Global Supply of Brightstocks May Have Difficulty Meeting Future Market Demand

LITTLE FALLS, N.J., May 31, 2005 -- Basestock producers, finished- lubricant formulators, and end users are discovering that a variety of key factors are adversely affecting the supply and demand balance of brightstocks worldwide. A market study proposed by Kline & Company will explore the complexities of this predicament.

"There is definitely a very pressing situation with the availability of brightstocks in the near future," says Geeta Agashe, director of the Petroleum & Energy practice for Kline's research division. "Several wide-reaching market factors have combined to push prices higher and are making the industry take notice."

Initial research for Kline's study, THE GLOBAL BUSINESS OUTLOOK FOR BRIGHTSTOCKS, 2005-2015, pegs total brightstock supply for North America, Latin America, Europe, and Asia-Pacific at 55.1 KBD in 2004. The study predicts that brightstock supply will decline further to 51.1 KBD by 2010 and 46.4 KBD by 2015.

The tight supply can be attributed to several factors. First, evolving quality requirements in North America, Western Europe, and Japan-especially in automotive applications-have led to either the conversion of Group I-producing basestock plants to Group II or even plant shutdowns. Additionally, new refineries coming online are only producing Group II and Group III basestocks, and some of the older plants still producing Group I have recently experienced turnaround and operational problems.

"To add to the already stretched supply of brightstocks, some of the newer basestock plants coming up will be based on GTL, which won't produce the heavier-viscosity basestock grades or brightstocks," Agashe says. "Propane de- asphalting units aren't part of Group III processing schemes, and brightstocks aren't usually produced at Group III plants."

While the decline in Group I brightstock production has continued over the last several years, demand has not decreased, as there are niche applications where it is needed. Marine engine oils, monograde engine oils, grease, gear oils, hydraulic oils, and metalworking fluids all have a strong appetite for brightstocks because these basestocks are very effective in the formulation from a technical and cost standpoint.

While the immediate supply is strained, there are alternatives, according to Agashe. Refineries can make modifications to their Group II plants to produce brightstocks, but this option may not be very cost competitive.

"Another option is using polyisobutanes, but their higher costs could outweigh demand. Basestock producers that have refineries with mothballed de-asphalting units could also consider getting them operational, but this might be a stretch," Agashe says.

The undersupply of brightstocks has already had an effect on prices. For example, ExxonMobil's posted price for its brightstock product in North America increased from $1.63 per gallon in May 2004 to $2.43 per gallon this month, a 43% gain.

"Brightstock prices will most likely continue to rise," says Bill Downey, vice president and head of Kline's Petroleum & Energy consulting practice. "As a result, formulators and basestock suppliers need to understand the intricate details of the current supply and demand balance. They need to know what challenges they'll continue to face and which solutions will help them best meet demand."

THE GLOBAL BUSINESS OUTLOOK FOR BRIGHTSTOCKS, 2005-2015 will focus specifically on paraffinic and naphthenic brightstocks used in commercial automotive, consumer automotive, and industrial lubricant and functional fluid applications. Due to be published in January 2006, the study will include supply and demand and pricing data for 2005 and forecasts for 2010 and 2015.

For more information on this study, go to http://www.klinegroup.com/y604.htm or contact Geeta Agashe at +1-973-435-3484 or geeta_agashe@klinegroup.com. Those based in Europe should contact Jonathan Duff at +32 2 770 4740 or jonathan.duff@kline-europe.com.

For more information on the customized consulting capabilities of Kline's Petroleum & Energy practice, please contact Bill Downey at +1-973-435-3388 or bill_downey@klinegroup.com.

Established in 1959, Kline & Company is a management consulting and market research firm serving clients worldwide in the energy, chemicals and materials, consumer products, and life sciences sectors.

   For more information, contact:
   Geeta Agashe
   Director, Petroleum & Energy Practice
   +1-973-435-3484
   geeta_agashe@klinegroup.com