13
FUELS & LUBES INTERNATIONAL
Quarter Four 2014
Asmoreoriginalequip-
ment manufacturers (OEMs)
offer their products globally and
lubricant specifications move to
more global platforms, lubricant
demand has become less segment-
ed into regions than previously.
This phenomenon is driving
Chevron Corp. to offer its base oil
product globally, as well.
In July, the company’s newly ex-
panded base oil refinery in Pascagou-
la, Miss., USA, went into commercial
production. Its capacity has been ex-
panded from 25,000 to 50,000 barrels
per day (bpd), making Chevron the
world’s largest producer of premium
base oils with its three plants, the
other two being in Richmond, Calif.,
USA, and a joint-venture plant with
GS Caltex in Yeosu, South Korea.
As part of the Pascagoula Base Oil
Project, 16 new tanks were added, and
a newmarina berth was built. Con-
struction began in January 2011 and
reached its final stages by early 2014.
Like the Richmond plant, Pasca-
goula produces only Group II, which
is, along with Group III, often termed
“premium” or “high-performing” by
the industry.
Brent Lok, manager of base oil
marketing and business develop-
ment at Chevron Corp., shared some
insights on the company’s decision to
expand Pascagoula.
Group I, along with its valuable
bright stocks, has already begun dis-
appearing from the supply chain, Lok
said. As a result, Group I bright stock
prices have nearly tripled between
2000 and 2010. Demand has moved
elsewhere, said Lok.
“High-performing, premium base
oil demand is growing at the expense
of conventional [Group I] base oil,”
he said.
Inmany parts of the world, auto-
motive engine oil specifications are
tightening to the point that formula-
tions blended with Group I will no
longer be acceptable.
Most base oil suppliers work more
regionally, whichmakes Chevron “re-
ally the only global Group II supplier,”
he said.
Chevron, he said, expanded
Pascagoula with the specific goal of
producing the same base oil it had
been producing, in a greater capacity,
to grow supply availability for its
customers.
The plant will mostly serve the
eastern United States, Europe and
Latin America. Because of Pascagou-
la’s location along the Gulf of Mexico,
these are the most geographically
logical.
In addition to the Richmond refin-
ery, which produces 20,700 bpd of
premium base oil, its share in the joint
venture plant provides an additional
13,000 bpd. According to Lok, both
of these locations were at capacity and
the new Pascagoula plant may “free
up a few barrels in Richmond.”
While the Richmond plant will
not likely be expanded, he said that
the Pascagoula plant could undergo
some additional expansions in the
next few years.
Over the last decade, demand for
Group I base oil has been declining,
to the benefit of Group II and III base
oil producers. Pascagoula is the first
major base oil expansion in North
America since the Motiva plant in
Port Arthur, Texas, with a capacity of
39,000 bpd, was expanded in 2006.
Group II has begun to replace
Group I “in historical Group I ap-
plications due to better pricing and
complexity reduction,” said Lok.
Additionally, there is an “overlap in
viscosity grade between Group II and
Group I.” For these reasons, plants no
longer need to keep both groups in
inventory.
Group III, on the other hand, can-
not be substituted for Group I except
inminor applications, so this is a part
of the market that is really opening up
for Group II. The Europeanmarket
has seen the shutdown of several
Group I refineries. Likewise in Asia,
several Group I refineries have been
shuttered or converted to Group II
and/or III refineries.
Most of the newGroup II and
III base oil capacity has been built in
Asia over the last two decades, where
demand is strongest.
“Demand growth is an uneven
picture,” said Lok. A country’s
industrial activity, as measured by its
gross domestic product (GDP), is the
true driver of lubricant demand, he
explained. China and India, with their
huge and growing populations, are
currently at the forefront of lubricant
demand, he added.
“Europe’s lubricant demand is
actually on the decline,” he said, “and
the U.S. is pretty flat, too.” Lok also
said that “ILSAC and the equivalent
API quality levels are the preferred
specifications in the world outside Eu-
rope.” North American and Japanese
OEMs are driving the ILSAC activity/
specification.
The drive for greater fuel efficiency
will mean a shift toward ultra-low
viscosity oils in the future. In North
America, new passenger car and
heavy-duty engine oil categories,
ILSACGF-6 and PC-11, respectively,
are set to be licensed in 2017 and
will require the use of premium base
oils, mostly Group III in the case of
passenger car motor oil (PCMO).
These advancements could translate
into lower base oil demand due to
extended oil drain intervals that are
also being required by OEMs.
“Even as ILSACmoves to ILSAC
GF-6, there is more Group II than
Group III in the largest volume 5W-
30 and 5W-20 grades of PCMO,” Lok
said. Group II oils will only fade out of
PCMO as the industry transitions to
0W-20 viscosity grades, he said.
While the PCMOmarket will
move toward Group III, Lok said,
“That will take decades to happen.”
Group II will not be leaving the
heavy-duty or industrial sectors any
time soon, as Group III is never or
rarely used there. The bottom line
for Chevron, said Lok, is that “Group
II demand is growing at very robust
rates and will become the dominant
base oil for lubricant blending for
many decades to come.”
