SK Aims to Stay No. 1 in Group III


KUALA LUMPUR, Malaysia – Koreas SK Energy plans to double its production of high-quality API Group III base oils to 48,000 barrels per day, opening two new plants in 2012 and 2014 in Europe, South Asia and/or East Asia.

Jay Kim, senior marketing manager with Seoul-based SK Energy, told the ICIS Asian Base Oils & Lubricants Conference here last week that SK expects Group III base oil demand to drop 30 percent worldwide this year, compared to 2008, as a result of the recession.

But beginning next year, SK expects significant demand growth for Group III oils, said Kim, and SK plans to meet that demand by adding 24,500 b/d of new capacity by 2014. Upgrades over the next two years at SKs two Korean plants and at its joint venture with Indonesias Pertamina will add 4,500 b/d to the companys current 23,500 b/d of Group III capacity.

Additional new plants will be available in 2012 and in 2014, Kim continued, each with about 10,000 b/d of Group III capacity. While Kim declined to identify the locations for the new base oil plants, he said we intend to diversify. Candidates are in Europe, South Asia and East Asia; we plan to confirm plans by the end of this year.

In his presentation on trends in the global Group III market, Kim noted that gas-to-liquids base oils have set high expectations in the marketplace as Group III+ stocks. GTL was expected to be a big threat, he said. But the steep rise in project costs has left only one proposed GTL base oil project standing, Shell-Qatar Petroleums Pearl project. While this project still promises 20,000 to 24,000 b/d of Group III+ base stocks, said Kim, technical and commercial demand may outpace supply within five years.

The worlds appetite for better fuel economy is driving the shift to higher quality base oils, said Kim. OEMs keep shifting from 10W motor oils, requiring better base oil. Ford, Honda, Nissan, Hyundai, BMW and a variety of GM cars and trucks now require 5W oils, and both Honda and Toyota are calling for 0W-20 grade oils for current and future gasoline engines.

GF-5 will introduce 0W-20 and 0W-30 oils to the mainstream, Kim said. Adoption of the new GF-5 engine oil specification in North America and Japan will increase demand for the lowest viscosity SAE grades. And critical to engine oil formulators, he added, SAE 0W-20 engine oils can be made without PAO by using Group III base stocks, controlling costs.

On the light duty diesel side, SAE 0W-30 will require mostly Group III base stocks, but may need some level of PAO for volatility and viscosity corrections, said Kim.

Kim acknowledged that new supplies of Group III coming on stream from 2011 to 2014 may create temporary surpluses, but this will depend on project schedules, how fast the lube industry moves toward top tier products, and even the economics of Group I plants. And even if technical demand lags supply, use of the higher viscosity index Group III base stocks will enable product differentiation, creating critical commercial demand.

SK is the biggest Group III producer in the world, Kim asserted. The company clearly plans to maintain that dominance.

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