Global Baseoil Supply and Demand Forecast 2006-2011klc.kstle.or.kr/Upload/Board/06년(3) Lubrizol.pdf · Global Fuels Markets (2005-2015)-1.0%-0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% Diesel

© The Lubrizol Corporation 2006, all rights reserved

Global Baseoil Supplyand Demand Forecast

2006-2011

KSTLE MeetingSeptember 14-15, 2006Mooju, Korea

Presented by Timothy Phang – The Lubrizol Corporation

© The Lubrizol Corporation 2006, all rights reserved2

1. Global lubricants demand2. Baseoil production capacity3. Global baseoil supply and demand

Topics


1. Global lubricant demand2. Baseoil production capacity3. Global baseoil supply and demand

Topics


37.9 37.9 37.8

38.2

38.9

38.6

38

37.6

38.2

37.4 37.5

37.237.4

38.4

36

37

38

39

40

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Dem

an

d,m

tpa

Global Lubricant Demand1991-2004

source: Manfred Fuchs – Fuchs Petrolub


Global Lubricant DemandWhat has history taught us?• In every year during the period 1990-2003,

industry pundits forecasted increases rangingfrom 0.5% to 2.0%

• they were correct in only 4 of the 13 years(31%) – not a very good track record!

• Forecasters have tended to:• underestimate the uptake of lubricant

advancements and increases in efficiency• ignore the probability of economic downturns

(e.g. Global ’91, E Europe ’92, Brazil ’96, Asia ’97, global ‘01).


Global Lubricant Demand

Company To Global Asia WE NA

Kline & Co 2010 1.4% 3.8% -0.1% 1.2%2011-15 1.1% 3.1% -0.8% 2.5%

Freedonia 2008 2.2% 0.3% 1.3%

PFC Energy 2010 1.0% 3.5% -0.5% -1.1%

ExxonMobil 2011 0.5%

Addcos (2) 2010 0-0.2%

Current Forecasts (CAGR)

There are wide discrepanciesamongst forecasters!


40.0

37.4

36.0

37.0

38.0

39.0

40.0

41.0

42.0

43.0

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

mill

ion

ton

nes

pe

ra

nn

um


Freedonia2.2/1.5%

Kline1.5/1.1%

ExxonMobil0.5%

42.4

41.1

38.7

37.4

37.9Addcos0 - 0.2%

PFC1.0%


90

100

110

120

1999 2000 2001 2002 2003 2004 2005

Vehicles

Fuels

Lubes

Gro

wth

(199

9=

100%

)Vehicles, Fuels & Lubes Growth

source: ExxonMobil’s assessment of industry data

• Longer drain intervals• Smaller sump sizes• Reduced volatility loss


36.0

36.5

37.0

37.5

38.0

38.5

39.0

39.5

40.0

40.5

1998 2000 2002 2004 2006 2008 2010

mill

ion

ton

nes

pe

ra

nn

um


0.5%CAGR

38.7


1. Global lubricants demand

2. Baseoil production capacity3. Global baseoil supply and demand

Topics


37.2

38.7

37.4

36.1

35.0

36.0

37.0

38.0

39.0

40.0

1998 2000 2002 2004 2006 2008 2010

mill

ion

tonn

esp

eran

num

Global Base Oil Demand1998-2011

Base Oil Demand(net of additive chemicals)

N.B. base oil demand includes additive diluent oils

Lubricant Demand


Basestock Supply

0

15.0

30.0

45.0

1983 1987 1991 1995 1999 2003

Group I

Group IIGroup IIIPAO

Pro

duct

ion

Cap

acity

mto

nnes

Source: X.B. Cox - ExxonMobil


Supply forecasts traditionally focus on:• New capacity; both announced and likely to occur

during the period• Capacity that will be closed or mothballed

However, the refining industry has grown much morecomplex in the past two years such that the followingfactors must also be included:• Capacity creep• Impact of clean fuels investment programmes,• Ability of Group I refiners to maintain production

level in a robust fuels margin environment, and• Retrofitting of existing Group I capacity for higher

quality

Looking Forward


• Common in refining, generally occurs at maintenanceturnaround.

• Catalytic (Group II/III) processes are easier todebottleneck than Group I separation processes

• New catalyst technology often result in substantialcapacity increases

• Motiva: 150 ktpa (14%) in 2004• S-Oil: 100 ktpa ( 9%) in 2004• SK: 100-150 ktpa (11-17%) planned for Apr 2006

• Already run its course in older Group I plants• Many can no longer achieve nameplate capacity due to

changes in availability of their design lube crude.

Capacity Creep


Forecasted Creep %/yr ktpa*Group I 0-0.25 260

Group II 1.50 1,202

Group III 1.25 339

GTL 2.00 46

Naphthenics 0.75 199

Total 2,046

* Cumulative thru year 2011

Capacity Creep


Global Fuels Markets (2005-2015)

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Diesel Gasoline Residual Fuel

By 2015, over half of world dieselwill be less than 50 ppm Sulphur

An

nual

Gro

wth

Rat

eto

2015

source: Blake Esker – Purvin & Gertz


Fuels Refinery Additions to 2015


0

10

20

30

40

50

Crude

/Vac

uum

Reform

ing

Cat Cra

cking

Hydro

crac

king

Hydrot

reat

ing

Coking

World Capacity Additions through 2015 - % of 2003 Capacity


• Some refineries will not warrant the capex spendand close; most vulnerable are the Solomon rated3rd and 4th “quartilers” (e.g. ExxonMobil–Adelaide)

• Some refineries my opt for a lower sulphur crudeslate to minimize the capex spend - most good lubecrudes tend to be high S (e.g. Imperial-Sarnia)

• Some refineries may opt to use existing lubefacilities in fuels manufacture to lessen capexspend (e.g. BP-Kwinana)

• New fuels hydrocracking facilities will providefeedstock potential for new Group II/III base oilproduction (e.g. Petronas, Formosa Petrochemical,Neste-BAPCO)

The Clean Fuels Impact


• With a robust fuel margin environment, most refinershave gone to a ‘max fuels mode’ operation, some atthe expense of Group I base oil production

• Crude slates are/have been adjusted for maxfuels margins, including heavy sour crudes)

• The base oil-fuel margin often no longer supportthe premiums paid for good Group I lube crudes

• Some Group I refiners are diverting base oilfeedstock to fuels for those volumes not required tosupport their internal lubricants businesses

• Estimates impact was much as 10% (1.1 mtpa) ofNA and WE Group I production in 2005

• Group II/III operations remain largely unaffected asmost are not crude selection dependent

The Fuels Margin Impact


-200

-150

-100

-50

0

50

100

150

200

Jan 04 Apr 04 Jul 04 Oct 04 Jan 05 Apr 05 Jul 05 Oct 05

Dif

fere

nti

alV

.C.M

arg

in*

$/to

nn

e

100N300N

source: Karl Schmidt - Citgo Dec 2005

No VGO Purchases

* margin does not include any premium paid for the lube crude

$0.50/bbl lube crude premium

Base Oil vs Fuel Economics


-50

0

50

100

150

200


Dif

fere

nti

alV

.C.M

arg

in*

$/to

nn

e

100N300N


Outside VGO Purchases

* margin does not include any premium paid for the lube crude

$0.50/bbl lube crudepremium



0

10

20

30

40

50

60

70

80

90


Lub

eP

lant

Var

iab

leO

per

atin

gC

osts

*$/

ton

ne


* does not include any premium paid for the lube crude



Refining Profitability Outlook

• US: Tight capacity should keep fuels markets strong,particularly for the high-conversion refiners. Growingreliance on imports.

• Europe: Very strong diesel market with gasoline surplusexported to the US. Market to grow still tighter

• Asia: Capacity overhang finally wearing off; need for fuelsconversion capacity will grow

The Fuels Margin Impact

Source: Blake Esker – Purvin & Gertz


Base Oil Refining Margins

-70

0

70

140

210

2000 2001 2002 2003 2004

Solvent Refining Hydrocracking

Hydrocracking (Group II/III) benefits fromstrong fuel economics

$/to

nne

ofB

ase

Oil

Group II/IIIGroup I

Source: Blake Esker – Purvin & Gertz


API Group Price Differentials


-20

0

20

40

60

80

100

120

2002 2003 2004

Group II vs Group I

Group III vs Group I

Low of US Gulf Coast Postings

The Group III premium has dropped by half

Cents per Gallon


• Many large scale Group I refineries are able to economicallyjustify capex for higher quality (e.g. ExxonMobil–Baton Rouge,Total – Gonfreville, Agip - Livorno)

• Some smaller Group I refineries will invest if strategic to theiroverall lubricants business (e.g. Idemitsu-Chiba)

• By-product slack wax from Group I refineries represents asizeable source of feedstock that can be upgraded to GTL‘look alike’ quality (e.g. ExxonMobil-Fawley)

• Re-refiners are improving quality to find premium and securemarkets for their output (e.g. Viscolube-Pieve Fissiraga)

• Retrofit needs and opportunities are greatest in Europe andJapan

• 4.5 mtpa of Group I capacity may be upgraded over the next 5years to Group II thru Group III+

The Retrofitting Impact


New Capacity - ParaffinicStream Capacity, ktpa

Company Country Date Group I Group II Group IIIPuralube Germany 2Q04 80SK Korea 3Q04 30 330Motiva US 3Q04 150Orrco US 3Q04 25(r)S-Oil Korea 4Q04 100Samir Morocco 2005 10Attock/NRL Pakistan 2005 15Calumet US 2005 50Neste Finland 3Q05 30Motiva US 1Q06 690SK Korea 2Q06 150Encore Energy US 2006 25(r)Bharat India 2006/8 180+40Lotos/Glimar Poland 2007 50PetroCanada Canada 2006/7 150 50

items highlighted in red indicate change or addition from previous forecast(r) indicates re-refined Group I quality


Stream Capacity, ktpaCompany Country Date Group I Group II Group IIIOsilub France 1Q07 120(r)Formosa Pet. Taiwan 2007 400 100eShell Pernis 2007/8 300GS-Caltex Korea end-2007 500e 350ePetronas Malaysia 2Q08 350Neste-BAPCO Bahrain 1H2008 400SK-Pertamina Indonesia 2008 350ePemex Mexico 2008 250Chinese Pet. Taiwan 2008 250Sasol Chevron Qatar (GTL) 1Q2009 425Total France 2009 300 200Shell Qatar (GTL 2009/10 500ONGC India 2010 250ExxonMobil Qatar (GTL) 2011 1,500

Total (8,720 ktpa) 195 3,490 5,035

New Capacity – Paraffinic (cont’d)

items highlighted in red indicate change or addition from previous forecast(r) indicates re-refined Group I quality


Stream Capacity, ktpaCompany Country Date Group VSan Joaquin US 2004 105Valero/Nynas US 2004 60Ergon US 2005 65CNOOC China 2007 400

Total 630

New Capacity – Naphthenic

items highlighted in red indicate change or addition from previous forecast


CapacityCompany Location Year ktpa Reason(s)Astra Ploiesti, Rom 2005 325* Economics (F&L)BP Coryton, UK 2005 350* ROACEShell Grasbrok, Ger 2005 260* Quality/scaleCepsa Huelva, Spain 2006 150* Fuels focusImperial ** Sarnia, Canada 2006 50*(est) LSD programmeValero Paulsboro, US 2006/7 590* Hvy crude flexibility

N America (3) 2006/9 930W Europe (5) 2006/10 1,170C/E Europe (6) 2006/9 980Asia Pacific (1) 2007 200PAO/PIO (5) 2009-12 300 GTL replacement

Total (26 plants/trains) ~5,300 (11% of 2004 capacity)

Closure Candidates (2005-2010)

* denotes closures already announced * * reduction in capacity, no closure

More likely to close due to ‘Fuels related’ decisions


GTL Base Oil Projects

CapacityCompany Location ktpa On-stream

Sasol Chevron Qatar 425 1H2008

Shell Qatar 500 2009

ExxonMobil Qatar 1,500 2011

Total 2,425

As Originally Announced

early 2009

Current Status

2010


1. Global lubricants demand2. Baseoil production capacity

3. Global baseoil supply anddemand

Topics


0

10

20

30

40

50

2004 2005 2006 2007 2008 2009 2010 2011

mill

ion

tonn

espe

ran

num

PAOGTLGroup II/IIIRetrofitted Group IGroup I

data source: SBA Consulting LLC

Global Capacity ForecastParaffinic


34.131.5

29.227.2

25.9 25.7 25.5 25.6

7.37.7

9.3 12.6 13.8 14.6 15.0 15.2

2.52.3 2.8

3.7 5.0 5.2 5.5 5.6

0.4 0.92.5

0

10

20

30

40

50

2004 2005 2006 2007 2008 2009 2010 2011

mill

ion

tonn

espe

ran

num

PAO/PIOGTLGroup IIIGroup IIGroup I

Global Base Oil Supply ForecastParaffinic


34.1

25.6

7.3

15.2

2.5 5.6

2.50.4

0.2

0

10

20

30

40

50

2004 2011

mill

ion

ton

nes

per

ann

um

PAOGTLGroup IIIGroup IIGroup I

Global Base Oil Supply ForecastParaffinic


3.5 3.6 3.5 3.9 4.0 4.0 4.0 4.1

34.131.5

29.227.2 25.9 25.7 25.5 25.6

7.37.7

9.3 12.6 13.8 14.6 15.0 15.2

2.52.3 2.8

3.7 5.0 5.2 5.5 5.6

0.4 0.92.5

0

10

20

30

40

50

60

2004 2005 2006 2007 2008 2009 2010 2011

mill

ion

ton

nes

per

ann

um

PAO/PIOGTLGroup IIIGroup IIGroup INaphthenics

Global Base Oil Supply ForecastTotal Base Oil (inc Naphthenics)


35.0

37.5

40.0

42.5

45.0

47.5

50.0

52.5

55.0

2004 2005 2006 2007 2008 2009 2010 2011

mill

ion

tonn

esp

eran

nu

mGlobal Base Oil Supply & Demand

Base Oil Demand

Sustainable Capacity

Nameplate Capacity(inc naphthenics)

5.4

9.6

3.1


35.0

40.0

45.0

50.0

2004 2005 2006 2007 2008 2009 2010 2011

mill

ion

tonn

esp

eran

nu


Demand – Exxon Mobil

Sustainable Capacity

9.6

Demand – Kline & Co.

Demand – Freedonia

6.1

5.4


35.0

37.5

40.0

42.5

45.0

47.5

2004 2005 2006 2007 2008 2009 2010 2011

mill

ion

tonn

esp

eran

nu


Changes in Sustainable CapacityMar 2005 – Mar 2006

• Increased diversion to fuels• Impact of USGC hurricanes• China price controls• Closure of Cepsa Huelva• Cut-back at Imperial Sarnia

• Neste BAPCO – 400 ktpa• GS Caltex – 850 ktpa• Pemex – 250 ktpa• SK debottleneck – 150 ktpa• SK-Pertamina JV – 350 ktpa• ONGC – 250 ktpa

Mar 2005

Mar 2006


Global Base Oil Supply & Demand

• Global demand should increase by ca1.1 mpta (3.1%)

• Global supply to keep pace with demand; but withtightening in 2005/6 due to feedstock diverted to fuels,impact of hurricanes, China price controls on fuels• 2006 will be a crucial period, growing supplies from

2007/8 becoming abundant in later years with GTL

• European market to undergo greatest flux

• High saturate base oils should grow rapidly; comprising>45% of the paraffinic pool;• supply ‘push’ driven; new suppliers• supply well in excess of technical demand;• may have dampening effect on quality premiums

Summary


• Pool viscosity to become ‘lighter’; brightstockavailability may become problematic• switch from mono to multi-vis grades• heavy naphthenics• opportunities for non-base oil solutions

• Blend plant economics could force migration fromGroup I faster than quality demands alone wouldotherwise dictate

• If ExxonMobil finished lubricants demand forecast isaccurate, the developing base oil supply overhang in2008-11 should prompt additional refinery closures.

Global Base Oil Supply & DemandSummary (cont’d)


Thank You

Documents

Global Baseoil Supply and Demand Forecast 2006-2011klc.kstle.or.kr/Upload/Board/06년(3) Lubrizol.pdf · Global Fuels Markets (2005-2015)-1.0%-0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% Diesel