EU considers cut to Group II base oil quota from 2022

The European Commission will consider a further cut to the Group II base oil import quota, by 50pc to 75,000t for the first half of 2022 and for it to be abolished for the second half of the year.

Further meetings to discuss this will be held in June and July. A decision had already been made in January to reduce the quota by 50,000t, or 25pc, to 150,000t for the second half of this year.

The current quota of 200,000t to 30 June applies to Group II base oil grades N150, N220 and N600 from countries that do not have a free trade agreement (FTA) with the EU. Imports above the quota are subject to a 3.7pc import tax.

The reduction and eventual removal of the quota would mainly impact imports from the US as Singapore, South Korea, Canada and Japan have FTAs with the EU.

Lubricant associations are lobbying for a higher quota and a longer transition phase based on their view that Group II base oil demand in Europe exceeds supply. They are concerned that the higher cost for imported Group II would disproportionately impact the small to medium sized blenders that they represent.

Europe's Group II spot prices have surged to their highest since Argus began assessing them in 2013. The spot price for Group II N220 grade has gained 84pc to €1,355/t since January as prices received support from reduced spot supply availability since the middle of last year and higher demand in the region.

Exports from both the US and Asia fell in the second half of 2020. US exports of 347,550t in the six months to December 2020 were down by 15pc from year-earlier levels, according to Argus calculations. Exports of 18,600t from Asia to Europe in the six months to December 2020 were 91pc lower than year-earlier levels, reflecting a halt in exports from Singapore to Europe from April. Falling exports to Europe coincided with regional maintenance in the third quarter of 2020 that slashed output.

The shortage of Group I availability in Europe from June 2020 also added to growing demand for more premium-grade Group II base oils, especially Group II N150 and N600 which can be substituted for Group I SN 150 and SN 500.

Total US and Asian exports to Europe had been rising year on year between 2015 and 2018. Exports fell slightly in 2019, coinciding with the start-up of a new 900,000 t/yr Group II base oil unit in the Netherlands, Europe's first virgin Group II capacity. The Group II quota was first implemented in January 2020.

By Clara Toellner