ILMA Compoundings May 2018 - 20

INDUSTRY RUNDOWN

Market Report
Group III Base Oils Define 2018's First Quarter
ICIS World Base Oil Conference highlights
By Judith Taylor
Group III base oils defined the first quarter of 2018,
surprising almost no one and underscoring what has
been discussed for several years: New engines and
regulations require more use of Group III base stocks.
Group II and II+ continue to form the backbone of the
premium base oils in use for passenger car motor oils
(PCMOs), but Group III is no longer just an elegant
co-star. Group III is on stage and very busy in the first
quarter of this year.
Leading up to the brisk pace of early 2018, PetroCanada
entered its posted prices into the market in October 2017,
coming out in Group II, II+ and Group III tiers alongside
Phillips 66 and SK Lubricants. Motiva surprised at the ICIS
Pan American conference in December 2017 by formally
announcing that it is producing and marketing Group II
base oils and would post its prices for Group III in 2018.
The company followed through with this and entered posted
prices to the market in January. Group III base oils imported
by Abu Dhabi National Oil Co. (ADNOC) were already
present in the U.S.
One or two other groups are either already bringing in
dedicated volumes of Group III or are quietly producing
small volumes of Group III and working out quality and
certification issues. But there is no doubt that Group III
volumes in the U.S. market have increased, driven by the
need to incorporate the Group III base oils into the PCMO
sector in order to remain on pace for performance needs this
year and going forward.
Adding to the mix, Phillips 66 announced changes in
conjunction with Flint Hills Resources (FHR) that will
move the overall base oil complex into an ExcelParalubes
entity at some point in 2018. About the time the market was absorbing these structural changes, posted price

MAY 2018

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ICIS WORLD BASE OIL CONFERENCE HIGHLIGHTS

More than 600 global base oil market participants attended
the 22nd ICIS World Base Oil Conference in London in February 2018. In a conference seminar, Geete Agashe, president
of Geeta Agashe & Associates consultancy, pointed out that
while the base oil market expected supply to be long in 2017,
a host of issues caused "every base oil molecule, including
Group II and Group III, [to get] taken up by the marketplace."
Agashe said global base oil market participants must prepare
in case another "perfect storm" takes place. The "perfect
storm" of 2017 that Agashe described included an estimated
1 million tons of capacity going offline when plants such as
Shell's Pearl gas-to-liquids (GTL) facility in Qatar went down
and Hurricane Harvey wreaked havoc along the U.S. Gulf
Coast production region.
A key initiative was announced just ahead of the conference
by ExxonMobil, as the company said it is expanding its global
slate of base stocks with the introduction of a heavy-neutral
Group II base stock. Production of the grade will take place at
ExxonMobil's Rotterdam refinery in the Netherlands following
completion of the hydrocracker expansion at that site. That
completion is on track to start up in the fourth quarter of 2018.
Full commercialization of the heavy grade in Europe, Africa
and the Middle East is scheduled for the first quarter of 2019.
The Rotterdam refinery will have the first large-scale Group II
base oil production in Europe. Additionally, ExxonMobil will also
have the capability to produce the heavy-neutral Group II grade
at its Baytown, Texas, refinery, with commercial availability from
that location expected in 2019.

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ILMA Compoundings May 2018

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