The base oil industry has seen tremendous change both globally and specifically in Europe since 1993, when Group III first emerged as a base stock and when new processes such as hydrocracking and hydroisomerization were introduced.

In the beginning, the base oil market in Europe was heavily dependent on Group l production, which had dominated for many years. However, the requirements for more modern, better-performance lubricants were starting to mount due to growing awareness of emissions controls and higher-rated engine technology. Hence there arose demand for cleaner and longer-lasting lubrication.

Behind the scenes there was an anticipated transition to Group II base oils, but this materialized more in the United States, where disinvestment in some of the older Group l plants was occurring faster than in Europe.

In the 1990s, the major and national oil companies around the European market had not yet gone through the amalgamations and takeovers that defined the era, so each refinery clung onto Group l production due to in-house and affiliate blending commitments. At that time, there were also export markets in Africa, the Middle East, South America and India, which were continuously dependent on the availability of European-sourced Group l oils.

To achieve the higher-specification finished products required by local European markets, some of the more progressive players started producing Group III base oils. This process became technologically and economically feasible due to the installation and updating of new hydrocrackers at a few refineries, and by producing these new grades producers gained the ability to lift blended lubricants to a higher level, using Group III base oils as diluents.

Progress dictated that more and more of the new types of base oil would be required in Europe as the 21st century got underway, with imports from South Koreas SK Lubricants and S-Oil forming a major part of the uptake for Group II and Group III grades, along with local Group III production from Neste in Finland, and plants in France and the United Kingdom making smaller amounts of Group III. Group III imports from Petronas in Malaysia became one of the major sources for Europe during the 2000s followed much later in 2015 by a large new joint venture between SK and Repsol commissioned in Spain to primarily produce Group III base oils, in addition to smaller quantities of Group II.

More recently, the market has begun receiving Group III imports from Russia and from two Middle Eastern refiners that were new to base oil marketing – Abu Dhabi National Oil Co., which has a 100,000 metric tons per year Group II and 500,000 t/y Group III plant at its refinery in Ruwais, United Arab Emirates, and Bapco, which operates a joint venture Group III plant with Neste in Sitra, Bahrain. (Neste had previously marketed all of the base oil from that plant, but Bapco started handling 55 percent of the output after a change in their marketing agreement.)

Adnoc and Bapco had another thing in common – neither companys base stocks had complete sets of finished lubricant approvals when the companies entered the business, meaning they could not show certificates documenting that engine oils formulated with their base stocks had passed tests proving they met performance standards of a full range of industry and original equipment manufacturer specifications for Europe and North America.

Those approvals are so important to lubricant companies selling engine oils that Adnoc and Bapco had to sell their oils at a discount, leading to two-tiered pricing for Group III oils. For example, in mid-March, 4 centistoke Group III oils with full slates of approvals were selling in Europe for 835 to 879 per metric ton, compared with 765/t to 775/t for oils of the same grade with partial slates of approvals. Similar spreads existed for 6 and 8 cst grades.

The two-tiered structure has existed for more than a year and so seems well-entrenched. That does not necessarily mean it is permanent. Lubricant blenders preference for fully approved base stocks may not end, but Adnoc and Bapco are both working to obtain full slates of approvals. Adnoc, for example, has already has formulations that have achieved approvals for API SN, ILSAC GF-5 and GMs Dexos 1 passenger car engine oil specifications. The company is now working with additive companies, original equipment manufacturers and test labs to achieve approvals in Europe, where 60,000 tons of its ADbase Group III oils were distributed by Swiss company Chemlube SA over the past year.

Both companies say they expect to obtain full slates of approvals, and if they do there would no longer be unapproved oils to comprise a second tier, at least not with the current line-up of Group III suppliers in Europe.

A different basis for two-tier pricing could emerge. Multiple Group III suppliers are heralding one or more of their Group III cuts as being Group III+ – an informal term recognized throughout the industry for base stocks that have a viscosity index of at least 134 while also meeting the requirements of Group III. API defines Group III as containing at least 90 percent saturates and less than or equal to 0.03 percent sulfur, and having a viscosity index of at least 120.

Companies pitching Group III+ oils say they hold advantages over Group III oils with lower V.I. because they have lower volatility and better cold cranking performance, meaning they can be used to formulate low-viscosity SAE 0W-XX engine oils without the need for polyalphaolefin base stocks. Since PAOs cost more, this would reduce costs.

There is precedence for price variations based on those kinds of performance differences. In North America, Group II+ oils have sold at premiums to Group II for years. Refiners supplying Group III+ oils to Europe would surely like to apply the same rationale to that market.