Located in Bahrain, the 400,000 metric ton per year plant – a joint venture between Neste, Bahrain Petroleum Company and nogaholding – opened for commercial production in October. Coming so soon after the much-anticipated launch of Shell and Qatar Petroleums mammoth Pearl gas-to-liquids plant at Ras Laffan, Qatar, the Neste-Bapco plant is viewed by many as another step in the transformation of the Middle East into an important supply hub.

Base Stocks from Bahrain

Neste holds a 45 percent share in the joint venture, with Bapco and nogaholding each possessing 27.5 percent. Bapco is a government-owned integrated oil company, and nogaholding is the countrys National Oil and Gas Authoritys, holding company for energy-related businesses in the kingdom. According to Neste, the plant represents an investment of 250 million to 300 million.

The plant is located in Sitra, on the east coast of Bahrain, and stands within the battery limits of an existing Bapco refinery. Feedstock will be unconverted oil from the hydrocracking unit of the Bapco fuels refinery. The base oil plant uses the same hydroisomerization technology used in Nestes Porvoo, Finland, Group III base oil plant, although the company declined to give precise details. The plant is capable of making base stocks with viscosities ranging from 4 centiStokes to 8 cSt, though officials said it will focus on two viscosity grades – 4.3 cSt and 8 cSt, which are marketed as Nexbase 3043 and Nexbase 3080, respectively. Neste says the viscosity indices of the oils will range between 121 and 130.

Neste already operates one wholly owned base oil plant – the Porvoo facility, which has a capacity of 250,000 t/y. The company has sold most of that output to third-party blenders of finished lubricants. The decision to begin base oil production in Bahrain is part of a broader strategy to expand geographically and challenge the dominance of Group III producers in Asia.

Four of the worlds five largest Group III producers are located along the Pacific Rim. Neste is the exception, ranking second if it, as marketing partner, is credited with all of the output from Bahrain. Top-ranked SK Lubricants has nearly twice as much capacity as Neste, with 1.2 million t/y, and has projects pending in Spain and South Korea that would bring its total to 2.4 million. SK declined to comment when contacted for this article.

Neste has also signed an agreement with Takreer, a subsidiary of Adnoc, for a 600,000 t/y plant in Ruwais, United Arab Emirates, which is scheduled to begin production in 2013. Of that plants capacity, 500,000 t/y will be Group III and 100,000 t/y will be Group II. If it markets all of the oils from that plant, it will then control more than 1.2 million t/y of Group III capacity.

Neste Executive Vice President for Oil Products and Renewables Matti Lehmus summed up the strategy in a 16 September statement about the companys divestment of a polyalphaolefin plant in Beringen, Belgium. Neste Oils focus is on very high viscosity index base oils where the company aims at becoming a leading supplier in the global market, he said.

Becoming an Export Hub

For the Middle East, the Bahrain plant marks another step away from the regions traditional base oil profile. Until this summer all of the regions plants were Group I facilities. But just ahead of Neste-Bapco, Shell and Qatar Petroleum opened the first of two production trains at their gas-to-liquids base stock plant in Ras Laffan, Qatar. Each train is designed for capacity of 600,000 t/y of Group III, so by the time the second production train opens at Pearl, however, the region will have nearly as much capacity for Group III oils – with additional highly refined barrels on the way. Besides the Neste-Takreer project, Luberef plans to add 700,000 t/y of Group II capacity to its Yanbual Bahr, Saudi Arabia, plant in 2015.

Currently the Middle East consumes mostly Group I base stocks, so observers expect most of the new output to be exported to other regions, helping to satisfy demand for rising lubricant performance. Although the Neste-Bapco plant may not be a game changer individually, when added to other anticipated Group II and III capacity coming to the region it promises to be a significant milestone.

We think the impact should definitely be positive, as there will be more established and approved Group III base oils in the market, which is very welcome in todays market environment, said Apu Gosalia, head of global strategic marketing at Fuchs Petrolub, a lube blender based in Mannheim, Germany.

According to Geeta S. Agashe vice president of the Energy Practice at Kline & Co. consultancy, of Parsippany, New Jersey, United States, the Neste-Bapco plant will not only increase availability but will force existing Group I producers to rethink strategy.

This plant has a great significance for the supply of premium Group III base oils, [and] if all the announced Group III capacity additions take place, the market will develop a surplus by 2015, she said. A large surplus will create a supply push situation, and we expect to see significant growth in the synthetics category of finished lubes as a result. She also warned on Group II prices and the economics of supply for Group I producers. This might also have some impact on pricing [and] high-cost Group Is will feel added pressure once all these new capacities come on stream.

Yet Stephen Ames of SBA Consulting in Pepper-pike, Ohio, U.S., says the new supply can be readily absorbed, The market has been tight for Group III this year for a number of reasons, including markedly heightened demand, he said. Ames predicted buyers will be reassured by regularity of supply and said the Gulfs location could provide logistical and other cost benefits over the major Asian Group III producers in Korea and Malaysia.

Stefan Mueller, a Zurich-based analyst with Access Intelligence International, thinks the addition of Neste-Bapcos production to the global supply chain will affect traditional bases of supply. It will be a major source of Group III for Western Europe and impact base stock imports from the U.S., he said.

Market Waiting

The international market has been short on Group III this year, and market sources said Neste apparently already has large customers lined up for the output from Sitrah. There will be [strong demand] apparently, said Vasily Mikhaylov, of Shamrock Shipping and Trading in Cyprus.

Neste is also predicting a positive response from the market. We expect to ramp up production as quickly as possible to support the growth of our customers and further consolidate our global presence, stated Ulla Kotila, marketing development specialist. The Finnish refiner says it is eyeing the United States, Europe and Asia as primary markets. Neste claims it has implemented a number of sales and distribution initiatives that will support the production.

Some observers in the Middle East believe that some of the regions new Group III output will stay in the region and that blenders here could put it to good use.

In terms of production process, there are significant differences between the Neste-Bapco plant and Pearl. First of all, Neste-Bapcos output are mineral oils, while the supply chain for Pearl starts with natural gas. Pearls fluids may have some technical superiority – for example, higher viscosity index – but opinion is divided over whether blenders will care. Klines Agashe said it is difficult to gauge how much of a premium customers will attach to GTL stocks.

If using GTL base oils means the ability to meet a particular spec or bring down additive content, they will value these stocks at a premium, she said. Right now, I dont think there is any formulation that absolutely requires the higher VI that a GTL base oil can bring to the table. Mueller thinks there will be minimal differentiation. Very little – GTL base stocks are seen as a bit more versatile.

Shamrocks Mikhaylov said perception matters most and that the market considers GTL stocks to have an advantage. From market perception, GTL quality is expected to be much better, he said.

However, Prakash Rangaraj, business manager for lubricant exports at Oman Oil, believes it is a wait-and-see situation. GTL base oils claim to be better than conventional base oils, he said. This is something which shall be tested once the product is used extensively in finished lubes and the claims being [made] have been substantiated.

There may be stronger differences in the marketing of oils from these two plants. We believe Neste will be more focused on the markets to the West, whereas Shell might be also interested in the East, given their leading market share of the global lubricants industry, Agashe said.

Moreover, while Neste has indicated plans to be a merchant seller, it looks like Shell, at least for the short term, plans to use Pearl production in house. Without Shell in the merchant market, the competitive element [between Pearl and Neste-Bapco] should not be a material issue, Ames said.

After signing two joint venture agreements along the Arabian Peninsula in a short period of time, Neste has sent a signal it intends to challenge traditional supply sources and maximize the benefit of location and proximity to raw material. It is a move that will contribute to the regions growing reputation as a supply hub and center for product innovation that will have also have implications for the

regional market.