Past & Present in Europe

In 1983, Kuwait Petroleum Corp. purchased Gulf Oils former European downstream assets to create Kuwait Petroleum International. Its lubricants business, Q8Oils, was granted the reins to all of its non-fuel-related oil and specialties business – from refining base oil to marketing finished lubes, waxes and bitumen. With European operations including about 3,900 employees, approximately 3,500 service stations, four blending plants and a base oil refinery, Q8Oils currently earns annual revenue of $20 billion.

Success in Europe, Furno believes, is due in no small part to Q8s locations – especially Antwerp, Belgium, home of its head office and primary blending plant. Logistically, Antwerp is heaven. Its the ideal spot, Furno said during an October LubesnGreases visit. Many of the finished lubes in the companys portfolio involve its own base stock, he mentioned, but a number of formulations also call for API Group II, Group III and polyalphaolefins.

There are lots of base oil suppliers with refineries or major storage facilities here. Suppliers of PAOs and additives are close by, and were linked to the [Scheldt] River and the North Sea, and a road network to France and Germany. All of which provide easy access to both receiving raw materials and [shipping] products to customers.

The Kuwaiti stakeholders feel so strongly about Q8Oils Antwerp location that theyve invested $100 million to upgrade the blending plant there. Situated on 103 hectares in what they call the old petroleum area, the upgrade involves a complete rejuvenation of the grounds, which the company says were established over 100 years ago.

The key to the construction here is that everything is being built modularly, David Wright, Q8Oils master plan manager, said during a tour of the construction site. All the manifolds are fully flexible and fully piggable, meaning we can adjust for significant growth in the future. With production capacity moving from its current 125 million liters per year to upwards of 190 or even 250 million liters and the possibility of adding even more tank farms and storage facilities, Wright pointed out that Q8 clearly sees a future in the site and in the European market. The construction is ahead of schedule, he noted, emphasizing that the goal is to seamlessly merge from old to new infrastructure without forfeiting even one day of production during the testing and activation processes that are scheduled to be completed by fall 2014.

Geographically, Q8Oils has almost all of Europe covered, Furno said. With two more blending plants in Leeds, United Kingdom, and Castellarguidobono, Italy, and another through a joint venture with a fully integrated subsidiary called OKQ8 near Stockholm, Sweden, the operations are fairly spread out. Serving the blending operations is Q8Oils primary 235,000 ton per year Group I base oil refinery in Europoort, Netherlands. Just outside Rotterdam, the location is logistically central to the companys European operations, Wright said. For us, Rotterdam and Antwerp are a whole. We see them as one gateway to a very important market.

Rotterdam also houses the research and development team. Furno touts the efficiency of the 50-person team, mentioning its ability to swiftly adapt to REACH compliance requirements as evidence of its expertise. REACH, rightly so, has had a big impact on us and on the bottom line, he said. It requires special administration and special investments in an environment that is already tight in terms of profits.

Products & Markets

While a lot of the companys research and development work is required by regulations and legislation, much is also driven by trends, Furno continued. The R&D department, to which the company directs around 5 percent of its annual budget, has orchestrated most of the companys innovations, developing specialty products and keeping the company one step ahead of market demands. The R&D team is creative, he remarked, and one of their specialties is in filling in what few gaps the portfolio has – which means meeting the needs of individual customers idiosyncrasies.

Although the companys focus is on its flagship metalworking fluids and energy and automotive lubricants, its portfolio includes more than 1,000 products ranging from neat oils to high-temperature resistant oils and synthetic lubricants. We have ancillary products to go around our main product lines, Furno said, noting that the company takes on special projects for its customers that involve tailor-made, custom fluids.

With a fully integrated supply chain, Furno emphasized that Q8Oils addresses the customer at every step of the process, starting with research and development, through the manufacturing process, and finally to direct sales. We are developing our business-to-business supply chain model, Furno explained, adding that Q8 has a large retail network. However, retail is not its preferred sales strategy.

Stores are becoming less and
less a conveyor of lubricant sales.
Instead, we have a distribution network that sells direct to the end-consumer. Our flagship products focus on industrial lubricants; therefore, its important for us to have a wide distribution channel. Our sales people are very technically knowledgeable; they can give advice directly to the customers on how to reduce consumption, how to extend drain intervals and so on. The company is looking to partner with even more distributors in Europe, he noted.

Expanding beyond Europe

Despite having a strong foothold in Europe, a market which Kline & Co.s Geeta Agashe recently called the epicenter of high-value lubricants, the company is also looking to expand in other regions. Along with the Antwerp upgrade project, Furno noted, its one of the companys most pressing priorities. Why? Because Europe is stagnant, he said. One of my first efforts was to review the strategy and relaunch and revive it. We have a plan for Europe, but the key thing is to grow aggressively, and the growth should be leveraged beyond Europe to basically three hubs – Middle East, China and America.

However, to do so, Q8Oils will continue to rely heavily on the foundation it has built in Europe. For example, by following key European accounts to Asia, Q8Oils ended up in China in 2006, Furno pointed out. The company set up a head office in Beijing and launched a China-specific range called Sailing, along with products formulated specifically for that market.

By the end of this year, Furno says, Q8Oils plans to have a distribution network that encompasses the entire coast of China, from Beijing in the north to the southern Guangdong region, along with hubs in central China such as Chongqing. Its a very challenging market because its huge and still growing, Furno said. Its a buoyant place for business, and everyone is targeting the market. We have to stay focused and consistent within the market without compromising on service and quality.

Besides its bold move into China, Q8Oils has ambitious plans to build on its operations in the U.S. and the Middle East. The company has a sales office in New York City, from which it plans to continue targeting the American northeast and southwest with their heavy concentration of metalworking and gas engine industries. Expansion in the U.S. will depend on increasing the number of direct customers while also partnering with local distributors.

Kuwait City, Kuwait, is the companys Middle East hub for sales and the development of Q8Oils downstream business in the gulf region. Working with local toll blenders, Q8Oils serves Yemen, the Emirates, Saudi Arabia, Ethiopia, Somalia, Kenya and neighboring countries in the Persian Gulf and northern Africa, Furno said. The Middle East is quite an interesting market, he remarked. Perhaps for us, the next frontier after these three key areas may be [other parts of] Africa, but when you look at [demand] volumes, what you see in Africa pales in comparison to what you see in China and the Middle East.

In all instances, the key component for growth in the companys strategy is finding strategic partnerships, Furno said. While Q8Oils is self-sufficient in Europe, he continued, the company plans to develop relationships with third party toll blenders and distributors in the U.S., China and the Middle East. Without reinventing the wheel and investing or building more blending plants ourselves, we figured out that its better to find strategic partnerships, he said. Its a win-win situation for both us and our partners.