Supply chains are more complex, and full-line lubricant marketers will have to inventory all three base oil groups. As a result, strategies for minimizing complexity will be critical, he said.

In North America today, Group II has about 65 percent of the base oil market. Specifications have tightened, and passenger car, heavy duty and industrial oil formulations are based on Group II. Group III was introduced a decade ago as a correction fluid for passenger car oils.

In Europe, like the U.S., specifications are tightening, Lok continued. But early local supply of Group III resulted in a move to Group I/III formulations for engine oils, and demand growth has brought Group III imports from Asia. Europe was and will continue to be a large exporter of Group I.

Most of the Asia-Pacific region is a specifications follower, he said, with a small premium lubricant market. At the same time, the region has a large supply of all base oil groups, with Group III production going primarily for export to the U.S. and Europe. Premium Asian formulations are based on both Group II and III, and new capacity is meeting fast-growing demand.

Latin America is also a specifications follower, with a majority of formulations based on Group I. The small premium lube market brings in small amounts of Group III from Asia. Due to tightening specifications, premium base oil is being pulled around the globe, Lok said.

In particular, meeting new heavy-duty engine oil specs is requiring the use of low-sulfur Group II base oils. Heavy duty engines also require better lubricity, also pointing to Group II solutions. Group I has too much sulfur and Group III is too light, Lok said. Group II and II-plus base oils are required to make low-SAPS lubricants.

Further supporting the push to Group II is globalization of heavy-duty specifications. They are consolidating around Volvo and Mercedes Benz specs, he noted. And OEMs also want global availability of products, the same quality across the globe.

Consequently, buyers of base oils face a lot of issues, Lok continued. How many grades do I need? Where are specs going? What are the optimal formulating strategies? Can I rely on a supply point halfway around the world? What if my supplier exits my region?

Recent industry experience integrating Group III into the supply chain illustrates the problem, Lok said. Lube marketers faced too many qualifications and too much time and money for qualifications, tank issues, and high prices for inefficient small volumes.

The answer, Lok contended, is to pick suppliers with global base stock slates, multiple locations, large volume plants and a commitment to grow with their customers. Who are these companies?

Examples, said Lok, include ExxonMobil, the benchmark for the industry for a long time, for Group I. SK and Neste are Group III suppliers meeting Loks criteria. And – no surprise here – Chevron for Group II.

Chevron offers global supply, multiple locations and large volumes, said Lok. The start-up of Chevrons Pascagoula, Miss., 25,000 barrel per day Group II plant is projected for late 2013. It will target markets in Europe, the U.S. Gulf Coast and Latin America.

Chevron currently supplies Group II from its 20,000 b/d plant in Richmond, Calif., and from its 23,000 b/d Group II/III joint venture, GS Caltex, in Yeosu, South Korea. Additional Chevron hubs include Pascagoula on the U.S. Gulf Coast, Antwerp, Singapore and Australia. Lok identified future hubs under consideration, as Group II demand grows, in Brazil, South Africa, the Eastern Mediterranean and the Middle East.

Group II can be used in 97 percent of all applications, and many North American blenders have moved entirely to Group II, Lok concluded, so Group II certainly is the new Group I in North America. While its role in other regions depends on the region and supply, mainline heavy-duty formulations globally are migrating to Group II.