EU Moves Toward Group II Quota

The European Commission last week adopted a quota for API Group II base oil imports, determining that volumes above 400,000 metric tons per year will be subject to duties of 3.7 percent.

Some European Union member states and industry associations favored larger quota volumes or a prolonged suspension of the duty.

After deliberations with EU member states on Nov. 14 and 15, the blocs decision-making body upheld its original proposal. Political approval, a formality, is expected later this month or early December. A European Commission committee had met on Sept. 6 to discuss whether to renew, amend or abolish the tariff exemption.

The decision covers viscosity grades between 150 neutral and 600N, whereas lighter Group II grades and Group III base oils will remain exempt from duties. The new quota will take effect on Jan. 1, with the possibility of amendments after six months.

The news will likely disappoint some member states, as well as the Union of the European Lubricants Industry and its local chapters.

In the run-up to the decision, France and Belgium argued for quotas of 1 million and 700,000 metric tons, respectively. The UEIL had called for continued duty suspension or for a quota between 700,000 and 1 million tons, a proposal backed by the Italian Lubricants Association and the German Association of Small- and Medium-sized Mineral Oil Companies.

UEIL-member VSN, the national lubricants association in the Netherlands, had targeted 800,000 t/y, while the United Kingdom Lubricants Association had hoped for 700,000 t/y.

The EU put the tariff waiver in place in December 2016 because the bloc did not have enough Group II capacity to meet demand.

The measure came under scrutiny after ExxonMobil opened its Group II plant in Rotterdam earlier in the year. The plant has production capacity of 1 million metric tons, according to the 2019 LubesnGreases EMEA Base Stock Guide. The region has one other refinery that makes virgin Group II – a Spanish joint venture between S.K. Lubricants and Repsol, with capacity to make 186,000 t/y of Group II – and a few smaller rerefineries also make Group II. Analysts estimate that the regions demand for Group II exceeds those capacities.

base oil tanker

Photo courtesy of Adrian Brown