13 April 2012

Group III demand continue its growth

Written by Ulla Kotila
Published in Oil products

The base oil industry is changing with a lot of new high quality base oil capacity coming to the market. There are numerous new group III plants in the pipeline and year 2011 brought us two new units in the Middle East – the JV between Neste Oil and Bapco in Bahrain and Shell’s GTL plant in Qatar.

There have been a lot of talks about how GTL will impact the group III demand. Will there be large over supply of group III’s?

We believe that although the availability of Group III’s will be higher the demand is growing too. The transfer from lower quality base oils will be boosted when more Group III will be available. The hunger for high quality products is growing simultaneously when lower quality products are fading away. The increasing demand for group III’s in Asia is tremendous which is also led by the fact that group I supply in the region is not sufficient.

Europe has traditionally been the leader in regards of quality requirements of lubricants and thus high quality base oils. Here the market jumped directly from Group I to Group III and therefore there is very limited demand for Group II’s. In stead, other markets seem to move away from group I’s by making the first step into Group II’s and then eventually - medium to long term to Group III’s. However, some markets could easily make a jump directly to group III’s with a pace faster than expected.

The government regulations, fuel economy requirements, CO2 emission reductions, performance upgrades – they all have an impact for higher quality base oil demand. The growing production capacity of Group III’s will guarantee that there will be sufficient amount of base oils available for higher quality applications in the future.

Ulla Kotila
Market Development Specialist, Base Oils