It’s Not Easy Being Small


LONDON – Small independent blenders struggle – and must be creative – to obtain consistent base oil supply, particularly in regions of the world where choices are limited, like Australia.

Ten years ago there were four base oil plants in Australia that exported to the region. This month, when Caltex Australia is expected to stop base oil production at its Kurnell plant, there will be none.

You have to be creative sometimes to get your base oil, Tony Lawton, quality assurance and technical services manager with family-owned blender Penrite Oil Co., told the ICIS World Base Oils & Lubricants Conference last month. Nobody wants to talk about this, but there are many finished products sold on the market that do not use the exact base oil they should. And they work.

For an independent blender like Wantirna South, Victoria, Australia-based Penrite, said Lawton, base oil interchange is one of the main drivers for base oil choice in order to comply with API, ATIEL and original equipment manufacturer specs and rules.

The ability to interchange is quite critical for independents, he noted. API Group II interchange can be an open question when getting the correct Group II supply is an issue, and, he asked, where does rerefined Group II sit?

Group III interchange rules have been talked about for a number of years, Lawton said. Why cant the results from the lower-performing Group III grades be read up to the higher-performing grades, with only a seals test to be done? And, he added, gas-to-liquids adds another factor.

Most of the interchange rules relate to engine oils, but OEMs also have rules for gear oils and transmission fluids, power steering fluids and industrial products. With that amount of variation, how many base stocks can a blender really carry? Lawton asked. It becomes a logistics question. And in times of shortage, base oil interchange rules could be restrictive for some blenders. Everybody scrambles.

There are regional variables in base stock availability, and refinery closures can have a significant impact, resulting in tight supply and higher cost.

Europe has been very short of Group I recently, Lawton continued. Group III is also tight, but at least the main players have multiple approvals, so there are viable, qualified alternatives.

Group II is an interesting proposition, he went on. Its currently tight in Asia, but there is a lack of Group II-qualified products under ACEA, so it adds to challenges in the light-duty area.

This could change in the near future, he said. Hopefully with Chevrons Pascagoula, excess Group II will give us choices. Chevron has begun construction of a 25,000 barrel per day Group II plant in Pascagoula, Miss., slated for completion in late 2013.

Australia is a 450 million liter per year base oil market, and it will all have to be imported by sea after March 2011. There are numerous issues challenging availability, including the extended shut down of Formosa Refinery, all the oil going to China and India, political unrest in Korea and also the Middle East.

In addition, additives sold in one region of the world may not be available in other regions, said Lawton, so a product developed on your base oil may not actually be available to you.

Most small independent oil companies will try to do the right thing, but sometimes you have to use the wrong base oil. The product still works.

Logistics is the next area of challenge for the small blender. How you buy depends on how big you are. One suppliers preferred parcel is a tank ship, said Lawton. It would last us 10 years. To buy by the tank ship, you really need to have a great throughput of each grade, you must maximize tank turns, and tanks must be available, plus you must have the capital to pay for 500 to 1,500 tons at a time.

Blenders can buy base oils by the truck load either through a distributor or direct from the refiner, if they are large enough and in the right place.

ISO tanks and flexibags can also be economical for small blenders, although you must have 40 ton to 50 ton storage tanks.

Looking ahead, Lawton noted that blenders will face more controls on what base oil is used, for example to comply with the GM Dexos spec. Testing costs will limit how many base oils are used to quality additive packages, and blenders will need to stock a wider range of different base oils from different suppliers.

Small independent blenders will continue to struggle to gain consistent base oil supply, Lawton concluded. But more volume means more choices, so new Group II, III and GTL refineries may ease supply issues in some regions.

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