Adnoc has Group III production capacity of 500,000 metric tons per year, as well as 100,000 tons of Group II base oils, at its plant in Ruwais, Abu Dhabi, United Arab Emirates. The companies expect about 10 percent of the Group III output to be sold by Chemlube.

Certainly, its a significant amount of oil. We anticipate in excess of 50,000 tons into Europe, Chemlube Director of Business Development Joe Rousmaniere told LubesnGreases.

Chemlube isnt the first base oil distributor to get an exclusive contract with Adnoc. In 2017, the Dutch company Penthol landed such a deal to supply the North American market, which it has done through its agent for the region, Vertex. The Chemlube deal is about Adnocs desire to shift its Group III sales to areas that will yield a higher return.

The global base oil market was oversupplied with Group III since before Adnoc opened its plant in 2016, and the additional volume exacerbated that situation. That surplus presented one challenge to any new supplier coming into the market, but Adnoc faced an additional problem insofar as it lacked approvals certifying that passenger car motor oil formulations including its base stocks meet industry or original equipment manufacturer specifications. Modern PCMOs are the largest application for Group III, but such approvals are widely recognized as essential for any base stock marketer wanting to be a major player in that segment.

Adnoc did manage to sell some cargoes into developed markets such as North America and Europe. Without a full slate of approvals, though the company also had to sell significant volumes into less developed markets such as Africa and India, which has little technical need for Group III. In early 2017, buyers in India were paying more than U.S. $100 per ton less for 4 and 6 centiStoke Group III than the going prices for the same grades in Europe.

Its no surprise, then, that Adnoc is seeking help to increase Group III sales in Europe, particularly Western and Central Europe, which pay more for Group III than any other region.

Part of the strategy will be to obtain approvals for engine oil specs that are key there. Adnoc now has approvals for PCMO formulas meeting several important standards in the U.S., including API SN, GM Dexos 1 and ILSAC GF-5. The company is still seeking approvals for standards developed by ACEA (the European Automobile Manufacturers Association) and individual European automakers.

In Chemlube, Adnoc chose a company that claims to be the worlds largest independent trader of Group III oil. (Chemlube S.A. is a sister company of Chemlube International LLC, which is based in New York State.) The company, which is also an agent for Bapco, Bahrains national oil company and another new Group III supplier, distributed some Adnoc oils well before landing the contract.

Chemlube has been importing ADBase into their European distribution system, based in France and The Netherlands, since September 2016, soon after the Ruwais refinery start up. At the same time, the company began shipping ADBase to Asia and it is now the largest volume shipper of that product into China. Chemlube was also the first company to introduce bulk cargoes of ADBase into Africa.

I made it a mission to deal with these guys, Rousmaniere said. I recognized early on that [Adnoc] were the coming thing. We pursued them very hard.

Rousmaniere has a track record of helping refiners develop Group III businesses. In the late 1990s and 2000s, he was general manager for Lithcon Petroleum USA as the Houston company served as SK Lubricants sales agent for Group III in the Americas. He later headed the Group III business for Malaysias Petronas for the first six years after its launch in 2008.

In the short-term, Adnoc and other Group III suppliers could benefit from a tightening of supply during the first half of 2018 as several plants were scheduled to shut down for planned maintenance in March, according to Argus Media. These included SK Lubricants plant in Ulsan, South Korea, which has capacity of almost 1.3 million t/y of Group III cuts; S-Oils plant in Onsan, South Korea, which can make 1 million t/y and was expected to close for a month in mid-March; and Petronas plant in Melaka, Malaysia, which can produce 268,000 t/y of Group III base oils and was expected to be taken off-line in late March for a turnaround.

In the long run, Adnocs success will probably depend more on its ability to obtain approvals and perhaps on the quality of its Group III stocks compared to competing products. Adnocs 4 cSt Group III has a viscosity index of 132, more than 10 points higher than the minimum threshold of 120 defined by the American Petroleum Institute.

In the long term, the best hope for Adnoc and other Group III suppliers lies in long-term demand trends. Demand for Group III – including technical demand – continues to rise steadily. With a slowdown in the amount of new capacity coming on stream, most analysts agree that demand will eventually catch up to supply. That should help pad prices for all suppliers.