December 28, 2020 [Argus Media] – Shell plans to close the Group I base oil unit at its 500,000 b/d Pulau Bukom refinery in Singapore amid moves to scale back its fuel-based product slate at the plant.
The company said last month it planned to cut around 250,000 b/d of refining capacity in Singapore as part of its shift to lower-carbon alternatives.
It also plans to close the 380,000 t/yr base oil unit at the refinery from July 2022.
The shutdown would come just a year after the closure of Galp’s 110,000 b/d Porto refinery in Portugal next year. Galp announced that plan earlier this week. The refinery is home to a 185,000 t/yr Group I base oil unit.
But Group I base oil production has already been unusually low this year at several refineries in countries like Turkey, Mexico and Brazil. Group I base oil production at another plant in Singapore has also been halted since the beginning of June.
The closure of a growing swathe of Group I base oil production capacity comes at a time when the profitability of these supplies is at its highest in years. The strong margins reflect the global base oil market’s unusually tight supply.
The tightness partly reflected the impact of low refinery run rates in response to weak fuel margins. The low run rates and weak fuel demand have sped up moves to cut back global refining capacity. They have also cut feedstock supply for base oil production.
But growing demand for premium-grade base oils and rising structural supply of these grades in Asia-Pacific especially have put increasing pressure on Group I base oils in recent years.
Total Group I base oil capacity has fallen by around 2.4mn t/yr since 2014. The most recent Group I plant closure was in Canada in 2018.
Shell said its decision to cease operations at its Group I plant was consistent with this general global decline in Group I base oil demand.
Shell said Singapore remained a key market and strategic hub for its lubricant operations.
“We remain fully committed to base oils, process oils and waxes,” a Shell spokesperson said. It will continue to support its customers with Group I, Group II and gas-to-liquids products, as well as third-party supplies.
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