Competition, complexity and regulation - Europe base oils market braces for 2019 challenges - ICIS
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Competition, complexity and regulation Europe base oils market braces for 2019 challenges Vicky Ellis & Sarah Trinder Senior Editor Managers, ICIS
Agenda
Brief introduction to ICIS methodology
Major European price trends, snapshot of Asia, US
Competition, complexity & regulation in 2018 & 2019
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Competition, complexity and regulation
Competition - Group I, II, III
Complexity – Group III
Regulation - Group I, II
IMAGE: Steve Cargill/racingfotos.com/REX/Shutterstock
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ICIS and our methodology
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A pioneering compliance programme
Since 2011, ICIS has worked with global regulatory body IOSCO to create rules over
price assessment activities
The IOSCO principles are embedded into the policies and practices of the ICIS
editorial team
ICIS has passed all its independent audits, most recently by PricewaterhouseCoopers
in October 2018
Methodologies go through a consultation every three years.
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Price assessment process
Contact – calls, emails, ICE,
01 keep detailed notes in call
records, 5pm deadline for
information
Carry out price assessment
02 based on market feedback,
according to methodology file
report and news
Reports & news copy-
03 edited, publication
weekly/daily depending on
frequency
ICIS pricing methodology – information parameters
Key information shared with ICIS market editors:
Price e.g. €250/tonne
Counterparty e.g. sold to trader A, bought from producer B
Size of trade e.g. 1,000 tonnes, 2,000 tonnes
Loading date e.g. March loading, 15-31 June loading
INCO terms e.g. FOB basis
Date trade carried out Or period in which price applies e.g. as of 1 November
www.icis.com 7
Europe base oils trends
Group I base oils – backdrop Group I capacity rationalisation of 1.5m tonnes around 2015. Left market less able to deal with unexpected outages, peaks in demand. Brightstock supply tight due to lack of alternative products. Lighter grades less affected due to substitution opportunities.
Europe Group I prices 2018
Key takeaways for 2018 Brightstock prices on separate trajectory because of tight supply, tenders. Group I SN150, SN500 seeing competition from Group II product. Ample supply across all regions impacting Europe. No real impact from higher upstream costs as yet.
2016
Europe Group II 2016-2018 good supply & competition
strong euro in April
imports from APAC
Group I formula-linked dipEurope Group II 2016-2018 2016
good supply &competition
strong euro
drives down prices
2017
Tight supply in Europe, H1
Spring TAs in US, Asia
Waterfall effect Qatar GTLEurope Group II 2016-2018 2016
good supply &competition
strong euro
drives down prices
2017
Tight supply in Europe, H1
Spring TAs in US, Asia
Waterfall effect Qatar GTL
2018
More stability
Ceiling of GI prices?
Crude volatility
Healthier supplyGROUP III - 2018
Price trends
Approved/non-approved spread
Russian, Abu Dhabi material
pressuring non-approved market
SK Lubricants delays 2018
Indonesia TA to 2019
Supply/demand
Mixed: longer non-approved supply
No Shell GTL impact Imports
continue to flow
IMAGE: Design Pics Inc/REX/Shutterstock
Trend towards GIII from GI
www.icis.com 15Historical GIII price spread
Snapshot of US base oils
US market backdrop 2018
Group I Shrinking market
Group II Dominant market
Group III Gaining increasing market
shareUS price movements 2018 Posted prices increase, assessed values stable-to- weak. Group II/III prices in particular seeing weaker numbers despite upstream costs. Group III values at premium to Group I/II.
US Group I/II outlook Group II base oils remain workhorse base stock of industry as able to fulfil 97% of motor oil requirements. Group I base oils face uncertainty amid shift to light viscosity, low sulphur oils. Changes in IMO regulations present challenges for Group I base oils
Snapshot of Asia base oils
Asian base oils
Margins wider in late 2017
Spread erodes
Gasoil up on crude
Base oils GI SN500 export
eases
GII 500N down
www.icis.com 22Asian base oils 2018 & 2019
Group I Group III
SN150 supply in question on Middle East product expected to
changeover from GI to GII, may be continuing presence on new
ease plants
SN500 & brightstock supply ample
on inventory buildup Demand expected to be steady
as buyers are well stocked
Group II
Past seasonal price trends have
been disrupted in recent years due
to turnarounds, so outlook unclear
Producers have been monitoring
output amid firm crude futuresCompetition & complexity
Europe Group I outlook – competition with other base stocks
ExxonMobil Rotterdam Expansion – what we do/don’t know
DO KNOW: Commercial production due to DON’T KNOW: Official capacity.
start in Q1 2019.
DON’T KNOW: Whether the plant will run
DO KNOW: Expanding global slate of base at full capacity at first.
stocks with introduction of a heavy neutral
Group II base stock, EHC 120. DON’T KNOW: What percentage of
DO KNOW: Collaboration with additive capacity will be used internally.
companies during the project pre-marketing DON’T KNOW: Whether this product will
period. directly compete with offerings from the US.
DO KNOW: ExxonMobil’s customers to take DON’T KNOW: If a Group II European
advantage of Rotterdam’s products EHC 50
and EHC 120 as soon as they are export market will evolve as a consequence.
commercialised in 2019, the company said. DON’T KNOW: If further Group I capacity
DO KNOW: New grade joins EHC 110, a closures will ensue.
heavy neutral base stock for the Asia market,
and three light-to-medium neutrals – EHC 45
and EHC 65, available in the Americas, and
EHC 50, for Asia and soon for EAME.Europe Group I outlook – further rationalisation?
Total refinery, Kuwait Petroleum
April 2015 January 2019
Gonfreville. Europoort/ 2017
2013 2016
2015 onwards
Capacity halved to Gunvor
260,000 Petroleum,
tonnes/year GI Rotterdam.
product. 1.7m bbls/year.
Colas refinery, Shell refinery, Further GI
Dunkirk. Pernis. rationalisation on
260,000 370,000 the horizon?
tonnes/year GI/GIII tonnes/year GI 2016
product. November product. February
2015 2016Group II in Europe – key 2018 themes
Domestic supply backdrop
• No sizeable domestic supply
was hurdle for wider adoption
• Price of imports crept up after
gaining market share
• Small Lotos volumes
• SK-Repsol - some captive use
Watch, wait, prepare Competition heating up?
• No big changes until late 2018 • XOM commercial supply 2019
• Chevron is dominant importer
• ExxonMobil groundwork for • Re-refiners moving into GII, III
Group II plant at Rotterdam • Motiva imports via distributor
• ME, Asia volumes from
• Capacity yet to be confirmed Aramco, LuberefGROUP II – price drivers 2018
US a key influence
Premiums over Group I
Feedstock trends lag (US
moves quicker than Europe)
Local re-refined supply
Demand expected to rise ahead
of ACEA 2016 deadline (1 Dec
2018)
Availability boosted in Q2
Saudi, Asian offers added
psychological pressure
IMAGES: Jim Young/AP/REX/Shutterstock / ETIENNE
LAURENT/EPA-EFE/REX/Shutterstock
www.icis.com 30Group II competition heats up in Europe?
Group II – what lies ahead?
Split views (skip straight to GIII?)
The “workhorse” – ExxonMobil
Price: trading places with Group I?
The “New” Group III? (for the price spread)
www.icis.com 32Group II – what lies ahead?
Split views (skip straight to GIII?)
The “workhorse” – ExxonMobil
Price: trading places with Group I?
The “New” Group III? (for the price spread)
IMAGE: Action Press/REX/Shutterstock www.icis.com 33GROUP II – 2019 drivers
Similar for 2018… BUT
Demand shift?
Timing key for supply
Prices may delay a
changeover for some
consumers
www.icis.com 34Europe Group I outlook – upstream influences Brent crude oil breaches $85/bbl in October Brent crude values plummet in November VGO prices follow upstream trends Influence yet to be seen in downstream base oils market
Europe Group I outlook – possible saving graces
Brightstock
production.
Co-product
waxes.
Group I
Older vehicle
fleets.GROUP III - 2018
Price range splits
Multi-tier market
Imports battling with domestic
supply
IMAGE: Geert Weggen/Solent News/REX/Shutterstock
www.icis.com 37GROUP III - 2018
Price range splits
Multi-tier market
Imports battling with domestic
supply
IMAGE: Geert Weggen/Solent News/REX/Shutterstock
www.icis.com 38Abu Dhabi Group III deal for Europe
GROUP III - 2019
Price trends
Approved/non-approved battle to
continue
Demand seen strong for approved
Turnarounds: SK Lubricants & S-Oil
Trend towards GIII from GI
IMAGE: AP/REX/Shutterstock
www.icis.com 40Regulation – ACEA 2016 & IMO 2020
ACEA 2016 Oil Sequences
Key date: Until 01.12.2018, products with formulation according to ACEA 2012 may be
sold.
Affects: Service fill oils for gasoline engines, light-duty diesel engines, engines with
aftertreatment devices and heavy-duty diesel engines
Extra measures against the impact of biofuels and upgrading hardware and structure
for the sequences to keep up with changes in engine technology and lubricant
developments – Lubrizol white paper
ACEA, ATC and ATIEL, CEC aim for “improved, fit-for-purpose engine lubricants that
meet the increasing technical requirements of the automotive industry”.
ACEA update: http://www.acea.be/news/article/acea-oil-sequences-2016
www.icis.com 42Until 31 December 2019
ships operating outside
ECAs can use fuel oil of
3.5% sulphur content.
1 January 2020
onward ships will have
to use fuel oil with
sulphur content of no
more than 0.5%
Change in operating
methods towards
lower loads.
‘scrubbers’.
addition of
technologies,
Change in engine
Diversification of fuels.
Marpol regulations
used in marine sectors.
Change in lubricants
What do the Marpol regulations mean for the shipping industry and lubricant producers?IMO – an uncertain future Refiners’ offerings unclear. Lubricant approvals from OEMs yet to be declared. Vessel operator intentions hazy. Shipowners face logistical pressure of where to load fuel and find lubricants to match.
What does this mean for marine lubricants? Engine oils most likely to be affected. Players suggest 25-40 base number (BN) lubricants will dominate. Marine industry adapting to Group II base stocks? Group I still very popular but with additives, GII can overcome build up of deposits. Shipowners trialling different technologies. New lubricants emerging.
Base oils market 2019 – future trends
Automotive shift towards GIII
Leapfrogging Group II?
Greater volatility?
Crude 2018 rollercoaster poses 2019 question
How does upstream grapple with
Old versus new uses
What is the growth in traditional end markets?
Cleaner bunker fuel, Evs/hydrogen fuel cell
www.icis.com 46Contact us Vicky Ellis Sarah Trinder Senior Editor, Manager Senior Editor, Manager Europe base oils – Domestic GI/II/III Europe base oils – Export GI vicky.ellis@icis.com sarah.trinder@icis.com
Thank you!
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