the com- raised its Group I prices by 20 cents/gal on all far too slow. The certification system used in mon point for WTI crude. Light Louisiana grades except brightstock. Brightstock moved the US for ushering new technologies and Sweet (LLS) is a benchmark crude in the US up 15 cents/gal. Group II/II+ grades moved up lubricant products into the commercial ❯❯ www.icis.com February 2017 | Base Oils Supplement | 21 BASE OILS 2017 AMERICAS

❯❯ market is a tedious and time-consuming LATIN AMERICA JUDITH TAYLOR HOUSTON process, he said. He pointed out that certification processes begun in 2012 or even earlier MEXICO REFORMS; SOUTH AMERICA STRUGGLES are just emerging into the commercial sector THE US view on Mexico is posi- Mexico via deep-water ship- cant player in the crude oil mar- in 2017, adding that often the requirements tive for business, with consid- ments to Altamira. ket. Alongside this condition, its for certification precede the technology work. erable volumes of Gulf In South America, Brazil’s base oil production – which has Rhoads went on to give an example of the Coast-produced base stocks flagging economy has damp- production capacity similar to potential savings that would be made by mov- moving into the Mexican mar- ened the country’s base oil Brazil’s – has plummeted. ing a 0W20 oil quickly into the market – some- ket. Mexico is also seeing requirements. While Brazil There is little evidence that thing that has not happened. “About 685m gal- overall energy reforms move was among the top global any base oil production is tak- lons of gasoline could have been saved, along into place as privatisation be- base stock buyers in 2014, ing place in the country. with a reduction in carbon dioxide emissions comes an option in this key 2016 saw thin shipments to Large volume base oil ship- of about 6m tonnes,” he said. “But the system sector, long dominated by the the country. ments have been seen from is holding us back and it costs everyone. It just state-owned company, Pemex. Petrobras has Group I pro- the US Gulf coast to takes too long,” Rhoads concluded. Pemex has only one base duction capacity in Brazil of Venezuela, but coming at wide oil plant, located at about 11,000 bbl/day of base time intervals that indicate US EXPORTS DOMINATE Salamanca, and is a net oils. The production utilisation both diminished consumption Stephen Ames of Ames Consulting pointed importer of base oils. rates are said to be widely re- and challenges in securing out that the US base oil market is heavily reli- Additionally, with Group I duced but still largely able to terms and payment. ant on exports in order to maintain domestic and Group II prices nearing, or meet domestic needs during Argentina and Colombia supply/demand balance. “About one-third of at, parity for many grades, con- this time of challenges in the fared more normally during the the sustainable US base oil capacity is export- siderable volumes of Group II overall economy of the South latter half of 2016 and moving ed,” Ames said. base oils are either crossing American giant. into 2017, with more stability With the “big five” refineries operated by the Texas-Mexico border at Venezuela has steeply fallen from these South American ExxonMobil, Motiva, Excel Paralubes and Brownsville, or entering from its position as a signifi- countries. Chevron all located along the US Gulf coast at favourable port locations, exporting US- produced base oils is a prevailing factor for tionally, Serra-Holm said that another 5m for passenger vehicles and that Group II is the North American base oil market. “The US tonnes/year are expected to be added to global now the predominate base oil produced in the can supply Europe at below the European capacity in the upcoming two years and more North American market, the fact that Group I production cash cost,” Ames said. projects are in the planning stage. remains key to the industrial lubricant sector “This does not spell good things for Europe,” is of note but not often discussed. he added. Ames also pointed out that several The additional capacity Jeffrey Guevremont, principle scientist, changes are expected, with ExxonMobil’s holds potential to create R&D applications group for American Refin- Group II addition at Rotterdam slated to start in ing Co, discussed performance factors in 2018 and Luberef at Yanbu in 2017 potentially an oversupply situation wind turbines and how lubrication can also serving the European market. improve performance in the turbines. The Speaking at the lubricants congress, Valenti- discussion centred about work done in a na Serra-Holm, marketing director at Nynas While these are not US projects, the addi- collaborative effort with other companies discussed how the use of blends of Group II tional capacity holds potential to create an such as Novvi and Afton Chemicals that and naphthenic oils in the formulations for hy- oversupply situation during this period focused on achieving longer life in wind tur- draulic oils is shifting higher, along with in- because demand is not expected to grow at bines through optimising gear box lubrication creased use of Group III paraffinic base stocks. similar rates. and minimising downtime. The efforts also She pointed out that global Group II and One interesting item Serra-Holm empha- included researching the benefits of using Group III capacity is expected to continue to sised is that Group I base stocks continue to synthetic base oils. increase, citing that during 2015 approxi- be the primary base oils for the formulation of The collaboration and research covered a mately 1.65m tonne/year of new Group II and industrial lubricants. Given that Group II and number of years, with some of the results Group III capacity has been installed. Addi- Group III base stocks are increasingly needed including evidence that electrical systems showed the highest failure rate while gear NORTH AMERICAN BASE OIL PRICE US CRUDE PRICES HAVE BEEN VOLATILE box systems caused the longest downtime TRENDS ARE TICKING UP per failure. $/gal $/bbl Parafnic spot Group II N100/120 FOB USG export David DeVore of Functional Products dis- 4.0 80 Parafnic spot Group II N200/220 FOB USG Crude oil spot LLS FIP St James, LA cussed greases, pointing out that greases often 3.5 Parafnic spot Group II N600 FOB USG Crude oil spot WTI FIP Cushing, OK Crude oil spot WTI FIP Cushing, OK 70 have a multi-phase structure that includes 3.0 about 70-90% base fluids in the liquid phase, 60 2.5 about 5-25% thickeners in the solid phase 2.0 50 and other additives as needed. 1.5 DeVore showed that the addition of poly- 40 mers to the grease can be effective by increas- 1.0 30 ing resistance to shear as measured by Roll 0.5 Stability (ASTM D1831). ■ 0.0 20 Jan Jul Jan Jul Jan Jan Jul Jan Jul Jan Judith Taylor is a senior editor manager in ICIS’s 2015 2015 2016 2016 2017 2015 2015 2016 2016 2017 Houston, Texas, office. She regularly reports on SOURCE: ICIS SOURCE: ICIS base oils, paraffins waxes and fatty alcohols

22 | Base Oils Supplement | February 2017 www.icis.com BASE OILS 2017 MIDDLE EAST GCC Group II use set to expand As Group II capacities come on stream in Saudi Arabia and the UAE, the regional market is expected to see an accelerating shift away from Group I

VEENA PATHARE SINGAPORE

emand for base oils in the Middle

East is closely tied to demand for Ali Haider/EPA/REX/Shutterstock automobiles as automotive lubri- Middle East car sales will support regional base oil demand in coming years cants form the major end-use market Din the region. The automotive sector, however, Base oils demand is thus also poised for establish retail sales through its distribution has faced the brunt of a difficult economic situ- growth in the medium to long term. Some of arm to supply regional blenders. ation, brought on by the weak macroeconomic this growth will come from increased use of The trend towards better quality lubricants environment that has persisted since the crude Group II and III base oils, rather than today’s in the Middle East has in the past been slower slump in the second half of 2014. commonly used Group I. than in most other regions of the world. How- Sales of new vehicles saw a decline in This move to higher-grade base stocks in the ever, substitution to higher-grade base oils in 2016. Austerity measures put in place, such Middle East is being driven by access to the most countries in the region is emerging and as removal of subsidies, have resulted in high- developing regional supply. could even accelerate in the near term, as the er fuel prices within the region, curbing con- Saudi Arabia is poised to become one of region reinforces its position as a hub for sumer spending. Vehicle sales are expected to the key markets in the region to lead the Group II and Group III production, leading to remain under pressure going into 2017, as the move to the use of Group II base oils in place increased local availability. outlook on crude remains pessimistic, despite of Group I. Regional producer Saudi Aramco OPEC’s recent move to cut production. Base Oil Company (Luberef) is expected to 2020 AND BEYOND However, the automotive sector in the start up its Group II base oil manufacturing Industry consultants expect global demand region looks to be primed for growth in the facility at Yanbu in the third quarter of 2017, growth for base oils to remain mostly flat until years ahead, as expanding populations, rising after civil and contractual delays caused the 2020. However, markets such as Asia and the income and disposable income levels and maker to push back the startup from the sec- Middle East are expected to grow faster than availability of low-cost fuel give rise to an ond half of 2016. the global market over the next decade, increase in demand for vehicles. Talking to ICIS at the sidelines of the fuelled by increasing demand for automobiles Middle East base oils conference in October to cater to the needs of growing populations. MIDDLE EAST BASE OIL PRICES last year, Luberef said that the company even- The number of passenger cars in the Gulf CONTINUE FIRM tually plans to phase out Group I production Cooperation Council (GCC) region is expected $/tonne at the unit and lead the move to migrate its to grow at a compound annual growth rate of 800 Group I spot SN150 CFR UAE Group I spot SN150 FOB Iran export bulk customers to Group II-based formulations. 5% and is likely to exceed 13m by 2020. Group I spot SN500 CFR UAE 700 While the second unit at Jeddah is expect- Moreover, major infrastructure projects and ed to continue producing Group I base oils in construction ventures in the run-up to up- 600 the near to medium term, the company has a coming events such as the World Expo 2020 long-term plan eventually to move to making in Dubai and the FIFA World Cup 2022 in 500 only Group II base oils to cater to customers Qatar are expected to support increased both locally and abroad. demand for heavy vehicles to transport goods 400 Abu Dhabi National Oil Company and manpower, and for logistic activities, thus (ADNOC), which recently started commercial also supporting base oils demand. ■ 300 Jan Jul Jan Jul Jan operations at its Group II/Group III facility in Veena Pathare is a senior editor manager with ICIS, 2015 2015 2016 2016 2017 Ruwais, is also looking to increase its pres- based in Singapore. She reports on markets for Middle SOURCE: ICIS ence within the UAE. The company aims to East base oils and polyolefins www.icis.com February 2017 | Base Oils Supplement | 23 BASE OILS 2017 ASIA Tight supply gives firm Asian pricing Asian Group I and II base oil prices remained atypically high in quarter four, on tightness in the market and the prospect of a heavy first-half 2017 maintenance schedule. Group III availability is better, due to new capacity in Abu Dhabi

JASMINE KHOO SINGAPORE Typically, the Asian market sees price Other base oil grades that traditionally WHITNEY SHI, SHANGHAI declines in the fourth quarter of each year, experience waning demand in the fourth especially for heavy grade material such as quarter include Group I SN500 and Group II he Asia-Pacific base oils market has brightstock. This is mainly brought about by 500/600N. recently been experiencing price vol- lacklustre demand in the winter season in However, the fourth quarter of 2016 was atility and tradition-defying trends, northeast Asian countries such as China, as vastly different in terms of price movement for especially in the fourth quarter of the high viscosity nature of heavy grade base heavy grade base oils compared with earlier T 2016, on the back of snug spot supply condi- oils requires extra caution in transportation years. According to ICIS data, spot prices of tions at some regional refiners. use when temperatures fall to zero and below. brightstock registered gains from an average of Imaginechina/REX/Shutterstock Expanding Chinese car production and sales are driving growth in the China base oil sector...

24 | Base Oils Supplement | February 2017 www.icis.com BASE OILS 2017 ASIA

$780/tonne FOB Asia in early October 2016 to CHINA BASE OIL PRICES TRENDED ASIA BASE OIL PRICES PICKED UP $805/tonne FOB Asia in late December 2016. UP AT THE END OF 2016 AT THE END OF 2016 Back in late 2015, the brightstock price $/tonne $/tonne 1,400 1,400 decline had been at around 3.3%, with pric- Group I spot SN150 CFR China International Group I spot brightstock FOB Asia Export es coming off from an average of $940/tonne Group I spot SN150 ex-terminal E China truck domestic Group II spot N150 FOB NE Asia Group II spot N150 ex-terminal E China truck domestic Group II spot N500 FOB NE Asia 1,200 1,200 FOB Asia in early October 2015 to $910/ Group III spot 4 cSt FOB Asia tonne FOB Asia on late December 2015, according to ICIS data. 1,000 1,000 Another heavy grade material, Group II 800 800 500/600N, which typically sees price declines in colder seasons, also rose in the fourth quar- 600 600 ter of 2016. ICIS data show that spot prices of 500/600N firmed from an average of $650/ 400 400 Jan Jul Jan Jul Jan Jan Jul Jan Jul Jan tonne FOB Asia in early October 2016 to 2015 2015 2016 2016 2017 2015 2015 2016 2016 2017 $697.5/tonne FOB Asia in late December 2016. SOURCE: ICIS SOURCE: ICIS The main reasons for this price increase was the shortage of Group I and II spot mate- even parts of Southeast Asia. opinions of an extended price uptrend. rial among regional refiners due to upcoming With the increased availability of Middle However, some market participants were less scheduled shutdown turnarounds and active East-origin Group III spot material in both optimistic, adding that Group I and II base oils procurement ahead of the Lunar New Year bulk and flexi-bag packaging at competitive price trends ultimately depend on other factors festivities to stock up on inventories. Limited prices, reduced dependence on Asian-origin such as upstream crude conditions as well as inventories among regional refiners led them Group III material was observed among Asia- economic conditions in key import markets. to offer spot lots mostly at premiums month based importers. For the Group III base oils sector, spot pric- on month, which pushed up assessed prices. This in turn led some Group III sellers to es of northeast Asian 4 and 6cst cargoes could Some buyers also lamented the product drop offers in order to stimulate cargo uptake potentially come under further downward scarcity in late 2016, noting that their local among Asian buyers, which led to price pressure amid the increasing prevalence of contract term volumes were reduced by as decline for Group III Asian material. competitively-priced 4 and 6cst cargoes of much as 50% in some months as refiners According to ICIS data, Group III 4cst spot Middle East origin in Asian import markets. grappled with product allocation amid limit- prices fell from an average of $790/tonne FOB ed stocks. Buyers’ attempts to seek spot mate- Asia in early October to $710/tonne FOB Asia ROBUST DEMAND IN CHINA rial also proved futile at times, as refiners in late December 2016. Group III 6cst cargoes, In the important Chinese market, Group II maintained that they did not have material for which were bundled and sold with 4cst mate- and Group III base oils demand is expected to additional spot cargo requests. rial, also saw price decline. be promoted by the robust demand from vehi- Apart from supply conditions, robust cle use lubricants in 2017. In contrast, upstream trends also exerted upward pres- Local contract term volumes demand for Group I and off-spec base oils in sure on spot pricing. Strong WTI crude oil were reduced by as much as China will be stable-to-soft, driven by the futures, which hovered in the $50s/bbl range sluggish demand from industrial lubricants in the later part of the fourth quarter of 2016 50% in some months as due to the economic slowdown in China. and early January 2017, also lent upward sup- refiners grappled with product The country’s GDP growth is expected to port to base oils spot prices. Saudi Arabia has decelerate to 6.4% in 2017 from 6.6% in 2016. cut its crude oil production by at least 486,000 allocation amid limited stocks In general, China’s overall base oil and lubri- bbl/day since October 2016, in accordance cant demand are both expected to rise at low with the OPEC deal agreed in November. levels of 1-2% in 2017 in line with the healthy Firm crude oil futures led most sellers to Going forward, spot prices of Group I and II demand from vehicle use lubricants but bear- hold on to firm selling indications, citing rising base oils are poised to receive support in the first ish demand from industrial lubricants. production costs and the need to safeguard half of the year on the back of a spate of upcom- Demand for vehicle use lubricants will margins as their key reasons for price increase. ing scheduled shutdown maintenance projects remain a significant growth element for among regional Group I and II refiners, which demand in lube oil consumption in China, GROUP III IN BETTER SUPPLY would in turn result in curtailed spot availabili- pushed up by the rising car output and sales in In the Group III market, supply conditions ty. Some refiners, especially those who make 2017. According to data from the China were significantly different from the Group I Group II 500/600N, say that they will be sitting Association of Automobile Manufacturers, Chi- and II sector. Following the start-up of Abu on scarce inventories until April or even May. nese vehicles output volume in 2016 was about Dhabi National Oil Company (ADNOC)’s Heavy term contract commitments among 28.11m and sales volume was about 28.02m, up 500,000 tonnes/year Group III and 100,000 refiners also cut their spot cargo allocation, by 14.46% and 13.65% from 2015, respectively. tonnes/year Group II base oils unit in Ruwais which is expected to result in stiff competi- Production and sales of passenger cars in 2016, increased availability of Group III tion for material among traders and end users. climbed to 24.42m and 24.37m, respectively, 4 and 6cst cargoes of Middle East origin has As a result, some market players expressed recording accelerated growth of 15.50% and posed increasingly stiff competition to the expectations of persistent upward pressure on 14.93% due to the fact that government poli- Asian-origin Group III base oils sector. spot prices for Group I and II cargoes in the cy cutting the purchase tax on passenger cars The Asian Group III market saw a dilution first half of 2017. below 1.6 litres by half was due to stop at the of the earlier monopoly by Asian Group III Early negotiations for February 2017 end of 2016. refiners, as Middle East origin 4 and 6cst shipment cargoes were already showing Production and sales of commercial vehi- cargoes started making their way into key signs of price gains compared with January, cles rose by 8.01% and 5.80% year-on-year, to import markets such as India, China and which reinforced some market players’ 3.698m and 3.651m, respectively. Output and ❯❯ www.icis.com February 2017 | Base Oils Supplement | 25 BASE OILS 2017 ASIA

❯❯ sales of commercial vehicles stopped declining because of recovering demand. With the government reducing the discounts on the purchase tax of passenger cars in 2017 and cancelling the discounts on the purchase tax in 2018, the rising pace of Chi- nese vehicles output and sales volume will slow slightly, but demand for vehicle use lubricants in China is expected to follow a slightly increasing trend in 2017. Industrial lubricant demand is expected to be sluggish in 2017 due to the economic slowdown and the elimination of overcapacity in the iron and steel industry, as required by the State Council’s decree. According to the decree, China plans to reduce the production capacity of crude steel by 100-150m tonnes/ year in the five years starting from 2016.

STEEL OUTPUT STILL RISING ImagineChina/Rex/Shutterstock According to the National Bureau of Statis- ...but cut backs in steel production will hit industrial base oil demand tics, crude steel production in the first 11 months of 2016 was 738.93m tonnes, up by The share of off-spec base oils demand is as most of its product is being used for 1.1% from 2015. At the same time, iron pro- expected to shrink further due to significantly in-house inner lubricant production. It has also duction was 643.26m tonnes and rolled steel lower demand for low-end base oils, as lubri- permanently shut down its Yanshan Group I production was 1043.44m tonnes, up respec- cant producers will keep upgrading their plant. Thus Sinopec Group I refiners will have tively by 0.4% and by 2.4%. products and the weak demand of the indus- tight supplies to the domestic market. Despite of the slight rise of steel, iron and trial lubricant sector. Asian refiner Thailand IRPC will shut rolled steel production in 2016, other indus- Turning to the supply side, there will be an down its Group I unit from February to end try fields were still in a bearish situation, intensive schedule of maintenance at Group I March, which will lead to the tight supply of which led industrial lubricant demand to be and Group II base oil plants in the first half of Group I BS150. slightly lower in 2016. Generally speaking, 2017, both in Asia and China. Besides this, In the Group II base oil market, supplies of industrial lubricant demand will continue to there are no new Group I and Group II base oils high-viscosity grade will be tight in the first half decrease in view of the economic slowdown plants scheduled to come onstream in China in of the year in response to the intensive planned and the implementation of the steel capacity 2017, apart from a 300,000 tonne/year Group III maintenances of Group II plants at Asian refin- reduction plan in 2017 to 2020. plant expected at the end of 2017. ers. Among of these, GS-Caltex will have regular Chinese base oils apparent consumption maintenance of its 1.3m tonne/year Group II is expected to rise by 1.34% year-on-year to There will be an intensive and III plant from March to April to change its 7.88m tonnes/year in 2017 due to the strong- schedule of maintenance at catalyst. ExxonMobil will have the maintenance er demand for lubricants used in petrol and of its 1.6m tonne/year Group II unit from March diesel engines, despite the slightly sluggish Group I and Group II base oil to the mid-April. SK Lubricants will also have demand for industrial lubricants. plants in the first half of 2017, scheduled maintenance of its 300,000 tonne/ The market share of Group II base oils year Group II unit during May to June. apparent consumption is forecast to increase both in Asia and China Asian Group II units also plan to undertake by 2 percentage points to 43% in 2017, driven maintenance in the first half of the year and in part by the fact that some prices are likely mainly produce high-viscosity Group II. On to fall below those of Group I base oils due to Therefore, supply of Group I and Group II the demand side, the peak season for high-vis- the increasing supply glut as well as the firm base oils in the first half of 2017 will be tight. cosity Group II base oils is March to May. demand of vehicle use lubricants. Looking at the Group I base oils supply Therefore, there may be a shortage of high-vis- In addition, apparent consumption of situation, PetroChina subsidiary Fushun cosity grades to support prices trend in China. Group III and above grades is likely to account Petrochemical shut down its 260,000 tonne/ Chinese local refiners, Sinopec Jinan Petro- for a larger share of the market in 2017, at year Group I plant from late 2014 and has chemical and Hainan Handi Sunshine, will 8.6%, with the support of stabilised operation decided not to restart the plant in the first half have maintenance in February and October, re- at Sinopec Maoming Petrochemical’s Group of 2017 due to poor margins. PetroChina sub- spectively, which will last two to three months. III plant and continuous Middle East Group sidiary Daqing Petrochemical shut down its In Group III, the major Asian refiners will III base oils imports, which are expected to 250,000 tonne/year Group I base oil plant not be undertaking regular maintenance this enter the Chinese market at lower prices. from September 2016 to April 2017. year and Sinopec Maoming Petrochemical However, Group I grades demand share will PetroChina subsidiary Dalian Petrochemical will operate without maintenance on its be stable at 24% because some of the lubricant plans to have regular maintenance of its 450,000 plant. With more Middle East Group III hitting companies and additive producers are commit- tonne/year Group I plant from end March to the Chinese market, at much lower prices, ted to using Group I base oils, providing firm mid-May in 2017. Therefore, PetroChina refin- supplies of Group III will increase in 2017. ■ demand from end-users, despite the fact that ers will have limited Group I base oils to offer to Jasmine Khoo is markets editor for Asian base oils, PET some other lubricant companies have switched the domestic market in the first half of 2017. and 1,4-butanediol, based in the ICIS Singapore office. the formula from Group I to Group II grades. At Sinopec, Group I supplies are also tight, Whitney Shi is a senior industry analyst at ICIS in China

26 | Base Oils Supplement | February 2017 www.icis.com st st th 11th2ASIAN1 WORLD 5th2AFRICAN1 WORLD 13 Base 2017Oils & ICISLubric Baseants Oils & LubricantsBaseBase OConferencesils O ils& L &ubric Lubrican tsanCalendarts Base Oils & Lubricants Conference Base O ConferenceConference Conference

5-6 April 2017 16-18 May 2017 5th INDIAN India 121th1PANth ASIAN AMERICAN Singapore Base Oils & Lubricants BaseBase Oils O ils& L &ubric Lubricantsants Conference11th ASIAN ConferenceConference 5th Base Oils & Lubricants Base O Conference 5th INDIAN Base Oils & Lubricants www.icisconference.com/indianbaseoils www.icisconference.com/asianbaseoilsConference st WORLD 21 12 - 13 September 2017 8 - 9 October 2017 nd The 2 North5 BAmericanthaseINDIAN O ils & LubricUSA ants 14th MIDDLE EASTERN12th UAE Industrial LubricantsConference Base Oils & Lubricants Congress Base Oils & Lubricants Conference Base O Conference 21st WORLD st WORLD Base Oils & Lubrican 21 Conference www.icisconference.com/lubricantsusaBase Oils & Lubricants www.icisconference.com/mebaseoils

Conference31 October - 2 November 2017 29 November - 1 December 2017 th AFRICAN Africa th USA 6 13 PANst AMERICANWORLD Base Oils & Lubricantst s Base2 Oils1 & Lubricants Conference21 WORLD ConferenceBase Oils & Lubrican Base Oils & LubricConferenceants Conference www.icisconference.com/africanbaseoils www.icisconference.com/panambaseoils

The 4th ICIS & ELGI November 2017 February 2018 Europe 22nd WORLD UK Industrial Lubricants Base Oils & Lubricants Conference 21st WORLD Conference Base Oils & Lubricants

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