China Remains Large Base Oil Importer
China is one of the world’s largest importers of base oils, and that looks unlikely to change as its finished lubricant market continues to grow. By 2021, base oil consumption in the country is forecast to exceed 8.8 million metric tons, up 11 percent from 2016, according to ICIS.
But it is not just about growth – the country’s market dynamics are shifting as a result of tightening emissions controls and China’s push into the electric vehicles segment. Those trends are raising demand for API Group II and III base stocks while demand for Group I shrinks.
So far, the trade spat with the United States has not had much economic impact on China, but analysts predict gross domestic product may ease. Izham Ahmad, markets editor at ICIS, told delegates at October’s Middle Eastern Base Oils & Lubricants Conference Oct. 16 that China continues to import large quantities of base oils from South Korea, Singapore and Taiwan. Between January and March this year they supplied more than 1.1 million tons and accounted for 77 percent of all imports, although imports from Singapore fell more than 19 percent year on year.
Imports from the United Arab Emirates and Qatar are also rising. Ahmad said China imported around 4 percent of its base oils from Qatar, site of the Pearl gas-to-liquid joint venture between Shell and Qatar petroleum which produces Group II and III base oils and is widely thought to supply Shell’s internal requirements.
“As far as we know this remains so – nothing suggests this has changed – although the flow of information is limited due to the ongoing GCC [Gulf Cooperation Council] diplomatic dispute,” he added. Asked if Shell intends to sell base oil on the open market, Nureddin Wefati, the company’s spokesperson for the Middle East, stated in an email that Shell uses GTL base oils for internal purposes.
Meanwhile, a number of projects are underway in China to build or expand base oil plants, and these could ease reliance on imports. Ahmad said they could add more than 3 million tons per year to the nation’s base oil capacity by 2019, all of it Group II and III. The two largest projects – being built by Shandong Qinyuan and Hainan Handi Sunshine – are each designed to produce 800,000 t/y of Group II and III oils.
However, Ahmad said it is questionable whether all of the projects will come to fruition.
These projects loom against a backdrop of recent reductions in base oil prices, both in China and elsewhere. Group I and Group II prices began softening in international markets around the middle of this year. Nevertheless, the pivot to higher quality base oils is well underway, with over half of domestic production in China now comprising Group II base stocks.
India is the second-biggest base oils market in the Asia-Pacific region and one which is increasingly important for producers in the Middle East Gulf. According to ICIS, Indian base oil imports from the U.A.E. overtook imports from Singapore in the 2017 to 2018 fiscal year, with the U.A.E. accounting for 17 percent of Indian base oils imports compared with 12 percent from Singapore. Imports from South Korea fell as Asian refiners face increasingly stiff competition from the Middle East, from plants in Bahrain and Saudi Arabia.
ICIS claims Indian refiners are also considering capacity expansions that could increase capacity by 800,000 t/y. Any such projects would likely focus on Group II or III stocks and be designed to reduce dependence on imports. Indian Oil Corp and other major Indian refiners have stated they may invest in expanding base oil production capacity.
Citing industry sources, Ahmad estimated that Indian lubricant demand will grow 3 to 4 percent annually. Still, Group I and II base oil prices have come under pressure as seen in other major markets. Declines in prices in India for Group I solvent neutral 150 and SN500 as well as Group II 150 neutral and 500N were exacerbated by the monsoon season, but the downward trend is unlikely to be sustained in the short-term, Ahmad said.
Both China and India are vulnerable to the imminent imposition of U.S. sanctions on Iran’s oil sector, which comes into force on Nov. 4. The second set of sanctions targets Iran’s refined products, although Washington has yet to decide whether to grant waivers to certain countries – thought to include China, India and Turkey – major importers of Iranian Group I base stocks. Iran dominates the spot trade of Group I base stocks, with traders increasingly uncertain who might fill the potential supply breach.