ILMA Compoundings January 2017 - 12

INDUSTRY RUNDOWN

Market Report
First Half of 2017 Shaping Up Differently
than First Half of 2016 for Base Oils
By Judith Taylor

T

he first half of 2017 is shaping up differently than what
the base oil industry faced in the first half of 2016, with
changing challenges topping the list of differences.
This is similar to many U.S. industries, as the burden of
increased regulation presses upon the overall face of America's
business communities.
Base oils form the leading edge of a significant downstream commercial sector: the lubricants that keep America's machinery and
vehicles operating. When viewing only the base stocks, one level of
complexity can be seen. But when viewed in the broader context
of what the base stocks are called upon to provide to the lubricants
industry going forward, the complexity is today widely increased
and affected by a number of changes that were still emerging at the
beginning of 2016.
The year 2016 might be tagged as a "place-holder" year. This is
because a number of the issues that will become effective in 2017
were known about before 2016. Preparations to meet these began
before 2016. It was well known that changes in motor oils and engine performance requirements were on the way. But 2016 ushered
in reality checks, and the industry began to brace for finalizing plans
and bringing new formulations into full-blown commercial output.
It seems to come down to the business of getting it all done
in 2017. So, 2016 was a busy prep-and-finish year. Many of the
changes conceived and planned several years ago will enter the
mainstream in 2017.

START WITH BASE OIL VISCOSITY.
The shift to low-vis base stocks did not begin in 2016, but it became a prevailing factor that year. A punctuation point can be put
on this shift by the commercial start-up of Chevron's Pascagoula
Base Oil Plant (PBOP) in August 2014.
The trend pushing Group II base oils to surpass Group I as
the prevalent base stocks in the U.S. market began well before
PBOP. PBOP sealed it.

12

JANUARY 2017

| COMPOUNDINGS | ILMA.ORG

Whatever the status on Group II base stocks was before
PBOP, it has changed. Group II now dominates U.S. production, as the addition of PBOP's 25,000 bbl/day of hydroprocessed viscosity base oils put U.S. Gulf Coast production
capacity at about 274,000 bbl/day of premium base stocks and
made the area a key exporting region.
Today, Group II base stocks are often referred to as "work-horse"
base oils, capable of fulfilling the needs of about 97 percent of
today's engines, according to many sources.
Regulations continue to strengthen and are pushing the industry
toward increased goals for emissions control and engine performance, forcing the base oil and lubricants industries toward the
even lower viscosity base stocks.
With 2017, the commercial advent of these regulations is upon
the industry. Formulations necessary to meet the new stipulations
are now increasing use of Group III, poly alpha olefins (PAOs)
and synthetics. Beginning with 2017, these base stocks are
becoming a greater, more immediately integral, part of motor oil
and lubricant solutions.

THE CRUDE OIL OUTLOOK HEADING INTO
2017 IS ANOTHER DIFFERENCE FROM WHAT
THE BASE OIL INDUSTRY ENCOUNTERED
DURING THE FIRST HALF OF 2016.
According to the Energy Information Administration (EIA), oversupplied global crude oil and petroleum products markets began in
late 2014 and resulted in large global inventory builds. Commercial inventories grew in 2015 and continued to grow in 2016.
The ICIS graph at right shows the slide that crude oil prices
took from about mid-2015 to about the middle of the first
quarter of 2016. Tracking both West Texas Intermediate (WTI)
and Louisiana Light Sweet (LLS), the precipitous fall took
crude oil prices below $30/bbl and put the Americas base oil
sector on edge.


http://www.ILMA.ORG

ILMA Compoundings January 2017

Table of Contents for the Digital Edition of ILMA Compoundings January 2017

Letter from the CEO
Inside ILMA
What's Coming Up
Industry Rundown: International Insight
Industry Rundown: Market Report
Industry Rundown: Perspective
Industry Rundown: In the Know
Beth Ann Jones & ILMA: A Family Matter
Squeaky Wheels
Infineum Perspective
Business Hub
Counsel Compound
Washington Landscape
State of the States
In Network: Member Connections
In Network: Cross Connections
Portrait
ILMA Compoundings January 2017 - Cover1
ILMA Compoundings January 2017 - Cover2
ILMA Compoundings January 2017 - 1
ILMA Compoundings January 2017 - 2
ILMA Compoundings January 2017 - Letter from the CEO
ILMA Compoundings January 2017 - Inside ILMA
ILMA Compoundings January 2017 - 5
ILMA Compoundings January 2017 - What's Coming Up
ILMA Compoundings January 2017 - 7
ILMA Compoundings January 2017 - Industry Rundown: International Insight
ILMA Compoundings January 2017 - 9
ILMA Compoundings January 2017 - 10
ILMA Compoundings January 2017 - 11
ILMA Compoundings January 2017 - Industry Rundown: Market Report
ILMA Compoundings January 2017 - 13
ILMA Compoundings January 2017 - Industry Rundown: Perspective
ILMA Compoundings January 2017 - Industry Rundown: In the Know
ILMA Compoundings January 2017 - Beth Ann Jones & ILMA: A Family Matter
ILMA Compoundings January 2017 - 17
ILMA Compoundings January 2017 - 18
ILMA Compoundings January 2017 - 19
ILMA Compoundings January 2017 - 20
ILMA Compoundings January 2017 - 21
ILMA Compoundings January 2017 - 22
ILMA Compoundings January 2017 - 23
ILMA Compoundings January 2017 - Squeaky Wheels
ILMA Compoundings January 2017 - 25
ILMA Compoundings January 2017 - 26
ILMA Compoundings January 2017 - 27
ILMA Compoundings January 2017 - Infineum Perspective
ILMA Compoundings January 2017 - 29
ILMA Compoundings January 2017 - 30
ILMA Compoundings January 2017 - 31
ILMA Compoundings January 2017 - Business Hub
ILMA Compoundings January 2017 - 33
ILMA Compoundings January 2017 - 34
ILMA Compoundings January 2017 - 35
ILMA Compoundings January 2017 - Counsel Compound
ILMA Compoundings January 2017 - 37
ILMA Compoundings January 2017 - 38
ILMA Compoundings January 2017 - Washington Landscape
ILMA Compoundings January 2017 - State of the States
ILMA Compoundings January 2017 - 41
ILMA Compoundings January 2017 - In Network: Member Connections
ILMA Compoundings January 2017 - 43
ILMA Compoundings January 2017 - In Network: Cross Connections
ILMA Compoundings January 2017 - 45
ILMA Compoundings January 2017 - 46
ILMA Compoundings January 2017 - 47
ILMA Compoundings January 2017 - Portrait
ILMA Compoundings January 2017 - Cover3
ILMA Compoundings January 2017 - Cover4
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