13
FUELS & LUBES INTERNATIONAL
Quarter Three 2014
For European refiners,
the competition is very steep with
more exports coming in and fewer
import destinations for their fuels and
base oils, according to Libby George,
deputy editor of Argus Base Oils,
who spoke at the UNITI Mineral Oil
Technology Congress in Stuttgart,
Germany in April.
“The refining evolution is putting
more pressure on Europe,” she says,
“with global refining capacity increas-
ing in the Middle East Gulf, in Asia
and in the United States.”
Feedstock cost advantages in these
regions are also putting pressure on
European refiners, and changing
global demand is curtailing consump-
tion in some of the markets that are
very important for Europe on the fuel
side, such asWest Africa, she says.
In the last six quarters prior to the
end of 2013, European refinery runs
have been declining while American,
Middle Eastern and Asian refinery
runs have been growing.
George attributes this trend to the
shale revolution in the U.S., which is
driving down feedstock costs in the
U.S. In the past, the U.S. was a key
outlet for European gasoline—from
2006 to 2010, the U.S. was a net
importer of gasoline—but because
American consumption is not grow-
ing, U.S. stocks need to find a home in
other markets.
“Americans are buying fewer cars
and are driving more fuel-efficient
vehicles,” she explains.
But U.S. refiners are producing
more jet fuel, middle distillates and
gasoline. Thus, quite a lot of middle
distillates ends up in the European
market, especially in 2013, and U.S.
gasoline also competes with European
gasoline in some markets, such as in
Nigeria. “This market had been key
to Europe for gasoline exports. Now,
the U.S. is trying to elbow out Europe,
which also cuts into European
margins.”
In the meantime, Indian refining
capacity has increased by 50% in
the last five years, which has turned
the region into an export hub. “This
means Asia has been cut off as a net
importer of gasoline and diesel. This
has also put pressure on European
margins,” says George.
“Europeanmargins are substan-
tially lower, and there is no silver lin-
ing,” she adds. “Shale oil will continue
to give the U.S. an advantage and turn
it into a supplier to the world.”
illuminating the markets
Capacity in 2014 to rise by more than 3.5mn t/yr
Copyright © 2014 Argus Media Ltd. All rights reserved.
SK Lubricants
580,000 t/yr
Panjin Northern
Asphalt
400,000 t/yr
Sinopec Yanshan
240,000 t/yr
S-Oil
150,000 t/yr
Shell/Hyundai
Oilbank
650,000 t/yr
Adnoc
600,000 t/yr
SK/Repsol
630,000 t/yr
Chevron
1.25mn t/yr
Lwart
150,000 t/yr
Tatneft
200,000 t/yr
illuminating the markets
Capacity in 2014 to rise by more than 3.5mn t/yr
Copyright © 2014 Argus Media Ltd. All rights reserved.
SK Lubricants
580,000 t/yr
Panjin Northern
Asphalt
400,000 t/yr
Sinopec Yanshan
240,000 t/yr
S-Oil
150,000 t/yr
Shell/Hyundai
Oilbank
650,000 t/yr
Adnoc
600,000 t/yr
SK/Repsol
630,000 t/yr
Chevron
1.25mn t/yr
Lwart
150,000 t/yr
Tatneft
200,000 t/yr
illuminating the markets
Base oil margins face sustained pressure
Copyright © 2014 Argus Media Ltd. All rights reserved.
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13
Europe SN 150 vs VGO ($/t)
US N100 vs VGO ($/USG)
2012 peak: $630/t
2013 peak: $350/t
With regards to base oils, the same
thing is happening in Europe.
“It’s important to keep inmind
that European base oil consumption is
relatively flat in a saturatedmarket…
and everywhere European refiners
turned to [export] outlets, they saw
American competition.”
For example, Turkish imports have
been uniformly negative since 2012,
except for a short blip inmid-2012.
“Not only is overall demand for
imported base oils falling, but Russian
exports also increased by 50%. Not
surprisingly, margins were under
pressure all year.”
Margin pressures are likely to con-
tinue for European refiners, she says.
She foresees an increase in premium
quality base oils coming into Europe
through the end of 2014.
“Capacity for base oils in 2014 is
expected to rise by 3.5 million tons
per year. That’s more oil that needs to
find a home somewhere in the world,”
says George.
The U.S. alone is projected to have
a surplus of 25 million barrels in 2014.
Competition will rise for key
destinations, such as Brazil, Mexico
and Indonesia, where lubricant
consumption is growing due to
rising car ownership.
Thus, she predicts that base oil
margins will continue to be under
pressure as the base oil trade wars
intensify.
“European SN150 versus gas
oil, both of them are USD300 per
ton below their peak in 2013. In
2014, this could hit an even smaller
number.”
illumin tin the ma kets
Capacity in 2014 to rise by more than 3.5mn t/yr
Copyright © 2014 Argus Media Ltd. All rights reserved.
SK Lubricants
580,000 t/yr
Panjin Northern
Asphalt
400,000 t/yr
Sinopec Yanshan
240,000 t/yr
S-Oil
150,000 t/yr
Shell/Hyundai
Oilbank
650,000 t/yr
Adnoc
600,000 t/yr
SK/Repsol
630,000 t/yr
Chevron
1.25mn t/yr
Lwart
150,000 t/yr
Tatneft
200,000 t/yr
