Slide 1 BASE STOCKS. We now explore how the demand for high quality lubricants is affecting the global base stock market.

Transcription

1 Slide 1 BASE STOCKS We now explore how the demand for high quality lubricants is affecting the global base stock market.

2 Thousands of Barrels per Day Slide Additions Group I Shutdowns Source: Kline Capacity utilization expected to remain low in the next 10 years From 2011 to 2017, base oil capacity additions will outpace Group I rationalizations, while global lubricant consumption remains flat at 38 million mega tones per year. The base oil market is expected to remain long in coming years, with low plant utilization rates and Group I plants having the lowest at <70%.

3 Slide 3 Miguel de Angel CEPSA Base Oils Manager Joe Rousmaniere Chemlube International Business Development Manager Virpi Amoedo Neste Oil Vice President, Base Oil Sharing their insights on the supply and demand for base stocks, we are joined by Miguel de Angel, Base oils Manager of CEPSA; Joe Rousmaniere, Business Development Manager of Chemlube International; and Virpi Amoedo, Vice President of Base Oils for Neste Oil. Miguel de Angel: In Cepsa s view we think that large scale Group I producers have lower costs than the smaller ones. But in 2017 with 10 million tons of surplus, we think that they will have to reduce even more their tonnage to the market. Joe Rousmaniere: The United States market is already fully saturated with Group 2. You know, we already export more than 40% of our base oil production, and that doesn t take into account the new Pascagoula production and the Exxon production going on. Virpi Amoedo: Generally speaking, supply of Group III exceeds the demand today, but we see a very strong trend in the industry. OEMs and formulators are driving the growth in order to meet requirements for fuel economy, durability, and also cost effectiveness. And it s very important to notice that the Group III market is tiered to approved and the non-approved products, and based on our analyses, the excess of supply is less in terms of approved Group III base oils.

4 Slide 4 George W. Arndt Jr. ExxonMobil Fuels, Lubricants & Specialties Marketing Company Manager, Global Base Stocks & Specialties Miguel de Angel CEPSA Base Oils Manager Although in steady decline, API Group I base stock still accounts for almost half of the overall base oil supply. George W. Arndt, Jr., Global Manager for Base Stocks of ExxonMobil, sees a good future for their Group I plants. Then, Miguel de Angel will return, to offer a view of how Group I plants may need to adapt to survive. George W. Arndt: We have the largest lubricant base stock refinery system in the world, and, while we continue to evolve that network, our Group I base stock plants are among the largest and most efficient in the industry. We expect our Group 1 plants to continue to serve our customers needs for years to come. Miguel de Angel: It is confirmed the closure of the Group I base oil plant at Pernis and other plants of Group I will be closing as well, because some producers have given notice to customers in this sense. The side products are very important, and they have become today specialty products like paraffin wax and extracts, because they add value versus the vacuum gas oil, even more, in some cases, than base oils. Of course Marine will be one of the most important applications since the specifications and performance of Group I are ideal for such use. The small plants of Group I base oils in Europe will be in difficulties overall if they depend on base oil sales.

5 Slide 5 George W. Arndt Jr. ExxonMobil Fuels, Lubricants & Specialties Marketing Company Manager, Global Base Stocks & Specialties Although North America and Asia account for about 98% of Group II and II+ supply today, we still see capacity introductions across the globe. ExxonMobil s George Arndt confirms their plans for further capacity investment and how ExxonMobil is adapting to meet the needs of their customers looking for advanced solutions. George Arndt: Our goal is to ensure we have the right products when and where they are needed to enable growth. Therefore, we re increasing production capabilities of Group II base stocks at our Baytown, Texas and Singapore refineries this year. And, as recently announced, ExxonMobil plans production of Group II base stocks at the Rotterdam Refinery in Europe. This investment will be subject to receipt of appropriate permits from authorities, shareholder funding and final approval by the Board of Esso Nederland BV. Construction would begin in 2016 with production scheduled to begin in Over the past decade or so, Group II in particular is playing an ever-increasing role in helping formulators cost effectively meet growing lubricant performance requirements. We understand the increasing importance of working closely with our customers to design solutions that strategically help advance their businesses. For example, at our Baytown refinery, we have designed products, such as EHC 65 and our new EHC 45 Group II+ to meet heart of market requirements.

6 Slide 6 Virpi Amoedo Neste Oil Vice President, Base Oil Joe Rousmaniere Chemlube International Business Development Manager Virpi Amoedo of Neste Oil offers her perspective on the regional growth rate of Group III, and shares thoughts on how it takes more than the current API Group III definition to develop meaningful BOI guidelines. Then, Joe Rousmaniere shares some thoughts on Group III supply and how Group III Plus may help with the tight supply of low viscosity PAO. Virpi Amoedo: Group III demand continues to grow globally; however, now we see differences between the regions. European and US markets continue to grow, but at a lower pace than in the past. And on the other hand, demand in Asia, particularly in China, continues to grow very strongly in terms of technical demand for Group III s. Viscosity index is not the only driver for selecting base oil, as it does not characterize the performance in the engine. Rather, low temperature properties and NOACK volatility should be the drivers. However, it s always the combination of the characteristics, and Group III base oils offer a great compromise between the properties and cost effectiveness. Joe Rousmaniere: How long before the technical demand catches up with Group III? It s going to take a good long time because the markets of China and India and Africa and South America, they have a long way to develop to absorb all of that Group III, but remember, not all Group III s are alike. In the higher performance Group III s, we call them Group III Plus, they re not in over-supply. Group III Plus products compete for the space in low viscosity PAO, and right now, low viscosity PAO are in short supply and the prices are really high. If the Group III Plus oils can compete into that space, there s no over-supply; in fact, you could make an argument that it s undersupplied.

7 Slide 7 Selda Gunsel Shell Vice President of Global Commercial Technology High investment costs and market uncertainty have stalled investments in new GTL plants. Shell halted its plans for a GTL plant in Louisiana, while Sasol delayed its 14 billion dollar GTL project, which was supposed to start production in Despite these investment setbacks, Shell s Selda Gunsel explains how Shell is leveraging GTL base stocks to produce top tier oils. Selda Gunsel: GTL base oil technology enables us to develop premium products in both transport and industrial applications. For example, in engine oils we ve been able to do many exciting things including the development of low viscosity such as 0W-16 engine oils. Leveraging GTL technology, we are able to develop engine oils with enhanced viscosity control, reduced oil consumption, improved oxidation and deposit control, better engine protection, and fuel economy.

8 Slide 8 Brad Rinderknecht ExxonMobil Synthetics Global Marketing Manager US natural gas production is forecasted to grow in the coming years. Investments in smaller GTL operations are being considered but have to compete with more profitable uses such as power generation and exporting of natural gas. Still, Brad Rinderknecht of ExxonMobil Synthetics expects PAO to benefit from this shale gas expansion. Brad Rinderknecht: The good news, if you look at North America, the shale gas revolution that s been going on has attracted over 200 different projects that are adding up to about $100 billion worth of capital investment. A handful of those projects are full-range OAO units, so we re pretty confident that there will be additional decene made available to the industry to support PAO growth in the future.

9 Slide 9 Brad Rinderknecht ExxonMobil Synthetics Global Marketing Manager Emissions and fuel economy standards are driving the need for higher performance lubricants. Brad explains how this is driving demand for low viscosity PAO base stocks, despite a very tight market. Brad Rinderknecht: The trends that we re seeing in the auto industry, with increased fuel economy and reduced emissions, are causing additional strain and pressure on the lubricant formulation itself. So things like NOACK volatility, low viscosity capabilities, oxidative stability, cold temperature performance; all those requirements are being placed onto the lubricant and at that point, PAO becomes technically required to be able to support some of those lubricant formulations. The market for PAOs has tightened in the last couple of years. If you look at the growth of PAO we see that between 3 to 4% per year. And if you look at the last low viscosity grass roots PAO facility that was built, it was back in the 1990 s, so it s been quite a while since a new facility has been brought on-stream. We ve got a long history of investing for this industry, 50 years at this point in time, and in fact, just last year we brought on-stream our 50 KT high viscosity metallocene facility in Baytown, Texas, and we re putting the finishing touches on our new Group 5 facility in Baton Rouge, Louisiana.

10 Slide 10 Joe Rousmaniere Chemlube International Business Development Manager Green oils are experiencing difficult times in an oversupplied market as explained by Joe Rousmaniere. Joe Rousmaniere: It is in everybody s interest to encourage and support efforts to properly handle waste oils. And it s been proven that the best way to handle waste oils is to turn them into new base oils. And in the last few years, the re-refining industry has done great work and they ve developed techniques that now make waste oils into virgin Group 2 quality base oils. It s perhaps unfortunate for them that at the same time there s been this vast new flood of Group 2 virgin base oils coming in the market in the United States and Korea and elsewhere.

11 Slide 11 Virpi Amoedo Neste Oil Vice President, Base Oil Customer education, investment in infrastructure, tax incentives, and a strong regulatory push, are likely needed to help these green-oils become more mainstream. Still, a number of base stock suppliers recognize the benefits of biobased base stocks, such as NESTE Oil. Virpi Amoedo: We recognize an appetite in the industry for a top quality renewable base oil, which can be an alternative for polyethylene in the future. As NESTE Oil is a leading supplier of renewable diesel, based on proprietary technology, renewable base oil is a natural, long-term research area for us.

12 Slide 12 Jeffrey Brown Novvi, LLC CEO Applications where lubricants may come into contact with workers or the environment, could present opportunities for bio lubricants. However, for the foreseeable future, we do not expect these products to be more than a niche application in the transportation sector. Although, as Jeff Brown from Novvi explains significant progress is being made. Jeffrey Brown: Our base oils are classified as an API Group III. This allows us to drop into the existing infrastructure, from additive technology, use at a blend plant, and finished lubricant applications. You couple that performance with the environmental benefit we drive around renewability, biodegradability, and toxicity, we bring a very unique value and performance, differentiation, as unique in the marketplace. Biobased stocks have definitely historically had issues meeting API ILSAC classifications. We took a top tier off the shelf, API GF-5 ILSAC SN additive package, and we passed once they were using our base oils as the sole base stock in the formulation. So it is certainly achievable and a differentiation in chemistry and performance of our base oil can be seen in reaching the certification.

13 Slide 13 Base stock proliferation brings complexity More base stocks may need approval in industry and OEM specs The need for base oil interchange rules is clear the path to get there is not A new level of complexity is being added, by the increased number and types of higher quality base stocks, which will need approvals in the latest industry and OEM specifications. The development of new base oil interchange and viscosity grade read across guidelines will be a significant challenge.

14 Slide 14 Virpi Amoedo Neste Oil Vice President, Base Oil Joe Rousmaniere Chemlube International Business Development Manager Bruce Royan Infineum UK Ltd Lubricants Technology Manager Virpi Amoedo and Joe Rousmaniere share producer s perspectives on Group III BOI guideline development. Bruce Royan, Infineum Lubricants Technology Manager, explains Infineum s view on BOI and the risks of not having new guidelines. Virpi Amoedo: Base oil interchangeability should be based on facts and transparency so that OEMs can be convinced that the certain quality level is maintained. In NESTE Oil s view, Group III industry does not yet have the fact base that would support base oil s interchangeability. Joe Rousmaniere: The industry s already under tremendous stress because we ve got the testing, the cost, the money of GF-6, we ve got PC-11, we ve got many different OEM standards coming up. And if we put on top of that the restructuring of BOI to cover Group III s and Group III Pluses, that s an awful lot to ask, and I think it s going to take years and years to do that. Bruce Royan: Infineum supports the existence of base oil interchange and viscosity grade read-across guidelines. However, from our perspective, it is very important that the guidelines are appropriately developed and carefully thought through. If they do not exist, it will be challenging for mainstream technologies to have the base stock and viscosity grade coverage that customers have become accustomed to with previous generations of products.

15 Slide 15 Base stock proliferation brings complexity More base stocks may need approval in industry and OEM specs Balance of PAO, Group II/II+ and III/III+ base oils in formulations varies depending on required outcomes Performance specifications Fuel economy performance Cost effective and supply reliable solutions are required Complexity in the global base stocks market will continue Virpi Amoedo and Joe Rousmaniere share producer s perspectives on Group III BOI guideline development. Bruce Royan, Infineum Lubricants Technology Manager, explains Infineum s view on BOI and the risks of not having new guidelines.