Shortages Spur Engine Oil Licensing Relief


The American Petroleum Institute took steps Monday to ensure that engine oil marketers can continue to license new products, despite the recent Gulf of Mexico hurricanes and their possible impact on the lubricant supply chain. The action is intended to guard against engine oil licensing being brought to a standstill or significantly delayed by industrywide supply disruptions, said the institutes Dennis Bachelder.

In an Oct. 3 teleconference, APIs Lubricants Committee voted to issue an Emergency Provisional Licensing Amendment to API Publication 1509, the document which governs its Engine Oil Licensing and Certification System. Eleven members voted to approve, one to abstain and one did not participate. The provisional licensing took immediate effect.

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The amendment authorizes API staff to issue short-term Emergency Provisional Licenses if the supply of base oil or additives utilized by a number of licensees is disrupted. API defines disruption as a significant industrywide limitation on the supply of a base oil or additive that makes it impossible for multiple licensees to market sufficient quantities of motor oil without violating the API license agreement. The disruption must be caused by an unforeseeable event involving, but not limited to, an explosion, fire, legal action, natural disaster or act of terrorism that is beyond the control of individual licensees.

The Gulf storms certainly qualify as creating a disruption. Well over half of U.S. base oil refining capacity lies in the affected region, and many of its chemical and additive manufacturing plants do, too. Few facilities in the regions are reporting major damage, but most have encountered logistical problems in obtaining feedstock or making deliveries.

Under normal circumstances, APIs licensing program mandates that engine oil marketers specify the exact combination of base stocks and additives in their formulations, and stick closely to that combination once approval is gained. Marketers also must qualify their formulations in costly and time-consuming engine sequence and laboratory bench tests, and rerun the tests before making substantive changes in the ingredients. While this helps assure consistent quality in the marketplace, the systems inflexibility has been a longtime worry for the industrys Cassandras. This new amendment should help alleviate that concern.

To invoke Emergency Provisional Licensing (EPL), licensees are required to provide API with a detailed description of the event that created the need for the Emergency Provisional License; describe the steps that have been taken to find other sources of licensable material; and estimate the shortages expected duration. Also required: technical information showing that the use of the substitute component will not adversely affect the claimed performance of the licensed product.

Emergency licensing is meant to be as brief as possible, and under no circumstances will an EPL license be granted for longer than 90 days, API said. However, it may extend the initial license period beyond that time if the case warrants it.

API explicitly designed EPL to be a little-used procedure. Relief under this section will rarely be granted by API, it warned. The burden is on the licensee to clearly establish that there are exigent circumstances that justify the use of this type of remedy, – and not, it added, simply because a licensee neglected to secure raw material supplies or failed to exercise good business practices.

EPL is intended to provide some flexibility in product licensing, Bachelder noted, provided there is an established need for a formulation change, and there exists enough data for a sound technical judgment regarding the finished products ability to meet claimed performance standards.

Lubricant marketers expressed general support for the effort undertaken by API staff to get the amendment completed. For example Citgo (which is not a member of API nor of its Lubricants Committee) commented in writing, EPL is well-founded under the current situation, and we applaud those with foresight to construct the proposal.

Some concerns were raised, too. EPL appears to place an increased technical burden on API staff, pointed out Chevrons West Alexander, chairman of the Lubricants Committee. This will require, Chevron stated in its ballot comments, substantial temporary manpower to implement, evaluate and negotiate engine test programs and respond to applications on a timely basis.

We don’t have time to work though process details, observed Shells Jim Newsom, also a committee member. The crisis will have passed before we have consensus on process details. Since API owns the trademarks, we should leave process in their hands. Its up to API to determine the extent to which our industry can rise to the occasion in times like these.

Barbara Dennis, BP Lubricants, noted in her written comments that, We are confident that API will take the necessary steps to ensure the level of post hoc testing required of EPL license holders will be in proportion to both the magnitude of product volume waived under the EPL and [to] the number and cost of approval tests which were waived at time of EP licensing.

The rigor which API applies to this duty is of paramount importance, she cautioned, lest EP License holders gain market advantage at the expense of consumers, who place their trust in the technical integrity of voluntary API certification marks.

Dennis also urged that prior to granting a provisional license, it is imperative that API exercise due diligence investigating the precise cause of the emergency. For example, it has been reported throughout the industry that one of the major additive companies declared force majeure on additive supply 19 days prior to Hurricane Katrina, and for reasons which appear to be completely unrelated to acts of nature, terrorism or disaster.

Force majeure is a legal term used by companies seeking relief from contractual performance requirements when performance is impossible due to events beyond their control. Additive supplier Chevron Oronite issued force majeure on its products worldwide August 11, blaming increased demand and tightened supply of raw materials. The move followed months of troubles at its plant in Singapore, which Oronite said it at last had overcome. More recently, however, the companys Belle Chasse, La., plant has been hobbled, this time due to complications caused by Hurricanes Katrina and Rita.

General Motors, Ford Motor, DaimlerChrysler and other members of the auto industrys International Lubricant Specification and Approvals Committee announced support for the emergency licensing measure, too – with the understanding that EPL be administered according to the internal guidelines, added Bob Olree of General Motors, commenting on the ballot on ILSACs behalf. We believe very strongly that some engine testing must be included in the testing plans offered by any marketer applying for EPL, he emphasized, and that some engine testing must be required by API in approving any such plan.

The Oct. 3 teleconference did not address how or if the public should be made aware of EPL, but automakers think they should be. API should consider somehow making information available as to the oils which are being marketed under EPL, ILSACs Olree wrote to API. Even though these oils will presumably be marketed for only a short period of time, the fact that these oils do not meet all the same requirements of normally licensed oils should somehow be acknowledged.

BPs Barbara Dennis concurred that the public should be informed, writing, Unless API identifies EPLs separately from fully certified licenses on their public website, consumers will be entirely unable to ascertain whether a given license upon which they rely is supported by full data or not.

Another issue is the draft of internal guidelines API staff will follow when issuing an EPL. Citgo, for one, noted, Certain requirements as described in the preliminary internal guidelines seem excessive. And Joan Evans of Infineum added, Several statements in the internal guidelines could use some more consideration. While the guidelines are solely the responsibility of API, some committee members expressed interest in working with staff to tighten them up.

API staff will review the guidelines within the next couple of weeks, and present them to the Lubricants Committee at its Nov. 7 meeting in Houston.

API expects to receive and begin processing initial requests for EPL within a few days. However, revised application forms are still being developed. Existing license agreement can be revised in a day or two, and the other existing forms can be adjusted as necessary, advised Doug Morris, API legal counsel. But we have to act on applications when they come in with the forms and procedures we now have. The essential point, he indicated, is to make emergency licensing available as soon as possible.

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