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April 5, 2017

Volume 17 Issue 52

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Group III Expansion Expected for N. America

North America is a large importer of API Group III base stocks but it produces only a small portion of those oils. As the region’s demand for Group III continues to grow, many industry insiders predict that local production of these oils will also expand.

Industry sources expecting to see increased North American Group III production say it will most likely come from existing Group II refiners modifying part of their operations to make Group III. One supplier, Motiva, is reportedly already investigating the possibility of doing exactly that at its massive plant in Port Arthur, Texas.

“The advantage of Group II plants,” said Brent Lok, manager of base oil marketing and new product development for Chevron’s North American products, “is that they’re designed to be Group II or Group III. Plant flexibility is a key enabler for Group II plants to make Group III.”

North America is one of the largest consuming regions of Group III, but it imports a far higher portion of that grade than others. North America annually consumes between 1.1 million metric tons and 1.2 million tons of Group III, according to Steven Ames of SBA Consulting in Pepperpike, Ohio. That amounts to 16 or 17 percent of global Group III capacity, as reported in Lubes’n’Greases’ 2016 Guide to Global Base Oil Refining.

The region holds just 3 percent of the world’s production capacity for Group III – most of it at Holly Frontier’s Petro-Canada’s Group II and III plant in Mississauga, Ontario, which has capacity to make 195,000 t/y of the latter grade. Avista claims capacity to make 8,000 t/y of Group III at its rerefinery in Peachtree, Georgia. In contrast, the portions of global Group III capacity in Asia-Pacific, the Middle East and Europe are 53 percent, 29 percent and 15 percent, respectively.

Moreover, analysts agree that North American demand for Group III will continue rising as more and more passenger cars demand engine oils meeting today’s latest performance standards, which are difficult to formulate without Group III. Ames predicts that Group III demand in North America will grow to 1.5 to 1.6 million t/y by 2021. 

To make up for the large deficit in Group III output, North America – primarily the United States – imports large volumes from a few countries. The U.S. imported roughly 1.1 million tons of Group III between September 2015 and August 2016, according to a presentation given by Ames at the 2016 ICIS PanAm Conference in Newark, New Jersey, in December. Ames claims 469 million t/y come from South Korea, 389 million t/y from Qatar and 100 million t/y from Bahrain. 

Of course, overseas imports bear extra costs for shipping. An industry insider told Lube Report that costs for 20,000-25,000 ton cargoes from South Korea probably level out at $35 per ton. Costs incurred for the same size shipment from Qatar are in the mid-$50s per ton, and for a 5,000 ton shipment from Bahrain roughly $70 per ton.

Some observers think it makes sense that more Group III capacity will eventually be added in North America. Many agree that is unlikely to happen through construction of a new Group III plant, especially since the global market has had a surplus of Group III capacity in recent years. Group II plants can be made to produce Group III, either through equipment upgrades or through process alterations – using existing equipment to process more severely so that the yield is Group III.

Most agree that the latter approach is most likely in North America, at least for the foreseeable future. That approach has the advantage of requiring little to no capital investment. Chevron’s Group II plant in Richmond, California, also produced Group III from 1998 to 2012, and Lok described the process adjustments necessary for such an operation as a “trivial exercise.”

The disadvantage of this approach is that it requires more severe processing that reduces base oil output. Sources said that is less of a problem now because light Group II grades are in surplus now so that refiners might have reduced production anyway. “In the face of a global surplus of low-viscosity base oils,” Ames said in Newark, sacrificing yield to make Group III “may be more attractive than alternatively reducing plant utilization.”

“Group III is proving more attractive,” Lok added in an interview.

Ames forecast that North American Group III output could quadruple to 800,000 t/y by 2021, but he added that the region will continue to import large volumes of that grade.

Not everyone agrees that Group III output in North America will rise. Jamie Brunk of Dallas, Texas-based Solomon Associates argued the region’s market will remain “as is,” with no additional Group III capacity in the coming years. “The yield penalty in most plants in going from Group II to Group III makes it less expensive to buy and import Group III rather than to make it,” he explained.

Several sources interviewed for this article said representatives of Motiva and Saudi Aramco told them Motiva is investigating the possibility of shifting some Group II capacity at its plant in Port Arthur, Texas. Aramco, which owns half of Motiva, has reached an agreement to buy out its partner in the joint venture, Shell, and plans to take full control of the business by the end of June. In February Aramco announced that it would begin marketing a broad slate of base stocks, including Group III. Currently, Aramco does not control any Group III supply.

Motiva and Aramco officials did not return numerous messages seeking comment for this article.

Lok said the Port Arthur plant could serve as a model for other companies if it starts making Group III. He predicted other U.S. Group II producers would “wait and see how successful Motiva will be.” Should Aramco be successful in producing Group III in the U.S., Chevron may follow closely behind.

Photo: goce risteski/Fotolia

Many industry insiders believe North America will see an increase in local Group III capacity as Group II plants begin shifting some production capacity to Group III.