March 28, 2018
Volume 3 Issue 8
Strong Finish for U.S. Base Oils
Base oil producers in the United States pumped out 64.9 million barrels of base oils in 2017, making it the second-best production year in a decade. This represents 4.3 million more barrels than the 2016 total of 60.6 million barrels, according to U.S. Energy Information Administration data released at the end of February.
Despite a grim outlook in the immediate aftermath of Hurricane Harvey, which temporarily closed several refineries when it buffeted the United States Gulf Coast in late August, paraffinic base oil production racked up 54.7 million barrels in 2017, up 6 percent from the year before. On the naphthenic side, producers churned out 10.2 million barrels, a 15 percent jump.
Harvey wasn’t the only event that battered base oil production in 2017. Because of several large plant outages and maintenance turnarounds in the first half of the year, base oil resellers had difficulty securing product for local customers, especially Group II base stocks, said Jeremy Kriska, director of sales and marketing at Tulsa, Oklahoma-based Tulstar.
“Group II’s availability was sporadic throughout the year, and it seemed to change by viscosity grade, which was a bit bizarre. Historically, it seemed like light neutral Group I or Group II have all been readily available, but last year there was a period of time when that got very tight,” Kriska remarked to Lube Report, adding that by contrast, heavy neutral grades had more availability and were easier to source throughout the year.
The tightness in the Group I segment could be at least partly due to the ongoing rationalization of plants producing that grade. Canadian refiner Imperial Oil recently announced that it would cease producing Group I base oils at its 2,400 b/d facility in Strathcona, Alberta, taking another source of virgin Group I away from the North American market.
Exports have been outweighing domestic consumption of base oils for some time now, and the EIA data reflect this. Sixty-two percent of base oil production in the U.S., or about 40.5 million barrels, was exported, a 42 percent increase over 2016. Imports, by comparison, grew modestly compared to 2016, with 15 million barrels brought into the market, almost a 6 percent increase. What was notable, however, is where the material came from.
South Korea, Canada and Qatar were the three largest country sources for imports in 2017, with a three-way tie for fourth among Bahrain, Indonesia and the United Arab Emirates. The latter represents Adnoc’s Group III base oils, which entered the U.S. market in late 2016. Adnoc contracted Netherlands-based Penthol C.V. to distribute those oils in the U.S., and Penthol selected Vertex Energy to serve as its agent and help to market them.
“It’s been very well accepted. In the beginning the ramp-up was slower than we had hoped for only because it came in as an unapproved product,” said Erica Snedegar, manager for base oils and intermediate products. The AdBase-branded base stocks now have approvals for API SN, ILSAC GF-5 and General Motors’ Dexos 1 passenger car engine oil specifications.
She noted that there has not been a slowdown in demand for Adnoc’s product despite small additions of domestic Group III production in 2017, notably from Motiva in Port Arthur, Calumet’s facility in Shreveport, Louisiana, and rerefiner Avista Oil’s facility in Peachtree City, Georgia.
Things are looking up in the U.S. base oil market, and there has been more buying activity in the first three months of the year to sustain that feeling, said Tulstar’s Kriska. “2010 to 2016 was just always a negative tone when we asked how business was. Everyone always said ‘It could be better,’” he commented. “The sentiment is a lot better now than it used to be.”
But just because the market is more positive doesn’t mean that players are resting on their laurels. With Group III reigning supreme in more markets, competition is only bound to get fiercer. “We feel that Group III as a whole is going to increase at least 8 percent year-over-year in the next five years,” Snedegar added.
Joe Rousmaniere, director, business development, at Harrison, New York-based Chemlube, concurred. “The one thing that we all in the industry agree on is that the only real growth in the base oil business is in the Group III sector. The trends in the entire lubricants business are towards fuel economy and reduced emissions, and you achieve those largely through the quality of your base oils.”
Read more about U.S. base oil production last year in the April 2018 issue of Lubes’n’Greases magazine.