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Kline report predicts more base oil refinery closures in the horizon

The burgeoning supply of high quality basestocks, which include Groups II and III and synthetics, continuess to create greater pressure on Group I basestock producers to exit the market in the face of stagnant overall demand. At the same time, more stringent emissions and fuel economy regulations in many parts of the world are resulting in demand for higher quality finished lubricants. These, in turn, are creating greater demand for higher quality basestocks.

Passenger car motor oil formulation changes are being driven by improvements in fuel economy, increasing engine oil durability and maintaining compatibility with emission control devices and biofuels.

According to Anuj Kumar, project manager in Kline’s Energy Practice, “The need to improve fuel economy continues to drive the use of lower-viscosity-grade oils. This trend, initially strong in North America and Western Europe, has started to catch on in other markets as well. To ensure that these low-viscosity oils continue to provide long drain intervals, they need to be made more durable, which results in more stringent NOACK limits.”

Kumar said he sees a shift towards the use of Group III basestocks in the passenger car motor oil market, primarily because of the more stringent NOACK volatility limits. In most markets, “Group III basestocks are often approved as they meet the standards required for synthetic formulations, shifting demand away from Group II towards Group III basestocks,” he said.

“The shift will continue to be accelerated by the growing use of synthetics and despite overall flat demand in finished lubricants, the real change will occur within the basestock types,” Kumar opined.

However, within the heavy-duty motor oil (HDMO) segment, demand is primarily shifting towards Group II basestocks, as this segment primarily requires a higher viscosity grade, SAE 15W-40, although there is a small but growing demand for lighter grades in North America and Western Europe, he said. “However, globally, the demand for these light viscosity grades is quite small. As a result, demand for light grades of basestocks is limited in the HDMO market.”

Within the industrial lubricant market, applications that require higher viscosity and greater solubility continue to use Group I basestocks.

The uncertain economic outlook has dampened finished lubricant demand growth, and hence basestocks growth, but the project pipeline for new basestock capacity remains strong, he said. This surplus capacity is creating pressure on high-cost basestock plants to rationalise, resulting in a series of Group I basestock plant closures in the last three years. The scenario of continued excess capacity, with a slower demand growth outlook, will cause more capacity rationalisations in the future, Kline said.

These findings and more are available in the recently published Global Lubricant Basestocks: Market Analysis and Opportunities report.

To learn more, you may register for Kline’s complimentary webinar on Wednesday, September 21, 2016 at 9:00 AM EDT.