May 2020

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Refining: Despite decline, Group 1 base stocks are here to stay

Given increasingly stringent automotive specifications and the advent of the International Maritime Organization’s 2020 sulfur regulations, the continued decrease in Group I base stocks demand should come as no surprise for anyone in the industry.

Nadasdi, T., ExxonMobil

Given increasingly stringent automotive specifications and the advent of the International Maritime Organization’s 2020 sulfur regulations, the continued decrease in Group I base stocks demand should come as no surprise for anyone in the industry.

Finished lubricant formulations typically consists of 75%–99% of base stocks—engineered fluids that can significantly influence lubricants’ physical properties and performance. The automotive industry’s drive to better fuel economy has propelled the need for higher-quality formulations that deliver reliable performance benefits, while maintaining environmental standards.

As such, the automotive industry has begun to lean on Group 2 and Group 3 base stocks as a result of their lower viscosities, better oxidative stabilities and lower volatilities. In parallel, IMO 2020 provides further advantages to Group 2 and Group 3 producers, as the low-sulfur byproducts of production will find higher value in the IMO 2020 pricing environment vs. the high-sulfur-content byproducts of Group 1 production.

These factors have some industry professionals questioning the viability of Group 1 base stocks for the longer term. However, it is important to remember that Group 1 will still be highly valued well into the future given its technical advantages for applications in the industrial, marine and chemical industries.

Beyond its technical and cost advantages, Group 1 production will be critical as the wax market continues to grow. Paraffin waxes, a coproduct of Group 1, are forecast to have high demand, and Group 1 will be key to meeting future wax needs.

Group 1 remains advantageous in industrial, marine and chemical applications

Regarding the industrial, marine and chemical industries, the technical properties of Group 1 base stocks have many application advantages over Group 2 and Group 3 when it comes to making products with optimized properties in a cost-efficient way. Applications that will continue to see value in using Group 1 base stocks vs. other base stocks include:

  • Greases. Essential in industrial equipment, greases are formed from a chemical reaction rather than through a blending process. In greases, base stocks are used as a medium to conduct the thickener formation reaction. How the thickener is formed can have a dramatic impact on the performance of the finished grease. The solvency of the base stock used can significantly impact the thickener level and influence properties like water resistance, dropping point and tendency to harden. Given that the most expensive grease component is the thickener, using Group 1 base stocks can lower thickener content without sacrificing key grease structural properties, while also being cost effective.
  • Gear oils and metalworking fluids. Gears, bearings, compressors and metalworking fluids in the industrial and marine industries require specific lubricant properties. Group 1’s high viscosity and solvency properties provide lubricants with several favorable attributes including heat removal, friction reduction, sealing capability and materials compatibility. They are particularly advantaged in additive solvency in lubricants that are targeted for surface protection.
  • Diluent oils. Base stocks are also widely used in process oils within the chemical industry. As a subset of process oils, additive companies find diluent oils highly valuable in the manufacture of additive components, blending of packages and controlling the viscosity level found in modifiers. Its high-sulfur content can also help boost the extreme performance properties of gear oil packages.

Group I coproduct—paraffin waxes—equally valuable

Waxes are used in several common, high-value products. Some are obvious, such as candles, crayons and hot melt adhesives. Others are more surprising, like polyvinyl chloride (PVC) piping, construction materials and packaging supplies.

While various types of waxes are available to produce these products, such as animal, vegetable and synthetic, paraffin waxes have been the industry’s preferred choice. Paraffin waxes are also a coproduct of Group 1 base stock production.

However, as Group 1 production decreases in line with demand, the amount of paraffin wax supplied from refineries also declines. Conversely, the wax market is forecast to increase.

Alternative wax sources have steadily increased partly due to paraffin wax supply availability concerns considering Group 1 rationalization. However, the wax market is expected to see a supply-demand gap that can be closed with wax sourced from Group 1 refineries.

Group 1 continues to be beneficial

The decrease in Group 1 base stock demand, coupled with the present oversupply of base oil production, may lead some refiners to rationalize. However, Group 1 base stocks—and their coproducts—have unique qualities that are advantageous in various applications. A customer that requires the unique attributes offered by Group 1 base stocks and coproducts should seek a supplier that is committed to providing both well into the future. HP

FIG. 1. Diversity of lubricant needs drive base stock design and selection. Source: ExxonMobil assessment of publicly available information.

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