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The Changing Role of Basestocks in the Lubricants Industry


Lubricant basestocks account for 80% to close to 100% of a finished lubricant. As a result they play a very important role in the strategy of a finished lubricant business from the point of view of product technology, performance of the finished lubricant and market positioning, and logistics of blending and marketing the finished product in different parts of the world. However with changes in basestock supply, its role in the lubricants industry is changing.


Historical perspective In 2004, API Group I basestocks accounted for over 70% of the supply and Group III accounted for under 5%. With some exceptions, major global lubricant marketers produced at least a portion of their basestock requirement in-house. Some majors produce basestocks far in excess of their in-house blending requirement making them significant merchant marketers. The only exception was BP which did not have in-house production of basestocks despite being the third largest lubricant marketer in the world and a major


supplier of high performance lubricants. Having an in-house supply of basestocks, especially Group II/II+, Group III, and Group IV was a source of competitive advantage. Independent lubricant blenders could not produce lubricant basestocks in-house due to the size of the investment. Given that supply of high performance basestocks was limited, the size of high performance synthetic lubricant business that independents could support was limited. Consequently, the majors were the key suppliers of high performance synthetic lubricants as well as factory fill. This gave the majors a ringside seat on engine oil technology development.


In this environment of restricted supply of high performance basestocks, lubricant formulations optimized the use of these basestocks. Net additive treat cost (NATC) was a key parameter to determine the share of Group III in a formulation and the impact this had on the use of viscosity index improvers. It is on this background that in January 2004, the Independent Lubricant Manufacturers Association (ILMA) wrote to the ILSAC/


OIL committee expressing their concern on the availability of Group II basestocks to blend passenger car motor oils (PCMO) meeting the then draft ILSAC GF-4 specification1 today.


. Such concerns seem quaint


Ballooning basestock surplus Driven by expectations of strong lubricant demand growth and increased penetration of high performance lubricants investments in new basestock plants were made starting 2004. Between 2004 and 2014, the global supply of API Group I, II, III, IV, and naphthenic basestocks grew by nearly 1% per year. Until about 2008, capacity and demand grew in tandem. In 2008 global finished lubricant demand declined by 4% and by a further 9% in 2009. Since then lubricant demand has recovered but still lags the pre-recession trend line. Meanwhile basestock supply continued to grow with capacity additions planned during the pre-recession period coming on stream. Plant closures in response to this situation have been slow. This has led to a ballooning surplus in the basestocks market.


1


See https://www.ilma.org/advocacy/letters/ilmaletterto_bob_olree_jan604.pdf Source: Kline & Company


* - Excludes Group IV and V basestocks


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LUBE MAGAZINE NO.131 FEBRUARY 2016


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