But the mechanical work is not the only change under way in the companys base oil business. Luberef is also retooling its approach to selling its products – transitioning from a relatively large producer supplying a narrow range of products to nearby customers to a more active marketer with a wider reach. To make the shift, the company is beefing up its staff and taking on a variety of new functions. The undertaking is all the more interesting because Luberef has decided to act without the help of an international partner.

Ali Al Hazmi, then the president and chief executive officer of Luberef, signaled the companys marketing plans a year ago when he unveiled a new logo and corporate identity at the ICIS Middle East Base Oils and Lubricants Conference in Dubai. Al Hazmi said the company was repositioning for the future.

That work appears to have continued after the appointment of Hasan J. Al Zahrani as president and CEO. A joint venture between Saudi Aramco and Jadwa Industrial Investment Company, Luberef has been a major, but some say staid, Group I base oil supplier servicing long term contracts. Historically, it has generated most of its revenue in Saudi Arabia where it is the sole producer and supplier of base oils and has long-term contracts with ExxonMobil. Luberef s export business has been largely confined to the Gulf Cooperation Council states on the Arabian Peninsula.

Jadwa, an investment bank based in Riyadh acquired its shares in 2007 when ExxonMobil relinquished the stake it had held since 1976.

The decision by Luberef to overhaul its brand is a bold shift. The question is why?

New Identity, New Strategy

Officials say the company wants to position itself as a premier base oil supplier. To do so, it is shifting away from the commodity end of the market to provide higher quality Group II base oils. After the expansion and upgrade, which was announced in 2011, the so-called Luberef-II refinery in Yanbu will produce Group I and II base oils, bright stock, drilling fluids and 50 to 80 solvent neutrals. Currently the plant, which was commissioned in 1998, produces Group I oils ranging from 150 solvent neutral to 500 solvent neutral plus bright stock.

As part of a marketing-led strategy, Luberef says it plans a phased entry into new markets including India, Europe, Turkey, China, while also expanding its business in the Middle East, and that it is promoting itself as a one-stop supplier to customers. Analysts forecast rising demand from India for Group II base oils as the country migrates to higher specification lubricants and foresees further original equipment manufacturer investment in the country. Some have noted that Indian refiners have invested little in base oils and that Gulf refiners are well-positioned geographically to fill the void.

Realizing its vision presents the Saudi refiner with numerous hurdles. A company spokesman, who asked not to be identified, says the company has to make changes to accommodate the expected increase in business along with the addition of new products. The transition requires building organizational capabilities beyond [those] previously needed with Group I base oils, he said. Additional capabilities are required in staff resources and skills, building greater technical knowledge and understanding of product applications, formulation benefits and future formulation drivers.

The company markets byproducts from its existing Group I production to Saudi Aramco in Yanbu and to Samref, a joint venture between Saudi Aramco and Mobil Yanbu Refining Company. These include light vacuum gas oil, marine heavy fuel oil, naphtha and asphalt. The expansion of LuberefII, due to be completed by the end of 2015, will double production of both refineries to close to 1.2 million metric tons per year and represents an investment of US$1 billion for the main engineering, procurement and construction contract package of the project, the company says. Luberef-I is located in Jeddah and came on stream in 1978.

Luberef said previously that the work being done at Yanbu would reduce the amount of Group I oils made there, but the company now says this aspect is under review and that Group I capacity may not decrease. Either way, the project includes specific steps to increase capacity for one Group I grade, bright stock. Officials called this a response to closings of numerous Group I plants in Europe and North America. Bright stock is produced almost exclusively at Group I plants, and analysts say those closings have resulted in shortages for bright stock.

The expansion is not just about Group II, the spokesman said. We will also double our bright stock production capacity, which will provide a key source of supply to meet future market needs at a time when closures of Group I plants are tightening supply of heavy viscosity base oils.

Luberef s new marketing strategy may be a major undertaking, but Mehrdad Vajedi, a Dubai-based consultant to the lubricants industry, contends that the company should understand what it takes to succeed. Remember, Luberef has been in the base oil market for 37 years and has its own sales system established over many years, he said.

Trending Now

Luberef is not the only refiner deciding to go it alone when it comes to product marketing. At an April conference in Abu Dhabi, U.A.E., Takreer, which is planning to commission a Group II and Group III refinery in Ruwais by the end of the year, said parent company Abu Dhabi National Oil Company would handle marketing of base oils produced from the plant. Earlier reports indicated Takreer would mirror a similar strategy to that pursued by Bahrains Bapco, which appointed Finnish refiner Neste to market base oils under the Nexbase brand. Neste, which is also a partner in the Ruwais plant, claims it remains in negotiations with Adnoc about marketing.

Luberef declined to comment on why it decided not to involve an international marketing partner for its base oils, but management apparently feels it has enough experience and expertise to do so. Officials did perhaps provide a hint of how they see the future unfolding. We will be seeking to grow our business, meeting the changing needs of our customers in Saudi Arabia and further afield, as well as developing new customers in target markets where we provide a valued customer offering, a core part of the Luberef brand, said the spokesman.

Some observers have suggested that Luberef s biggest challenge will be to obtain approvals documenting that finished lubricant formulas using its Group II base oils meet industry and OEM standards. Such claims are practically required for some lube categories, such as automotive engine oils, and can be very expensive. Joe Rousmaniere, of Malaysian Group III producer Petronas, disagrees with such views. He believes that Luberef s greater challenge will be the growing global supply of Group II.

Too much importance has been placed on getting lube oil formulation approvals in place, he said in an e-mailed response to questions. Product approvals are critical for Group III, not for Group II. By the time they ramp up production, Group II will be so commoditized that different grades will likely be completely interchangeable.

Rousmaniere said many companies face choices about whether to market on their own or to enlist trade partners. If you have the capability to sell it yourself, then sell it yourself, he said. The shortest distance between a refiner and a user is a straight line. Any delegation of logistic or marketing duties to outsiders increases complexity and reduces margin for the refiner.

Luberef-II Expansion

Luberef says that work on the front-end engineering design for the expansion was finished in February 2012. A vacuum distillation unit will be revamped, and capacity of this unit will increase feed to the plant from 26,000 barrels per day to 40,000 b/d. Luberef says it has already begun to upgrade the VDU and that this work is due to be completed by mid-2014.

Luberef-II currently has capacity of close to 300,000 t/y. The base oil plant includes propane de-asphalt, furfural extraction and Mobil lube dewaxing units. De-asphalting feed will be boosted to 12,500 b/d from 6,250 b/d with the application of Rose technology.

The company says the completed expansion will add a hydrocracker, wax isomerization, hydrogen recovery, sulfur recovery and gas treatment units. The project will give the plant capacity to make 708,000 t/y of Group II base oils. Officials have declined to specify the current or future capacity for bright stock production at Yanbu, but the company says the project will increase bright stock capacity at both of its plants by 90,000 to 175,000 t/y. Post project the plant will also produce around 68,000 t/y of drilling fluids and marketable byproducts, including ultra-low sulfur diesel, marine heavy fuel oil, naphtha and sulfur.

Testing for product technical approvals is underway, and Luberef says it is in discussions with additive partners and customers that will ensure timely market entry.

All Change

The Yanbual Bahr project is one of several that are rapidly turning the Middle East into an export hub for Group II and III base oils. Certainly this is part of a larger trend of refiners in the region investing in processes that yield value-added petroleum products. The latter trend is the result of Middle Eastern energy companies gaining more wealth and of strong performance by emerging markets there and in Asia.

A few refiners in the region have taken the extra step of deciding to market their base oils themselves. Luberef says it is laying the groundwork for that undertaking to become a success, but it will be at least a couple of years before the industry can judge its outcome.