Price vs. Quality

Patrick Swan of Aswan Consulting emphasized the importance of price to LubesnGreases at the ICIS African Base Oils and Lubricants Conference in Cape Town in November. Group I still dominates in sub-Saharan Africa. I dont see them changing based on quality, but they will change based on price, he said. Hence, the impact of Group II base oils in Africa will largely depend on volume and pricing.

Taiye Williams, managing director of Lubcon International, agreed that pricing and availability are key factors for the growth of Group II base oils in Africa. However, he added that African countries will not wholly embrace Group II in the immediate future, although demand will continue to increase.

Irfan Khan, general manager of General Petroleums Tanzania operations, said that Group I will remain the leader in what he described as the high street or retail market. Group I will be the leader for a long time because the high-street market is price-oriented, but we are optimistic about the growth of quality lubricants in Africa, he added.

Williams said, We are already observing a gradual demand for higher quality finished lubes that require higher quality base oil such as Group II. Also, Group I base oil cannot be used to formulate certain products. We need Group II base oil for such formulations.

Kayode Sote, chief executive of Lube Services Associates, organizers of the Nigeria Lubricant Summit, related that Group II is becoming readily available in Nigeria and is favored because of its low sulfur, high viscosity index and low specific gravity. It is obvious that Group II will overtake Group I in Nigeria, said Sote.

Panelists at the ICIS African conference assessed the impact that the oversupply of Group II will have on the African market. For Alex Brinckman, sales manager at Hocem Oil Chemical, the critical question for stakeholders is whether Group I base oils can compete with Group II and III, and the answer is they cannot.

Herbert Fruhman, Nynas market manager, emphasized, We need to take into account the new Group II base oil refineries coming on stream that are putting volume into the market. I think in a few years we are going to see more Group I shut down, and more higher or premium base oils will come on stream. But we cant do everything with Group II.

In his presentation, Alan Outhwhaite, manager of base oil business development for Chevron, said that new specifications are pulling premium base oils into markets around the world. General Petroleums Khan concurred, We have noticed a recent development – whether in mining, power generation projects or transportation – where each machine has its own oil specification, and the minimum lubricant requirement often demands Group II base oil.

Aswans Swan said that to meet current specifications requiring low viscosity, you cannot use Group I anymore. It has to be Group II or III. But the current market is small, a niche.

Increased Capacity

The glut of Group II base oil capacity has been well chronicled and is a consequence of increased production around the world. In Asia, a partnership formed by Shell and Hyundai Oilbank inaugurated a new base oil manufacturing plant in September. The plant in Daesan, South Korea, has a capacity to produce approximately 13,000 barrels per day of Group II base oils.

Also, Chevron completed its Pascagoula, Mississippi, United States, plant with a capacity of 25,000 b/d of Group II base oils. The facility complements the companys 20,000 b/d Group II refinery in Richmond, California, U.S. According to Chevron, the Pascagoula plant will supply Group II base oils to Latin America, the United States and Europe.

Finally, Sinopecs Maoming Group II plant in Guangdong, China, is expected to produce 200,000 tons per year. And Abu Dhabi National Oil Co.s Group II base oil plant in U.A.E. produces 100,000 t/y.

Hocems Brinckman sounded a note of caution, observing that the majority of Group I base oils sold in Africa are sourced from Russia and still represent the majority of Russias output. We have heard a lot about European refinery closures, but we have not heard anything about Russian refineries. As far as I know, there are no plans to close any of them, he said.

Despite Brinckmans caution, recent reforms to the European Unions Generalized Scheme of Preferences (GSP) mean that Russian refineries will come under pressure. The GSP allows developing countries to pay lower duties on their imports into the EU, but the World Bank recently designated Russia as a high-income country, which means it is no longer eligible for this privilege. As a result, base oil shipments from Russia to the EU will be subject to a 3.7 percent duty vs. the previous 0 percent.

Group II Drivers in Africa

Chevrons Outhwhaite outlined some of the factors that will drive the use of Group II base oils in sub-Saharan Africa, including tighter emissions standards that require low-sulfur fuels and lubricants. The move to limit exhaust emissions is global, and Africa is moving in the same direction as the rest of the world, he said.

Outhwhaite also noted that Group I base oils will ultimately have too much sulfur to meet the tighter emissions regulations. He contended that using Group II will lead to better performance such as improved fuel economy, reduced oil consumption, improved high temperature performance and better additive response.

Lubcons Williams agreed, The factors that will aid the growth of Group II base oil in Africa include pricing and availability, government regulations on carbon emissions and performance upgrades. The demand for fuel economy and extended oil drain intervals by consumers will also stimulate increased use of Group II.

Outhwhaite also noted that increased Gross Domestic Product in sub-Saharan Africa will increase the demand for better heavy-duty motor oils and industrial oils. GDP growth in sub-Saharan Africa is outpacing that of the advanced economies, and the regions lubricant demand is expected to grow by about 2 percent year-on-year through 2021, driven by massive investment in infrastructure, he stated.

Aswans Swan added, Group II base oil growth will be driven by the development of new cars in Europe that are imported into Africa. Owners will demand higher grade lubricants; hence, Group II base oils.

Outhwhaite noted that formulations meeting the latest API specifications typically use premium base oils. The advantage of Group II, he said, is that it can be used in more than 93 percent of all global lubricant formulations. He added that Group II performance properties align with future African market needs because they are excellent for heavy-duty, passenger car and industrial oils.

A wide viscosity range enables the formulation of SAE 5W-XX, 10W-XX, 15W-XX and 20W-XX engine oils with excellent oxidation resistance and soot and sludge handling for heavy-duty engine oils, as well as good low-temperature performance, said Outhwhaite. Group II-only 10W-40 formulations pass all of the stringent criteria for Volkswagen T-4 performance. And the Group II-only formulation also demonstrated better oxidation stability than a Group I/III blend did under various loads and cycles. (See graphic, Page 57.)

For Williams, Group II base oils are a vast improvement over Group I because they contain lower levels of impurities and have a higher viscosity index. Improved purity means the base oil and additives can last longer under use. The oil is more inert and forms less oxidation byproducts that can increase viscosity and react with additives, he said. They have good performance and lubricating properties such as low volatility, sulfur-free, exceptional oxidative stability and high flash/fire points. They have good performance in areas such as pour point, cold crank viscosity and extreme pressure wear.

General Petroleums Khan disclosed that GP Tanzania is planning to shift all its branded lubricants to Group II base oils. I expect a 50 percent increase in the current ratio of Group II base oil imports because this decision. And the best thing is that there is not much price difference between Group I and II, he said. However, Khan added that GP will continue to import Group I to meet third-party blending needs.

Sebastien Sarrazin, lubricant business manager for Oryx Supply and Storage corroborated this view, saying that the main advantage of Group II base oil is that it has better oxidation stability. Chevrons Outhwaite agreed, noting that screening tests show Group I exhibits lower oxidation resistance than Group II. He added that the benefits of Group II in engine oil performance are fewer high-temperature deposits, less engine sludge, high oxidation stability, low valvetrain wear, low liner and bearing wear, better soot handling and piston cleanliness.

Outhwaite went on to say, In hydraulic oils, Group II formulations have better oxidation stability, filterability and air release than Group I. And nearly 98 percent of hydraulic oils can be formulated with 100 percent Group II.

Chevron also found that Group II base oils can provide up to three times the life of Group I. However, Outhwaite cautioned that maximizing turbine oil performance depends on optimizing both additive package and base oil: Some Group IIs require more additives to pass the rust test. For instance, one Group II base oil required almost twice as much rust inhibitor as a competing oil.

Swan related that a leading oil major recently lost 20 percent of its business to Chevron in South Africa because a mining operation adopted Group II base oil formulations. That company is enjoying the benefit of higher quality lubricants without a great increase in operating costs.