At the ICIS World Base Oils and Lubricants Conference in February, a panel of API Group III manufacturers, additive companies and lubricant blenders discussed the issue of product qualifications that come with existing and newer Group III slates. The panel focused on two questions: What minimum supporting approvals are the norm, if any, from base stock manufacturers? And, how best do customers deal with the new Group III slates offered without crankcase pre-qualifications?

As for the first question, there are a variety of positions taken by Group III manufacturers in the marketplace, ranging from no support at all in terms of product qualifications for some slates to very comprehensive support, including from the American Petroleum Institute, the International Lubricants Standardization and Approval Committee, the European Automobile Manufacturers Association (known as ACEA) and original equipment manufacturers claims for both passenger car and heavy-duty diesel engine oils. In the best cases, additive technologies are supplied by more than one additive company for a given slate. Whether or not such support exists is largely determined by the Group III manufacturers business model.

First, some base oil producers have historically only placed excess production in the marketplace, when production has exceeded the requirements for internal use. This is usually when the manufacturer is primarily a finished lubricant producer and base oil manufacture is incidental to the main business model. Some term-supply commitment to a limited number of customers by the base stock manufacturer would be needed, but that is all. The Group III customer or user generates the product claims themselves.

Then there are manufacturers with a leading Group III base stock supply position – either regionally or globally – that consume only a minor portion of in-house Group III production and effectively have a secondary finished lubricants business.

These manufacturers have often invested substantially in obtaining product approvals for their slates with various additive technologies, sometimes in partnership with all the major additive companies. Both the Group III base oil manufacturer and additive producer benefit from cross-selling of additive technologies and base oil combinations for use in blending what are amongst the highest tiers of finished lubricants.

A third category of supplier is where Group III manufacture is the main business but where the manufacturer is prepared to supply at a discount; to place in the market Group III stocks that have minimal (API or API/ACEA only) or no pre-qualifications at all. The implicit assumption here is that this discount covers further qualification costs. Such newer manufacturers may be aiming for the second model, ultimately.

There are a number of smaller blenders entering the high-value synthetics market that have neither the financial backing nor even the technical capabilities to start a complex formulary from scratch. If they are venturing into the Group III-based finished lubes market, they need to be able to hit the ground running with a basic formulary of the higher added value but smaller volume-run lubricants, so they may prefer the second model.

During the panel discussion, the point was made that both the Group III manufacturer and partner additive company deserve a reasonable return on the considerable costs sunk into generating the intellectual property of both basic (API/ACEA) claims, but specifically OEM approvals. These costs are significantly greater than just simple base oil interchange costs. If OEM approvals, especially factory-fill approvals, are targeted, the OEM may require more than one approved Group III base oil slate for a security of supply position. But additive sales are not greatly enhanced after more than a couple of Group III slates are approved, according to Chris Castanien of Neste Oil.

The off-the-shelf approach for top-tier lubricants with multiple OEM approvals does, of course, oblige the finished lubricant marketer to source both base stock and additive technology from pre-defined sources, with obvious limitations in bargaining positions. But this is a business decision that has to be balanced against going it alone in order to see whether a more competitive combination of base oil, additive technology procurement and engine testing costs can be achieved.

As for the second question, the point was made that apart from the issue of approval costs, there is also the issue of competition for engine test stand availability when qualifying new Group III slates in competition with more established Group III slates. This can provide significant constraints especially in the introductory period of a new standard of API, ACEA or OEM requirement.

The argument that blending with pre-qualified additive technology and Group III slate combinations may lead to a lack of lubricant differentiation does not really stack up, since top treats can often be applied to a base oil-additive technology combination with minimal retesting required under minor modification rules.

Group III has historically attracted a price premium compared with Group II, due in part to lower yields from the plant through more severe hydrocracking, as well as being more demanding of the quality of feedstocks used, whether crude or hydrowax (a by-product of hydrocracking). This has not stopped excess capacity development in the past for Group III. In order to mitigate oversupply impacting prices too much, Group III manufacturers have disposed of some excess production to traders in less controlled markets where the Group III base oil may be used in lower-tier products for which Group III is technically not a requirement.

Group III base stocks are likely to be the cost-effective oils of choice for top-tier and factory-fill passenger car motor oils, either alone or in conjunction with synthetics such as polyalphaolefins. Group III base stock manufacturers, in partnership with the major additive companies, have provided blenders with options that largely obviate the needs for significant in-house top-tier formulation development by lubricant blenders for all but possibly some factory-fill oils.