Acquiring technical approvals is one of the major challenges facing the Middle Easts nascent API Group II and Group III base oil refiners, but there is compelling evidence that obtaining them could earn them millions of dollars in extra revenues.

Approved means finished lubricant formulations using a certain base oil have been certified for meeting one or more lubricant specifications. Approved base oils typically attract a premium over non-approved equivalents.

Norman Sheppard, the base oil development leader of state-owned energy company Bahrain Petroleum Co., said United States-based additive company Lubrizol Corp. has calcu-lated the premium for a fully approved base oil could be as much as U.S. $250 per metric ton over a non-approved product. Based on a volume of 200,000 tons, that could garner $50 million a year in incremental value at a time when Group III base oil prices are under pressure.

Customers want approvals, and they want the right technical approvals, like GM dexos2 and API SN Plus, Sheppard told delegates at Februarys AMEA Bitumen and Base Oil confer-ence in Dubai. Independent data from price analysis company Argus in recent years has also shown that, despite market cycles, Group III base oils command a premium over Group I and Group II base stocks, supporting the estimates by Lubrizol, Sheppard added.

The Middle East has rapidly become a Group III supply hub, firmly entrenched in the global supply chain representing approximately one-third of global capacity in the 6 million ton market.

According to Sheppard, Bapcos output represents about 7 percent of current global Group III capacity. With future growth expected in Asia Pacific and the Middle East, by 2020 global Group III capacity is expected to exceed 7 million tons based on projections by additive company Infineum. Although U.S. Group III capacity is likely to remain small – limited to one or two refiners – the U.S. is an important market for Bapco.

Most of our production is shipped directly to Houston, and our 400,000 ton a year capacity plant is running at full tilt. We are one of the major suppliers of Group III into North Amer-ica, Sheppard said.

Sheppard also said the main reason the U.S. takes the bulk of Bapcos production is that the Middle East does not currently consume large quantities of synthetic or semi-synthetic base oils, but the market is growing, albeit slowly.

Eventually, the Middle East market for synthetics and semi-synthetics will come up to similar levels as Europe and may account for 20 percent of the market, he said.

Despite reports of oversupply in base oil markets, Group III markets could return to balance as early as next year, based on estimates by consultancy Kline & Co., which projects 6 percent growth per year and a plant utilization rate of 85 percent. If the figure is increased to 10 percent, there could be a disparity between supply and demand, Sheppard added.

Last year, Bapco launched its own Group III base oil brand called BAPbase, after renewing a commercial agreement with Neste, thus granting the Finnish refiner and marketer access to a significant share of Bapcos output. Bapco and Helsinki-based Neste first entered into a joint venture agreement in 2011, which gave Neste a 45 percent stake in the joint venture.

Neste markets Group III base oils under the Nexbase brand. However, the agreement was due to expire at the end of 2018 and any extension would be subject to further negotiations, a Neste spokesperson said at the time. Bapcos relationship with Neste was considered by analysts to provide Bapco a pathway for technical approvals. Neither party have publicly commented on the status of negotiations. BAPbase is produced in 4, 6 and 8 centistoke viscosity grades.

Bapco also markets a range of finished lubricants, including the Charger brand for gasoline engines and Frontier for diesel engine applications.

Bapco recently commenced a $4.2 billion modernization and capacity expansion – to 350,000 barrels per day – of its refinery at Sitra on the east coast of Bahrain, but it is yet to decide if the expansion will increase base oil output.