Business churn rising for lube basestocks

Fairfield, NJ.The North American lube oil basestocks business will undergo more supply and demand changes in the next decade than the industry has seen in the past 20 years, according to a recently published study by Kline & Co., a Fairfield, N.J.-based management consulting firm.

The report, titled The Changing Face of the Lube Oil Basestocks Business, Volume Two North America, concludes that recent changes in the business, including depressed prices, mergers, acquisitions, and company exits, are expected to continue at an unprecedented pace over the next few years. In addition, basestock and finished lubricant manufacturers face new challenges in meeting increasingly stringent performance requirements while competing in a market with relatively flat growth.

Thomas F. Glenn, Kline marketing manager, said the study predicts that by about the year 2000 four or five paraffinic basestock plants will have shut down (and some of the remaining plants will have adjusted their product mix) in order to bring supply and demand back into balance.

"Two plants in particular that we identified as being at `high risk for dosure' are actually now in the process of either closing or changing hands," noted Glenn, citing recent announcements by Tosco that it is planning to close Unocal's Rodeo, Calif., plant, which it purchased only last year, and by Ergon that it has signed a letter of intent to buy Quaker State's Newell, WVa., refinery.

In addition to a revamped "who's who" in the business, industry dynamics over the next few years will have a significant impact on the quality of basestocks produced, Glenn noted. "The new Excel Paralubes basestock plant that opened in early 1997, a joint venture between Conoco and Pennzoil, is only the most obvious example that a major change in product quality is on the horizon.

"The Excel plant adds additional Group II capacity to the North American supply pool," Glenn continued. "Together with the Group II produced by Chevron and Petro-Canada and the announced plans of Texaco and Exxon, Group II will be a significant market force," he added.

According to the Kline study, the push up the quality continuum is not expected to stop with Group II products. Glenn believes that ongoing discussion about product definitions will escalate, especially between Group III basestock and polyalphaolefin (PAO)-based products, as Group III products challenge PAO's nearly exclusive market appeal as a synthetic product. If successful, this challenge could have a profound effect on the market, starting with consumer automotive lubricants, Glenn said.