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Copyright © 2004, Emerald Group Publishing Limited
ICIS – LOR World Base Oil Conference – London, UK, February 2004
ICIS – LOR World Base Oil Conference – London, UK, February 2004
Keywords: Conferences, Oil industry, Automotive industry
Stephen Aimes of SBA Consulting LLC chaired the conference held in London for the eighth time.
This year's conference was particularly interesting because of the imminent introduction of the American Engine Oil Specification GF-4. The adoption of this performance level will require increasing usage of API Group 2 base stocks. This together with a general increase in the requirement for Group 3 base stocks already used to produce European quality engine oils means that the quality of base oils required for the future is changing.
During the last year there have been many mergers and acquisitions within our industry. This has added to the complexities of future base oil supply. Certainly one of the main topics at any gathering of base oil people today is the adoption of GTL techniques. GTL (gas to liquid) plants are likely to increase in number over the coming years as oil companies and producers capitalise on the availability of large gas reserves in the area of the world where conventional crude oil is scarce. What will happen increasingly often is that liquid fuel manufacturing units are being established close to gas fields and if the economics are right then these plants will also have GTL base oil units incorporated within them. The base oils produced by the GTL technique seem to be a Group 3 performance level.
One of the important factors affecting the future of the automotive engine oil business is the rapid change in specifications demanded to meet the ever-increasing emission standards. For example, 20 years back, a new engine oil specification introduced after considerable development would expect to have a life span of around 10 years. Now the realistic maximum life span of a new specification is only 2-3 years. It seems that Group 3 base oils will play an increasing part in future engine oil formulations. However, one of the many interesting points to come out of this conference is that not all Group 3 base oils are the same. There are reported significant differences in the performance levels of different Group 3 base oils and this does mean that formulations may well become base oil source specific. This is good news for the large lubricant producer, but bad news for the smaller blender who can only see his formulation choices diminishing and his costs increasing. In many cases the competitive option in base oil sources may well be removed. Of course within Europe we are already suffering from a limited version of this problem where full formulations are approved by certain truck and engine manufacturers and interchange between different Group 3 base oils has already been stopped.
William Downey of Kline & Company presented his worldview of the balance of power in the base stock world. He advised the use of unconventional wisdom when looking at base oil supply. Looking at the potential match between manufacturing capability and market place requirements for the different API base oil types can lead to the wrong conclusion if only conventional wisdom is used. For example, a greater understanding of the situation will be obtained if the viscosities of the different base oil types are considered together with the fact that not all Group 3 products are equal.
He also emphasised the need to understand the market drivers and the activities of supply chain members in predicting future base oil requirements. Although technical changes in specifications are often cited as the reason for a changing demand care must be taken to understand all the other factors that are often ignored.
Teran Smith of Shell described the trend in North America base oils. The first point made was that since the early 1970s there have been significant changes to the processes associated with base oil production. In reality this means that in the past 30 years the availability of good quality base oils has improved and these have been produced at lower cost. This trend of reduced unit cost and improved quality should continue with the advent of GTL. There seems little doubt that pressure from the car manufacturers for higher performance engine oils will lead to an increase in the requirement for Group 2 and Group 3 base oils. However, Shell see no short- or long-term supply problem.
Nicholas Clague of Ethyl described the technical changes occurring in the automotive transmission world. He highlighted four areas in different vehicle types where new lubricant requirements were likely to appear. Linked to the changes in hardware is the continued move to seale life systems. It seems that current synthetic base oils will be able to provide the performance required for these new transmissions.
Alan Bell of B & N showed how the changing requirements of engine manufacturers and automotive transmission manufactures would impact on the future requirements for Group 3 base stocks. The engine builders are being forced by legislation to continue to provide engines with reduced emissions. This is having an effect on the chemical composition and technical capability of the engine oil. It seems that the use of Group 3 base oils will help the formulator to meet the new technical demands. At present, Asia-Pacific is a significant supplier of Group 3 base stock worldwide. It seems that when new plants under construction come on stream later this year then the region will be the largest supplier of Group 3 products. However, the uncertainty surrounding GTL projects in various parts of the world may change the balance.
Richard Biggin of Lubrizol reinforced the fact that new technical specifications were driving forward some very significant changes in oil specifications. The continuous movement towards lower emissions is the major factor. To highlight the changes Mr Biggin made the point that in 1992 the total lifetime patriculate emission from a truck would be 2,000 kg. In the year 2004, this had dropped to 120 kg, a staggering change. Of course, fuel economy is also an increasingly important factor and the related move to lighter viscosity oils is also influencing the demand for high quality lower viscosity base oils. The trend from a simple economic point of view is that Group 3 products will be replacing Group 4 products (PAOs) more and more in the future.
Apu Gosalia of Fuchs made a presentation on the European industrial and speciality lubricant market. Some very interesting data were discussed showing how the global lubricants market has developed in recent years. The years from 1990 and the prediction to 2009 show a continual decline in volume in Europe with a fairly constant market in the Americas. During the time scale, however, it is expected that we will see the Asia- Pacific market growth by at least 50 per cent.
Ramesh Rao of Gulf Oil Corporation described the Indian market. For many unfamiliar with the country many interesting and useful facts and figures were presented. India is a rapidly expanding and changing market. Its use of crude oil is growing at 8 per cent per year and India is already the largest consumer of natural gas in the world today. At present the lube market is static simply because the growth in vehicle numbers is balanced by the longer drain intervals associated with newer vehicles. However, the demand is expected to start to grow significantly in the next few years as the dramatic increase in vehicle numbers anticipated has an effect. A particularly interesting fact is that India has effectively banned two stroke motorcycles and the manufacturers have all moved to four stroke production. This is particularly important for lube oil development in Asia when it is realised that Hero Honda in India is the largest two wheeler producer in the world. Emission regulations are changing fast in India and it is anticipated that European type regulations will appear in the foreseeable future.
Chuck Bullock from ExxonMobil described changes occurring in the synthetic base oil world. Much work has been done to provide higher quality Group 5 products to replace the currently used esters. Esters can cause problems in crankcase formulations, but Mr Bullock reported that the problems traditionally associated with esters do not occur if the new proprietary synthetic materials developed by ExxonMobil are used. It will be interesting to see if this type of development enables non Group 3 synthetic based engine oils to move forward in the market place. ExxonMobil have also been working to develop new types of PAO. These “Group 4+” products can be blended with Group 3 products to give results similar to those obtained from 100 per cent conventional PAOs. These new PAOs will become available over the next year. The pricing policy followed by the manufacturer will of course be of interest to all automotive oil formulators.
Blake Eskew of Purvin and Gertz posed the question of whether the global base oil investment game is changing. The answer is that of course, the game is always changing. Looking back it can be seen that improvements in the methods of manufacturing base oils have led to higher quality products produced at lower cost. This has presumably enabled producers to maintain stable prices and achieve an acceptable return on capital invested. The market place influences have changed in the past 30 years. In the early 1970s, the major producers controlled the additive and base oil technologies. Today, however, the major impact in the market is from the original equipment manufacturers (OEMs) and the Governments. Essentially the legislators are driving forward higher air quality requirements which are forcing OEMs to ensure that, items such as engine lube oil will not compromise their attempts to meet legislated goals. What this means is that higher performance engine oil will be demanded across the world and the present potential oversupply of high quality base stock will disappear. Indeed, there is evidence that this is already happening. It does seem that the advent of GTL will play a major role in the future economics of base oil production. However, in the short-term it does seem that high quality base oils will be produced in increasing quantities from those refineries able to optimise their outputs. Those plants will be able to achieve a high return on investment.
William King of Shell provided more information on GTL as the next generation of base oils. He confirmed that both Group 2 and Group 3 products resulted from the GTL process. Now that considerable experience has been obtained using and producing GTL base oils there is little doubt that the technique is very attractive to producers. Providing the gas feedstock is low cost then the new generation of GTL production units and economics of scale may continue the move to higher quality products at lower cost. All new GTL plants will be large units.
The Russian base oil situation was described by Igor Krylovski of Lukoil. His company is a major exporter of base oils and the gradual increase in quality of their products was emphasised. In fact a unit at the Volgograd refinery is capable of producing 25,000 tonnes per year of Group 3 product.
Julian White from Waterson Hicks brought the conference up to date on CIF/FOB terms in theory and practice. The formal meaning of CIF and FOB in Incoterms were defined and provided a useful reminder of items sometimes overlooked. However, equally important are those instances where Incoterms do not apply. A reminder on the “double hull” regulation was also provided. Perhaps, the most important point here was the fact that the owner of the oil is at least equally liable as the ship owner if pollution occurs. In other words, companies involved with trading oil need to understand their suppliers operation more closely these days as the liability situation has clearly changed.
Ho Leng Woon of AP oils International presented a picture of the lubricant business in south east Asia as seen through the eyes of an independent oil blender. Many of the points made would have been familiar to independent blenders anywhere in the world. An interesting point made though was that a increasing number of multinationals are outsourcing production to independent blenders in south east Asia.
Renato Schieppati of Viscolube described the production of Group 2 base oils from refining waste oils. Beyond doubt the reuse of waste oil will become a major issue within Europe in the next few years. Viscolube demonstrated that it is possible to produce good quality base stocks, equal in quality to virgin stock, provided the right modern processing is used.
All those attending appreciated this conference. All current topics in the base oil world were covered and new insights obtained. ICIS LOR is to be congratulated on another successful event and readers are encouraged to attend similar future events planned for various locations around the world.
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