Demand for base oil is projected to grow significantly in Asian countries, with the regions requirements expected to represent more than 50 percent of the worlds demand by 2020. Shell said finished lubricants demand in China and other Asian countries is forecasted to grow by 10 percent per year, but some analysts predict slower growth.

As the demand for higher quality lubricants is on the rise in Asia, the region is shifting away from Group I base oils towards increased use of Group II and Group III base oils,” said Mark Gainsborough, executive vice president for Shell Lubricants, at the inauguration ceremony held in Daesan. “This plant contributes significant Group II base oil supply to Shells supply chain in the region, helping us grow our premium lubricants business in Asia, especially in China and Northeast Asia.

Hyundai and Shell Base Oil Co. is a joint venture of Koreas fourth-largest refiner, Hyundai OilBank – which holds 60 percent of the alliance – and Dutch Shell Petroleum, an affiliate of Royal Dutch Shell Group, which owns the remaining 40 percent. The new plant is located at the existing Hyundai OilBank refinery in Daesan, South Chungcheong Province, and has capacity to produce approximately 650,000 metric tons per year of Group II base oils.

The joint venture partners selected patented Shell base oil technology for use in the plant, which broke ground in January 2013. Mechanical completion of the unit was attained in the first half of 2014 – slightly ahead of schedule – with commercial production starting in late July. The first export cargoes were shipped to customers in China in early August, according to sources familiar with the plants operations.

Most of the base oil from the plant will be exported to other parts of Asia and the Pacific Rim, but some will be kept for domestic use in Korea, with a large portion expected to be blended at Shells lubricant blending plant in Pusan.

Hyundai and Shell have established commercial agreements whereby Shell will in initial years have off-take of a majority of the output to manufacture finished lubricants at its blending plants in Asia. Other terms of the agreements were not disclosed.

Shell runs a network of 19 blending plants in the region and it building two more – one in China and one in Indonesia.

The Daesan plant is the first base oil venture for Hyundai OilBank. Previously it imported lubricant base oil from other suppliers for the production of its own line of lubricants.

The stable plant operation know-how and refining technology from Hyundai Oilbank and the global network of the worlds largest energy company, Shell, will generate synergy, Hyundai Oilbank Chief Executive Officer Moon Jong-bak said in a press release. We expect Hyundai and Shells lubricant base oil business to be a big contributor to Hyundai Oilbanks effort to diversify its profit sources.

Shell said its lubricant base oil and component security is now underpinned by a network of nine base oil plants globally, including this new joint venture asset. One of those plants, a joint venture with CPC in Kaohsiung, Taiwan, will be closed late this year, while another, in Pernis, Netherlands, is scheduled to be shuttered in 2016.

Shell produces finished lubricants for transport (passenger cars, heavy duty vehicles, ships and planes) as well as other industrial segments (power, mining and manufacturing), and markets them under such brands as Pennzoil, Quaker State, Shell Helix, Shell Rotella, Shell Tellus and Shell Rimula.

Hyundai Oilbank plans to market engine oil for heavy equipment and industrial machinery, and launched its XTeer brand of automotive engine oil last year.