Flint Hills Resources will cease marketing of base stocks produced at its Excel Paralubes joint venture, leaving partner Phillips 66 to market all of the output from the Westlake, Louisiana, plant, Phillips 66 told Lube Report yesterday.
The change is scheduled to take effect Jan. 1. The partners lauded the decision, saying it will give the joint venture greater flexibility to meet customer needs, perhaps through capital investment, but base oil buyers called it unwelcome.
From a buyers perspective, youd always prefer to have more suppliers, not less, said one U.S. buyer, who spoke on condition of anonymity. Thats especially true when the supplier that you lose is an independent and the one youre left with is both a supplier and a competitor in the sale of finished lubricants.
Excel Paralubes is the fifth-largest base oil plant in the United States, with capacity to produce 22,200 barrels per day of API Group II base stocks. The joint venture was formed in 1997 by Conoco and Pennzoil. Conoco later merged with Phillips 66, and Flint Hills bought its stake from Shell in 2003 after the energy giant bought Pennzoil.
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The plant stands near a former Conoco oil refinery in Lake Charles, Louisiana, which is now owned by Phillips 66 and which has always supplied feedstock for the base oil plant. The base oil output from Excel Paralubes has always been equally owned by the joint venture partners, and each has always marketed its own shares.
Phillips 66 has a substantial finished lubricants business and keeps some of its share of the base oil in-house to make those products. Flint Hills, which is part of Koch Industries, does not make finished lubes and sells all of its share into the merchant market.
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The agreement for Flint Hills to stop marketing was reached by the companies on Oct. 10, Phillips 66 spokesman Dennis Nuss said yesterday in response to an inquiry. Flint Hills notified at least some customers of the decision last week. Flint Hills will remain a partner in the joint venture but will be a non-operational one.
The j.v. restructuring provides Excel Paralubes with greater agility to provide quality base oil solutions to customers, including the introduction of new and improved products and improved capital investment opportunities, Nuss said. He did not respond to a follow-up question asking if Phillips 66 has specific plans to invest in the base oil plant. Flint Hills did not respond to questions.
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