Its a huge volume, and its going to have a very big impact on our industry, both because of the volume and the quality of material, said Geeta Agashe, director of Kline and Co.s Petroleum and Energy Practice in Little Falls, N.J.

The project, to be built at Ras Laffan Industrial City, was first alluded to in mid-2001, when ExxonMobil and Qatar signed a letter of intent to study the feasibility of a GTL plant. Last weeks statement was pegged to a heads of agreement signing that signals the partners intent to proceed and that lays out the principal terms for what would be the worlds largest such complex.

ExxonMobil will provide technology and cover capital costs for the project, which will tap Qatars vast natural gas reserves and include a refinery with capacity to make 154,000 b/d of fuels and petroleum products. The next step for the partners is to work out a development and production sharing agreement.

The partners had said previously that the project could have a base oils component, but last weeks announcement specifies a plant with base oil capacity to account for 20 percent of the projects overall output. At 30,800 b/d, it would be far larger than any existing base oil plant, although Motiva said two weeks ago that it will expand its Port Arthur, Texas, plant to give it capacity of 35,700 b/d.

GTL technology has existed for years but has been little used because it was not deemed cost-competitive. That barrier has eroded as clean-fuels regulations drove up costs of producing fuels through more traditional methods. Lubricant industry observers have predicted, therefore, that high quality, cost competitive GTL base oils would come to market toward the end of this decade.

Two other projects – both in Qatar – could beat the ExxonMobil plant to market with GTL base oils. The Royal Dutch/Shell Group and Qatar Petroleum agreed last year to build a $5 billion, 140,000 b/d gas-to-liquids refinery in Ras Laffan. The companies said the plant will open in 2008 or 2009 and will make an unspecified amount of base oil.

Qatar Petroleum also has an agreement with joint venture Sasol Chevron to build a 34,000 b/d GTL plant, and to consider expanding the size of that project to 264,000 b/d, opening between late next year and 2010. The partners say they are considering including base oil production.

ExxonMobil officials declined this week to discuss the base oil plant in their joint venture, but industry analysts said it and other GTL projects will have a large impact because of the volumes they make and because they will allow production of Group III stocks at costs that are competitive with lower grades. Sources said they expect the Shell and Sasol Chevron ventures to include base oil plants similar to the size of ExxonMobils because plants need such levels of capacity to gain economies of scale.

The impact on the global base oil market of between one and three GTL base oil plants is likely to be considerable, said R. David Whitby, chief executive of Pathmaster Marketing Ltd., a consulting firm based in Surry, U.K. The Group III-plus performance qualities of these base oils will put considerable pressure on the current suppliers of both Group III and Group IV (PAO) base oils – particularly in Europe, since I expect that most of the production from Ras Laffan is likely to be exported to Europe initially.

The current producers of Group III base oils will then put pressure on Group II producers, who will in turn put pressure on Group I producers.With an overall static global market for finished lubricants, production of Group I base oils is likely to continue to suffer.

Sources observed that Qatar looks to become a major base oil exporter.

Right now we dont get hardly any base oils from the Middle East, Agashe said. But with this ExxonMobil plant, and with the projects that other companies have announced, that region is going to become a big center for base oil production.

Observers also speculated that the Qatar project will dissuade ExxonMobil, the worlds leading base oil producer, from upgrading any of its existing Group I plants.

I doubt whether ExxonMobil would be able to justify an economic case forfurther upgrading any of its current Group I base oil production following this announcement, Whitby said.Indeed, I have heard rumors that it plans to shut some Group I base oil production once the Ras Laffan facility is commissioned.