ILMA Compoundings - July 2020 - 17

Impact of COVID-19 on Global Basestock Supply Under
No Change in Capacity, 2020

Estimated Decline in Global Lubricant Basestocks
Demand Due to COVID-19 Containment Efforts, 2020
40

80

100%

25
20
15
10

80%

60

60%
40
40%
20

20%

5
0

2018

2019

2020-a
Likely demand

2020-b
Demand loss

a - Represents 15% drop in lubricant demand
b - Represents 30% drop in lubricant demand; excludes non-lubricant demand

demand loss in 2020. The loss in Group III/III+ is expected
to be around 0.7 million to 1.4 million metric tons, while
the balance would be accounted for by Group IV and
Group V (including naphthenic) basestocks.
IMPACT ON BASESTOCK SUPPLY
The outbreak of COVID-19 has the potential to reduce
basestock supply in several ways:
*	 Basestock producers adjust their supply to match the
declining basestock demand. This can either happen in
the form of reduced run rates for basestock plants or
the temporary/permanent shutdown of operations.
*	 Some basestock producers may use this time to do a
maintenance turnaround.
*	 Crude oil refineries will run at a lower rate as demand
for fuel will decline. This invariably will result in constrained availability of feedstocks to run basestock units.
In response to a decline in demand of 5 million to 10
million metric tons, there will clearly have to be an impact
on basestock supply. From preliminary estimates, the global
basestock production in 2019 was around 40 million
metric tons, representing an average effective operating
rate of approximately 77%-78% (calculated as a fraction
of effective capacity after taking into account planned
and unplanned outages). If the basestock availability were
to drop by 5 million metric tons to match the reduction
in demand, the global average operating rate would be
reduced to under 70%. Clearly, basestock margins will suffer
tremendously at such a steep reduction in operating rates.
Therefore, it is anticipated that to adjust basestock availability, both effective capacity and average operating rates will
have to drop.
Such changes in basestock supply can potentially alter the
basestock landscape permanently. For instance, basestock
supply disruption in Europe will reduce Group I availability,
motivating blenders in Europe and Africa and the Middle
East to search for alternatives - most likely Group II.

0

2019
Nameplate capacity

2020-a
Effective capacity

2020-b
Production

Capacity

a - Represents 15% drop in lubricant demand
b - Represents 30% drop in lubricant demand; excludes nonlubricant demand

Such formulation shifts are permanent because of the cost
associated with the shift.
An inevitable fallout of the current turmoil will be the
deferring or shelving of planned basestock capacities. Such
plans have been impacted by a double whammy of plummeting basestock demand and unfavorable economics arising
because of the decline in crude oil prices. In many instances,
basestock addition/expansion was a part of the overall refinery
expansion plans. In a low crude oil prices scenario, several of
these plans may have been rendered economically unviable.
Any plan which hasn't yet moved to the construction phase is
likely to be reevaluated. Around 3.5 million to 4 million metric tons of new basestock capacity was planned to be added
globally over the next five years. Of this, more than half is
in the planning stage. Thus, at least 2 million to 2.5 million
metric tons of new capacity plans may be deferred or canceled.
A LOOK AHEAD
A sharp decline in basestock demand is expected due to
COVID-19. The actual magnitude of this decline will depend
on the length and severity of the lockdown. While the decline
in demand will be first borne by Group III/III+, owing to
its higher usage of PCMO products, in a longer lockdown
situation, Group I demand will suffer the most; it will be
closely followed by Group II. This decline in demand will be
accompanied by a decline in availability of basestocks. The
supply disruptions could significantly alter trade positions for
various regions, and blenders in some regions could face availability issues. This could potentially alter blending preferences
and approaches followed in these regions as well. Because of
the global supply-demand situation, much of the new capacity plans could be put on hold until the market environment
improves. Further, the current market situation will result in
some of the excess basestocks capacity being retired.
Kumar is project manager, energy, at Kline Group and a
project manager for Kline's Global Lubricant Basestocks
study published in July 2020.

17

0

Operating rate

30

Million metric tons

Million metric tons

35



ILMA Compoundings - July 2020

Table of Contents for the Digital Edition of ILMA Compoundings - July 2020

ILMA Compoundings - July 2020 - Cover1
ILMA Compoundings - July 2020 - Cover2
ILMA Compoundings - July 2020 - 1
ILMA Compoundings - July 2020 - 2
ILMA Compoundings - July 2020 - 3
ILMA Compoundings - July 2020 - 4
ILMA Compoundings - July 2020 - 5
ILMA Compoundings - July 2020 - 6
ILMA Compoundings - July 2020 - 7
ILMA Compoundings - July 2020 - 8
ILMA Compoundings - July 2020 - 9
ILMA Compoundings - July 2020 - 10
ILMA Compoundings - July 2020 - 11
ILMA Compoundings - July 2020 - 12
ILMA Compoundings - July 2020 - 13
ILMA Compoundings - July 2020 - 14
ILMA Compoundings - July 2020 - 15
ILMA Compoundings - July 2020 - 16
ILMA Compoundings - July 2020 - 17
ILMA Compoundings - July 2020 - 18
ILMA Compoundings - July 2020 - 19
ILMA Compoundings - July 2020 - 20
ILMA Compoundings - July 2020 - 21
ILMA Compoundings - July 2020 - 22
ILMA Compoundings - July 2020 - 23
ILMA Compoundings - July 2020 - 24
ILMA Compoundings - July 2020 - 25
ILMA Compoundings - July 2020 - 26
ILMA Compoundings - July 2020 - 27
ILMA Compoundings - July 2020 - 28
ILMA Compoundings - July 2020 - 29
ILMA Compoundings - July 2020 - 30
ILMA Compoundings - July 2020 - 31
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ILMA Compoundings - July 2020 - 33
ILMA Compoundings - July 2020 - 34
ILMA Compoundings - July 2020 - 35
ILMA Compoundings - July 2020 - 36
ILMA Compoundings - July 2020 - 37
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ILMA Compoundings - July 2020 - 39
ILMA Compoundings - July 2020 - 40
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