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In response to the Group I surplus in the region, over the course of the last decade, a number of Group I plants have closed. Prominent closures in the past have included BP Coryton (United Kingdom), CEPSA Huelva (Spain), Shell Grassbrook (Germany), and Petroplus Petit Couronne (France). Essar, which acquired the Stanlow (United Kingdom) base oil plant from Shell in 2011, announced its closure in 2013. FortInvest, which operated a Group I base oil plant in Orsk (Russia), shut it down in 2013. Another closure occurred in the Ukraine, where Ukrtatfnafta’s Group I plant shut down in 2013. In 2014, Colas Dunkirk (France) and Lukoil Nizhny Novgorod (Russia) announced the closure of its API Group I plants during the first quarter of 2015. Shell Pernis (Netherlands) announced its shutdown in 2014, but stopped Group I production only in November 2015 in order to create a buffer period for its customers. KPI Rotterdam sold its refinery to Gunvor Group, who decided to cease baseoil production during the first half of 2016. Furthermore, the Group I plant at the Harburg refinery, acquired by Nynas from Shell, started conversion in 2015 to produce naphthenic basestocks and ceased its paraffinic stream. Total decided to stop one of its two lube trains at Gonfreville in 2015, resulting in a 50% Group I capacity reduction.


During the next 10 years, API Group II/III supply additions could transform Europe from a net importer of premium basestock to a net exporter. API Group II basestocks will represent the most significant addition in volume terms, with ExxonMobil’s plant at Rotterdam the largest in the region. Rosneft’s Novo-Kuibyshev would be the second largest, also adding API Group II basestock supply. Further pressure on API Group I refinery rationalization is expected. Some API Group I producers are expanding in the area on non-lubrication applications, such as process oils and waxes to improve margins.


While the basestock supply is likely to exceed demand over the next 10 years, the basestock business will gradually become more localized due to improved logistics costs and customer intimacy. European blenders are welcoming new blending options and many independent blenders already started experimenting with API Group II/II+ formulations. Europe will continue to export high-value finished lubricants, but blended with European-sourced basestocks.


So far, the European Union (EU) economic recovery has positively affected the new vehicle market, recording similar pre-crisis level sales. Being a net importer of crude oil, the EU has also experienced better growth due to declining prices. However, the Commonwealth of Independent States (CIS) offset by the Russian economic distress cancelled some of the growth reported in the EU, resulting in a sluggish performance in Europe overall.


European OEMs continue to adhere with the stringent emissions. The average emissions level of a new car sold in 2014 was 123.4 g CO2/km (provisional estimates by the European Commission), below the 2015 CO2 target. For vans, the mandatory target is 175 g CO2/Km by 2017 and 147 g by 2020, very likely to comply before the deadlines.


For the PCMO application, the vehicle parc renewal combined with fuel economy and emission standards will shift demand from higher viscosity oils like 10W-30/40, 15W-40/50, and 20Ws to lower viscosity oils, such as 5W-20/30 and 0W-20/30. In 2015, the share of 5Ws was close to 40% of the total European PCMO demand, which is expected to climb up to close to 50% by 2025. Over the same period, 0Ws will advance from the current 6% of the total demand to more than double.


HDMO products will move much slower from higher viscosity grades, such as monogrades, 15W-40, and others to lower viscosity grades like 10W-30/40 and 5W-30. In 2015, the share of 10Ws was 25% of the total European HDMO demand. This is expected to exceed 30% of the demand by 2025. The demand for 10W-40 might accelerate further considering that many European OEMs prefer low SAPS 10W-40 rather than moving to lower viscosity grades that might affect engine wear.


API Group I basestock closures in Europe seem to have eased because of a growing number used cars on road in non-OECD countries that command API Group I blended lubricants. API Group II/III blended lubricants will grow together with the vehicle parc renewal throughout Europe. The substitution of API Group I basestock with higher quality material comes primarily in the transportation sector where better oxidation stability, lower SAPS, lower volatility and higher viscosity index are essential. In industrial applications, API Group I will hold its dominant position based on heavy grades, brightstocks, process oils, and waxes. Nevertheless, premium basestock formulations have penetrated some key industrial applications, such as natural gas engine oil, turbine oil and hydraulic oil, which were traditionally API Group I only.


Some European blenders are anxious to switch from API Group I and/or API Group III/IV formulations, which was traditionally available in Europe, with API Group II/II+ formulations because of the supply security and over reliance on one or two providers. Change might happen once more premium basestock plants come on-stream.


Uncertain economic growth will continue in Europe. The start of 2016 was marked by a tumbling global stock market and rising currency volatility. These setbacks undermined private investment throughout the year. The growth outlook seems to subside following the slowdown of some of the emerging markets, the Brexit, and the EU-Russia economic and political ties. Emerging markets are key export markets for West European countries and their slowdown will dampen industrial output. The Brexit will cause further money market volatility and economic uncertainly within the EU. Lastly, EU-Russia political ties could jeopardize EU’s energy security.


Gabriel Tarle Senior Analyst at Kline’s Energy Practice


LINK www.klinegroup.com/reports/global_ lubricant_basestocks.asp


LUBE MAGAZINE NO.137 FEBRUARY 2017


39


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