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Base oil quota is stirring the European market with concerns that the threshold is too low

CIS BASE OILS AND LUBRICANTS

Base oil quota is stirring the European market with concerns that the threshold is too low

After the European Commission’s approved last month a quota on duty-free API Group II base oil imports, industry sources say the measure is already stirring the European market with concerns that the threshold is too low, Lubes’n’Greases reports.

Starting January 1, the new regime will allow 400,000 metric tons of Group II per year to enter the EU without paying a 3.7% duty that applies to petroleum products. The quota will be split into two 200,000 ton semestral amounts, to be counted on a first come, first served basis without additional cost.

The quota applies to Group II oils between viscosity grades of 150 neutral and 600N. Lighter Group II grades and Group III base oils will remain exempt from duties.

We don’t have a lot of experience in importing under a semestral quota. Because it is first come, first served, it is not a straightforward calculation.

Paul Kerwin, base oils account director at Multisol

European demand for Group II is higher than local production capacity, giving rise to complaints that the quota is too low and will increase costs for some lubricant blenders.

ExxonMobil’s new Rotterdam facility with 1 million metric tons per year of production capacity and a Spanish joint venture between SK Lubricants and Repsol with the capacity to make 186,000 t/y the region’s two most significant domestic sources for Group II production.

Demand is much higher than local supply and the duty-free quota combined; therefore, we think it is inevitable that some Group II will be imported under duty and that this will have a cost impact on somebody, somewhere.

Paul Kerwin

Thus, the experts suggest that the quota should be 500,000 to 700,000 tons at the very least, and ideally at a level of 1 million metric tons per year. Several European countries and lubricant industry associations had argued for quotas of anywhere between 700,000 t/y to 1 million t/y before the final decision was made.

The quota makes the ongoing transition in the European market from Group I to Group II base oils – driven by technology upgrades such as the ACEA 2016 European oil sequences and upcoming ACEA 2020 sequences – more costly for businesses. External factors such as the impending IMO 2020 regulations are expected to add momentum to this transition.

Multisol urges all interested parties to contact their national authority should they have any concerns about Group II quota levels, especially since quota levels can be reviewed every six months by the EU’s Economic Tariff Questions Group.