SKs ZIC-branded motor oils, made with the companys API Group II/III Yubase base oils, is a leader in South Koreas premium finished lube market. According to its web site, SK exports finished lubricants to more than 17 countries worldwide, and has established local networks in China and Russia.

Little Falls, N.J.-based consultancy Kline & Co.s Flora Liu, a Shanghai-based manager, said Chinas lubricant market was estimated at 4.8 million metric tons in 2009. By volume, Liu said, Chinas market is 46 percent industrial oils, 38 percent commercial on-and off-highway automotive oils, and 16 percent consumer automotive (which includes lubricants consumed in all gasoline-powered vehicles, such as passenger cars, motorcycles, mini-buses and taxis).

Although the consumer automotive market is only 15 percent by volume, Liu noted, it accounts for 22 percent of the market by value. She noted it has become a more sophisticated market. For example, higher-end engine oils (API SG and above) are projected to account for 80 percent of the consumer segment by 2013, up from 60 percent in 2008.

According to Kline, Shell is the largest international lubricants supplier in Asia by sales volume and the top international supplier of lubricants in terms of market share in China.

SK Lubricants operates a base oil plant in Ulsan, South Korea, with 17,000 barrels per day of Group III and 4,000 b/d of Group II capacities. With Pertamina, it also operates a joint venture plant in Dumai, Indonesia, with 7,000 b/d of Group III capacity.

Group III suppliers, especially those in Asia, are quite bullish about China, said Milind Phadke, project manager for Kline and Co.s Energy Practice. The logistics cost to serve China are much lower compared to, say, Europe, Phadke told Lube Report, so much so that with a lower price point in China vis–vis Europe, the netback may still be on par.

When Shells Pearl Gas-to-Liquids project comes on stream in Qatar, he pointed out, the competition in Europe will get very intense and more so when Nestes JV projects start operating. Shells Pearl GTL project, which includes about 30,000 barrels per day (over 1 million metric tons per year) of base oil capacity, is expected to begin production in early 2011. Bapco and Finland-based Neste Oil plan to open a 7,700-b/d Group III plant in the second half of 2011 in Bahrain. Takreer, Neste and OMV have announced a 10,000-b/d Group III project in Ruwais, Abu Dhabi, scheduled to open in 2013.

So I think this move is a way of creating alternate markets, which will be required by SK soon enough, Phadke commented.

At press time, Lube Report was unable to reach SK for further details on its expansion in China.