Page 13 - Fuels & Lubes International 2014 - Q2

13
FUELS & LUBES INTERNATIONAL Volume 20 Issue 2
Latin America and the Middle
East each account for between 7%
and 8% of demand, although those
numbers could change quickly as
these markets develop. Unques-
tionably, most of the organic
growth in these markets will come
from developing countries in Asia
and Latin America. In terms of
demand for high quality oils, the
top three are reversed with Europe
as the leading market, North
America second and Asia trailing
close behind.
Demand for global lubricant
base stock reached 36 million tons
while demand for synthetic alter-
natives grew to 2.9 million tons.
These numbers are very significant
considering that the global base
stock supply leveled off at 38.2
million tons in the last year (2012).
Although supply and demand
seem close to being balanced at
first glance, non-lubricant applica-
tions are consuming the surplus of
lighter oils, obscuring the fact that
there is a growing shortage in high
viscosity base stocks, especially
bright stocks.
The Decline of Group I
Base Oil Production
There are two components to
this trend. First, despite the fact
that Group I lubricant demand
is declining and driving plant
closures, the Group I plants that
are still active are operating at
a lower rate, less than 70% of
capacity utilization compared to
75% for Group II plants. Second,
in addition to the drop in Group I
demand overall, cost management
efforts on the production side are
driving a preference for Group II
and III facilities. Across the board,
lube blending plants have sought
to reduce their operational costs
by eliminating Group I from their
formulations. Cost analysts have
cited optimization of formulation
costs, blending plant costs overall
and supply logistics as the main
drivers for this decision.
All available evidence points
to an acceleration of this trend,
meaning that Europe and North
America will have a much harder
time accessing heavier grades over
the next few years. Though de-
mand is growing at a very modest
rate, the supply gap is widening as
PHILIPPINES
AUSTRALIA
PAPUA
NEW
GUINEA
SINGAPORE
M A L AYS I A
BRUNEI
VIETNAM
LAOS
MYANMAR
CAMBODIA
BANGLADESH
BHUTAN
NEPAL
Plateau of Tibet
Central Siberian Plateu
Plateau ofMongolia
West Siberian Plain
NORTH KOREA
S O U T H
KO R E A
PA K I S TA N
AFGHANISTAN
KYRGYZSTAN
KAZAKHSTAN
RU S S I A
MONGOLIA
TAJIKISTAN
T H A I L A N D
I N D O N E S I A
I N D I A
C H I N A
Taiwan
Manila
Hongkong
Tokyo
Pyongyang
Seoul
Beijing
Taipei
Luzon
Macau
Mindanao
Halmahera
Timor
Celebes
Ambon Ceram
Flores
Visayas Cebu
Davao
Zamboanga
Sabah
Kerinci
Kinabalu
1401
Mt. Everest
5143
8848
7600
7723
8611
2698
7439
4506
7495
2954
3800
Manado
Molluccas
Palawan
Philippine Sea
Arafura Sea
Banda Sea
South China Sea
Celebes Sea
Java Sea
Sulu
Sea
Bay of Bengal
A rabian
Sea
East China Sea
Gulf of
Thailand
G. of
Mannar
G. of
Tonkin
Yellow
Sea
Sea of Japan
(East Sea)
Sea of
Okhotsk
JA PA N
Hokkaido
Kuril Is.
Vladivostok
I n d i a n
O c e a n
Hyderabad
Banglore
Lakshadweep Is.
Maldives
Nicobar Is.
Sunda Is.
Andaman Is.
HoChiMinhCity
Madurai
Surat
Vadodara
Ahmadabad
Indore
Bhopal
Nagpur
Vientiane
Haiphong
Bandar Seri
Begawan
Str. of Malacca
Str.of M
alacca
Sunda St r.
Belukha
SinopecShanghaiGaoqiao
Shanghai,China
PetroChinaFushun
Fushun,Liaoning,China
SinopecYanshanRe nery
Yanshan,Beijing,China
SinopecMaomingRe ning
&ChemicalCo.Ltd.
Maoming,Guangdong,China
PetroChinaNanchong
Nanchong,Sichuan,China
Sapporo
S-OilCorp.
Onsan,S.Korea
GSCaltex
Yeosu,S.Korea
PetroChinaLiaohe
PanjinCity,Liaoning,China
Hindustan
PetroleumCorp.Ltd.
Mumbai, India
BharatPetroleum
Corp.Ltd.
Mumbai, India
Colombo
NewDelhi
Bishkek
Astana
Kathmandu
Dhaka
Bangkok
Phnom Penh
KualaLumpur
Medan
Palembang
Bandung
SUMATRA
BORNEO
Semarang Bali
Hanoi
Jakarta
Thimpu
Rangoon
Islamabad
UlaanBaatar
Taiyuan
Xian
Wuhan
Nanchang
Fuzhou
Kabul
Dushanbe
Calcutta
Chittagong
SRI LANKA
Faisalabad
Hotan
UlanUde
Irkutsk
Chita
Blagoveshchensk Khabarovsk
Komsomolsk
Qiqihar
Harbin
Hailar
Karaganda
Semey
Urumqi
Hami
Pavlodar
Novosibirsk
Novokuznetsk
Omsk Chelyabinsk
Yekaterinburg
Perm
Bratsk
Krasnoyarsk
Omsk
Lahore
Petronas
Melaka,Malaysia
IRPCPCL
Rayong,Thailand
ThaiLubeBasePCL
Sriracha,Thailand
PetroChinaLanzhou
Lanzhou,Gansu,China
PetroChinaDaqing
Heilongjiang,China
SinopecHe’nan
Oil eldRe nery
Nanyang,He’nan,China
SinopecJingmen
PetrochemicalCo.
Jingmen,Hubei,China
SinopecJi’nanRe nery
Ji’nan,Shandong,China
P a c i f i c
O c e a n
P al k S t r ait
L a Pe rouse Stra it
m
5000
4000
3000
2000
1000
500
200
0
DepthofSea
HeightofLandAboveSeaLevel
LandBelowSeaLevel
200
1000
2000
4000
6000
8000
9000
S I N G A P O R E
29
Singapore
Strait
Changi
Woodlands
CNOCC
Huizhou,Guangdong,China
CNOCC
Taizhou,Jiangsu,
China
F&L
9/F.,
19 L
Wanc
Phon
Fax:
Emai
URL:
IsthmusofKra
CNOCC
BinzhouCity,
Shandong,China
300K
Naphthenic
350KGroup II
500K
NaphthenicGroup II 550K
HVI,GroupI, II, III
60K
Group I,MVI
120KGroup I,
MVI
240K
Goup I, II,
MVI,HVI
470K
Group I,
HVI
264K
Group I,
HVI
350K
Group I. II
260K
Group I
HainanHandiSunshine
PetrochemicalCo.Ltd.
Hainan,China
300K
Group II
250K
Group I
150K
Naphthenic
20K
Group I
IndianOilCorp.Ltd.
Haldia,WestBengal, India
ChennaiPetroleum
Corp.Ltd.
Manali,Chennai, India 27
400K
Group I, II
275K
Group II, III
480K
Group I, II, III
270K
Group II
PetroChinaKaramay
Karamay,Xinjiang,China
700K
NaphthenicGroup II PetroChinaDalian
Dalian,Liaoning,China
450KGroup I
1.925M
Group I, II, III
1.3M
Group II, III
PatraSK,PT
Dumai,RiauProvince
Sumatra Island, Indonesia
Pertamina
Cilacap,JavaProvince
Java Island, Indonesia
428K
Group I, II
375K
Group III
SKLubricants
Ulsan,S.Korea
1.1M
Group II, III
250K
Group II, III
ShellEasternPetroleumPte.Ltd.
Bukom Island,Singapore 360KGroup I
FormosaPetrochemicalCorp.
Mailiao,Taiwan
CPCShellLubricantCo.Ltd.
Kaohsiung,Taiwan
270K
Group I
550K
Group II, II+
275K
Group I
330K
Group I
NationalRe neryLtd.
Karachi,Pakistan
204KGroup I
ShowaYokkaichi
SekiyuCo.Ltd.
Yokkaichi,Japan
JXNipponOil&Energy
Mizushima-B,Japan
JXNipponOil&Energy
Mizushima-A,Japan
188K
Naphthenic
220KGroup I
240KGroup I 230KGroup I
150K
Group I
290K
Group I, II+
JXNipponOil
&Energy
Yokohama,Japan
IdemitsuKosanCo.Ltd.
Chiba,Japan SankyoYuka
KogyoK.K.
Chiba,Japan
JXNippon
Oil&Energy
Negishi,Japan
210K
Group I
90K
Group III
WakayamaPetroleum
Re ningCo.Ltd.
Kainan,Japan
TonenGeneralSekiyuK.K.
Wakayama,Japan
176K
Group I
CosmoOil
LubricantsCo.Ltd.
Yokkaichi,Japan
250K
Naphthenic
UnionSekiyuKogyoCo.Ltd.
Iwakuni,Japan
UNITOFCAPACITY:MTPA SI
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+ T
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F
US DOLLARS
US DOLLARS
US DOLLARS
13
12
11
10
9
8 USDOLLARS
13
12
11
LARS
FNL Wall Map-full size (3.5 x 4 inches)
Evonikdrives
forefficiency—
each andeveryday Performance you can rely on.
391K
Group I, II, III
W
ExxonMobilAsiaPaci cPte.Ltd.
TanjongPenjuru;
PulauAyerChawan,Singapore
1.9M
Group I, II
more oil producers shift to Group
II and III production.
Against the backdrop of
shifting demand, bright stocks
have now begun to command a
premium, increasing in value as
the global supply diminishes.
Over the decade from 2000 to
2010, bright stock prices nearly
tripled, going from USD15 to
USD40 per barrel, and prices are
continuing to trend upward.
6 Key Factors in the
Group I Environment
Taken together, these trends
indicate that the industry is
experiencing a Group II and III
supply push, even in regions like
China where there is no techni-
cal demand for lighter grade
lubricants. In the face of all this
economic pressure, the environ-
ment for existing Group I plants
is extremely complex. More plants
would be shut down or converted
to Group II and III plants without
the influence of six key factors
that keep them in operation:
 Ownership – National oil
companies still own 43% of Group
I production plants. For these
plants, political realities make
shutdowns highly improbable.
 Customers – If the plant
has active customers who blend
industrial oils, a service interrup-
tion could be too costly if it would
impact other business sectors.
 End use – Technological
developments continue to create
new uses for high viscosity oils,
including original marine and
transformer oil applications.
 Byproducts – Petroleum
wax is the most valuable byprod-
uct that derives from Group I
processing only. Demand is still
on the rise for this byproduct from
industries like candlemakers and
packaging producers.
 Regions – North America and
Europe are putting more pres-
sure on Group I plants to close or
convert to lighter base oil produc-
tion. Plants in Asia, Africa, Latin
America and the Middle East are
facing significantly less pressure.
 Shutdown costs – The costs
of shutdown may outweigh the
projected profitability of the alter-
native, especially under existing
global economic conditions.
In addition to these factors,
the majority of Group I plants
are mature enough to be well
established in their markets
and fully depreciated from an
accounting standpoint. In the end,
though, all of these factors will
not be enough to keep more than
5 million tons of bright stock
from leaving the supply chain.
Alternatives to Group I
Looking ahead, as the cost of
bright stocks increase with the
dwindling supply, manufacturers
are already considering alterna-
tives, such as naphthenics, poly-
alkylene glycols, polyalphaolefins
and polyisobutene. As these are
much more expensive, it will drive
additional innovation in the search
for substitutes. The industry will
certainly shift toward more appro-
priate viscosity grade balancing
as companies seek to exploit
market corrections.
Following these trends, the
industry should expect to see a
second round of plant closings over
the next few years. An iteration
of cost analysis and shutdowns by
Group II plants should be expected
after the more costly Group I
plants have been removed from the
market. Rising populations and
economic development in Asia,
particularly in China and India,
will undoubtedly define the market
over the next decade.
Asian Lube Map
For everyone involved in
the lubricant industry, F&L
Asia Ltd. publishes an annual
Asian Lube Map that provides a
comprehensive view of the Asian
base oil supply situation. The 8th
edition of this valuable resource
covers who is supplying what from
where and how much throughout
the region from Pakistan to Japan.
The map is a graphical display
of Asia’s base oil producers and
their respective capacities by
type of base oil. It also includes
worldwide base oil prices (2013)
for Group I, II and III courtesy of
Argus media. To order this map,
send an email to subscription@
fuelsandlubes.com.