Group IIIs Next Trick – Differentiation


STUTTGART, Germany – With API Group III base stocks proliferating worldwide, its important to distinguish each suppliers products from the pack, said Infineum International Ltd. at the Uniti Mineral Oil Technology Congress here last week. But a more diverse global portfolio also demands new API base oil interchange guidelines, which will be challenging to implement.

Speaking during the Infineum Trends 2015: Making a Difference in a Complex World pre-conference event, Yannick Jullien pointed to a stark change in the global balance between various base stock types. Current announcements of base stock capacity additions and Group I shutdowns suggest that between 2011 and 2017, more than three barrels of [Group II or III] capacity will be added for every barrel of Group I removed.

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More important, noted Jullien, who is the additive companys EMEA regional market manager, is that among all base stock types, Group III demand is expected to grow the most rapidly, at 7.5 percent per year worldwide through 2023.

Jullien noted that while Group III refineries are disproportionately clustered in Asia and the Middle East, overall global production will significantly exceed demand regardless of regional anomalies. For example, Asia and the Middle East are experiencing the most dramatic surpluses of Group III supply, which they have to export to areas such as Europe and North America.

In a video interview for the presentation, Joe Rousmaniere, Chemlube Internationals director of business development, pointed to several other regions that will be soaking up Group III excess for some time. How long before the technical demand catches up with Group III? he asked. Its going to take a good long time, because the markets of China and India and Africa and South America have a long way to develop to absorb all of that Group III.

But although Group III capacity abounds and Group II is long, Jullien noted there are plenty of opportunities to gain elbow room. Competition in the Group II and III markets will remain high and it will be an exciting market to watch as suppliers continue to look for innovative ways to differentiate their products – through higher processed oils such as Group III+, for example.

Group III+ – most of which is made by hydroprocessing fuel hydrocracker bottoms or from gas-to-liquids waxy raffinates – is also increasing, Jullien said. Group III+ is not an API base oil group; rather, it is a commercial term usually applied to base stocks having a viscosity index of 130 or higher.

Rousmaniere said that Group III+ base stocks offer unique value to the market. Remember, not all Group IIIs are alike. Higher-performance Group III+ products compete for space in the low viscosity polyalphaolefin market, and right now, low viscosity PAOs are in short supply and the prices are really high. If the Group III+ oils can compete in that space, theres no oversupply, he concluded. In fact, you could make an argument that its under-supplied.

Producing rerefined or renewable base stocks is another way to differentiate Group III supply, Jullien said.

In another video statement, Novvi LLC President and CEO Jeffrey Brown touted the potential for green base stocks, such as those his company makes from renewable raw materials. Our base oils are classified as Group III. This allows us to drop into the existing infrastructure, he said. Couple that performance with the environmental benefit…and we bring a very unique value and performance; differentiation thats unique in the marketplace.

Rerefineries have the capability of taking used oils and turning them into high quality Group II and even Group III base stocks, Jullien noted. But this new capacity of high quality base oil comes at a time when virgin supply is plentiful. Customer education, investment in infrastructure, the introduction of tax incentives and a strong regulatory push are likely to be needed to increase the pace at which these products move into a more mainstream position in the lubricants industry.

Regardless of the barriers to their wider introduction, he continued, we would expect, in the next five to 10 years, to see environmental pressure push green base stocks further into mainstream automotive applications.

Neste Oils vice president of base oil, Virpi Amoedo, in her video message, highlighted another gem hidden in the otherwise crowded Group III market: approvals. Original equipment manufacturers and formulators are driving growth in order to meet requirements for fuel economy, durability, and also cost effectiveness, she said. Its very important to notice that the Group III market is tiered to the [OEM]-approved and the non-approved products, and based on our analyses, the excess of supply is less in terms of approved Group III base oils.

All in all, the need to differentiate products creates greater complexity in the market, Jullien emphasized. This wider portfolio of base stocks needs approval in the latest industry and OEM specifications. This means the development of base oil interchange and viscosity grade read-across guidelines will be a significant challenge.

Providing data to help define these guidelines is vital, and base stock group alone is unlikely to be enough – particularly given the wide range of products within these two groups, he continued. It may be time for APIto address the growing need for base stock category redefinition.

Rousmaniere and Amoedo both cautioned that redrawing the API interchange guidelines will be difficult. The industrys already under tremendous stress because weve got the testing, the cost [of new global specifications], weve got many different OEM standards coming up, Rosumaniere observed. And if we put on top of that the restructuring of base oil interchange to cover Group IIIs and Group III+s, thats an awful lot to ask. And I think its going to take years and years to do that.

Base oil interchangeability should be based on facts and transparency so that OEMs can be convinced that the certain quality level is maintained, Amoedo said. In Neste Oils view, the Group III industry does not yet have the fact-base that would support base oils interchangeability.

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