SK: Optimistic about Group III


SINGAPORE – The worlds largest single-unit API Group III base oil plant, SK Lubricants 26,000 barrel per day joint venture with JX Energy, started up in May. But net production only increased by 10,000 b/d, as SKs oldest Group III plant went off line.

Steve H. Kim, manager of base oil business development at Seoul, Korea-based SK Lubricants, updated the ICIS Asian Base Oils & Lubricants Conference here on June 28 about his companys Group III expansion plans.

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The SK Lubricants-JX Energy joint venture plant in Ulsan, Korea, is now running, he said. The JV is owned 72 percent by SK, 28 percent by Japans JX Energy. While it is the third Group III base oil plant to be built in SKs Ulsan refinery, Kim noted that SKs net production increase is only 10,000 b/d because the oldest plant is now being modified for other purposes and no longer produces base oils.

In 1995, said Kim, SK opened the worlds first large-scale Group III plant to serve the merchant market. We suffered with high inventory levels in the first few years, but after a few years of suffering, things changed and demand started to increase.

Since 2000, demand has outpaced supply. We added the second lube base oil plant in Ulsan in 2004, Kim said, and within one year demand again surpassed supply. But SK faced limited feedstock availability, and this changed our strategy. Rather than organic growth, we turned to expansion through partnering.

To date, SK has announced three joint ventures, including the JX Energy project in Ulsan. Its 9,000 b/d jv with Indonesias Pertamina, 65 percent owned by SK, began production in 2008.

Last year SK announced a joint venture with Spains Repsol, to build a 13,300 b/d Group III plant at Repsols refinery in Cartagena, Spain. This project, 70 percent owned by SK, is expected to start up in the second half of 2014. SK is providing the design and process technology. High quality feedstock will come from Repsols hydrocrackers, and the plant will produce SKs Yubase-branded base oils for the European market in 3, 4, 6 and 8 centiStoke viscosities. Construction is scheduled to start this month, Kim said.

We assess five things when looking for expansion partners, Kim continued. The first criteria for a potential partner is the refiner must have large hydroprocessing units. Next SK looks for a strategic fit, and SK must control the joint venture. Feedstock quality and quantity is the third area, Kim noted. It must be suitable for producing Yubase and about 10,000 b/d is the minimum quantity required for a grassroots project. Finally, Kim said, SK assesses infrastructure and economics.

Group III base oils are used primarily for engine oil applications, and Yubase 4 and 6 are the most desired cuts to meet the latest specs from API, ILSAC, ACEA and the automakers, Kim said.

Where is Group III in its product life cycle? SK believes the Group III base oil market will continue to grow along with new oil specifications. The success of hybrid electric vehicles and electric vehicles which need little or no lubrication, at some unknown time in the future, could bring the growth phase of Group III to an end. Our parent company makes batteries for electric cars, Kim confided with a smile, suggesting that SK Lubricants has a good idea of how many hurdles electric vehicles face. It looks like our base oils will thrive for many years. The base oil market is okay.

SK plans to continue expanding both through organic grown and jv partnering, to meet the booming demand for higher quality base oils, Kim concluded. I have no announcements today, but we are optimistic about the market, and SK will continue expanding its base oil capacity.

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