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The Road Ahead


James Newsom

Consultant to Shell Oil Products US

Jim Newsom, chairman of the Washington, D.C.-based American Petroleum Institutes Lubricants Committee, retired from Shell last August and continues to work as aconsultant in the area of lubricant technology.The API Lubricants Committee works closely with ILSAC, which represents U.S. and Japanese automakers, to develop passenger car and heavy-duty engine oil specifications.

The biggest challenge in the year ahead is to get the OEM end-users and the lubricant and additive suppliers moving in the right direction together, to have measurable progress in 2007 toward developing GF-5, the new crankcase oil category – specifically, improvements in fuel economy and emission system protection. GF-5 is one of our most significant projects for 2007, but almost equal is the need for a light-duty passenger car diesel category.

Through 2010, the biggest change will be a significant shift in viscosity grades used in North America. In the mid-80s OEMs introduced SAE 5W-30, but it took 15 years to catch on. Since then, the quick-lube market developed, and dealerships reached out to offer oil changes. They all want to recommend what the OEMs recommend. As aresult, change is happening more rapidly,as OEMs recommend lower viscosity oils to improve fuel economy.Engine oil contributes a miniscule improvement, but still an improvement.

I expect that well see anew grade 0W-20 as an emerging player. In the next five years, 10W-40 will essentially go away; 10W-30 will fall off rapidly; and 5W-30 will begin a steady decline, offset by significant growth in 5W-20 and perhaps 0W-20 usage.

These viscosity changes will impact the industry by requiring more highly refined base oil. Viscosity grade is the big change driving the appetite for Group II-plus and Group III base oils.

Hugh Dowding

Chief Executive Officer

Polartech Ltd.

Hugh Dowding is president of Brussels-based UEIL, the European Union of Independent Lubricant Manufacturers. UEIL members are the national lubricant organizations in Western Europe. Polartech, based in Manchester, England, manufactures metalworking fluid additives and finished metalworking fluids.

First among the challenges in the year ahead is availability of raw materials. With consolidation among suppliers, raw materials are expensive and difficult to obtain.

Second is whether ACEA motor oil specifications will remain relevant and ultimately survive. OEMs are introducing their own specifications, so there is concern about ACEAs future.

Third, industrial production continues to flow eastward, to Eastern Europe, China and India. European companies have to decide whether to follow their customers east. Its both a challenge and an opportunity.

Legislation such as REACH keeps growing. During 2007, UEIL must balance its resources to lobby and inform members, and strive to bring its members together. UEIL faces the challenge of communicating to members through their national organizations. UEIL has recently moved its office to Brussels and hired a professional organization to lobby. It has embraced national delegations that include major oil companies. For the future, UEIL may need to consider becoming a European trade association with individual company members.

[Near term] I see more consolidation and more ownership from outside Europe. Both Russian and Japanese lubricants industries are extending their reach. Indian and Chinese companies have made investments in other sectors. Outsiders want production capacity in Western Europe.

Also, lubricant formulations will change with the arrival of more Group III base stocks, and GTL ultimately. [At the same time] there is more pressure on naphthenics, a particular problem for grease and metalworking fluid manufacturers.

Sandra Cowan Grease Product Manager

Citgo Petroleum Corp.

Sandy Cowan is president of NLGI International, the Kansas City,Mo.-based institute serving the grease industry with technical and educational programs. At Citgo, Cowan develops and prepares specs for new grease products, and evaluates and approves raw materials.

We could have shortages or interruptions in the supply of certain key raw materials in the year ahead. It will be important to manage inventory wisely and to have contingency plans in place.

Cost fluctuations could occur due to changes in crude oil pricing and raw material demands. This can complicate pricing projections for both raw materials and finished products.

The challenge to improve efficiency and control costs while maintaining quality and service will continue to be important. And there are new regulatory requirements that require tracking and compliance. This can be challenging from both a cost and manpower perspective. Compliance with the new REACH directive will be an issue in our industry.

NLGI will provide updated information on the new REACH directive. We will be adding an audit function to the NLGI certification program for NLGI LB and GC-LB greases -a random audit of certified products. We are offering several new resources for the grease industry. And we will be offering [basic and advanced education courses] and the Certified Lubricating Grease Specialist exam at our annual meeting, being held in Scottsdale, Arizona, June 10 to 12 -a big change for us this year.

In the years ahead, our industry will likely see an increased demand to extend the life of lubricants and greases. For example, the trucking industry is offering extended oil drain intervals and wants the grease to last as long as the engine oil.

Due to higher energy costs, we will see an increased need to reduce energy consumption through the proper selection and formulation of lubricants. By reducing friction, you reduce the amount of energy required.

Greg T. Julian


Advanced Lubrication Specialties

Greg Julian is president of the Independent Lubricant Manufacturers Association, Alexandria, Va., which represents the interests of independent U.S. blenders. Family-owned Advanced Lubrication Specialties manufactures lubes under its own and customers brands, serving the U.S. Northeast and Mid-Atlantic regions from Bensalem, Pa.

Short term, the economy is the concern. If it slows down, we have pricing issues. When pricing is more competitive, independents struggle.

Proliferation of specifications is another problem. You now need 20 or 30 tanks [for different base oils, additives and finished products] because of product differentiation, where in the recent past you only needed six or eight. In the longer term, well see more product differentiation.

And having succession planning is a big issue now [for independent blenders].

At ILMA, the new ethics program rolling out now is our primary focus. It is effective Jan. 1. Then after the ethics program, were looking at an ILMA branding initiative. This is not an ILMA brand. Rather,its the ILMA logo as a Good Housekeeping seal.

Were also expanding the ethics program [from todays] monitoring of car engine oils, first to tractor hydraulic fluids, and then well look at the transmission fluid market. Our goal is to avoid the misrepresentation of products.

[Coming developments include] arrival of the globalized economy. Base oils are global now. What happens in Europe affects us in the United States, for example.

Another big change is increasing product differentiation. For example, automatic transmission fluids will require four different fluids, and [in the heavy-duty engine oil market] you have CI-4 and CJ-4 [overlapping]. How much money can an independent spend for the tanks you need to supply all these products? Tanks are a big issue now for independents.

Terry Dicken

Managing Director

Global Lubricants

Terry Dicken is president of the European Lubricating Grease Institute, headquartered in Amsterdam. Dicken founded Global Lubricants ten years ago; the West Midlands, England, firm manufactures and markets lubricants and greases, including specialty products for the metalworking fluid industry, lubes for extreme environments, and maintenance and safety products.

Coping with regulations and bureaucracy of the European Union is the number one challenge for the year ahead. There are more and more regulations on products we supply,and that has a major effect on product development. It goes beyond REACH to include transportation rules, reporting and labeling in multiple languages, and more. Sometimes bureaucracy runs ahead of practical ability. Although English is the commercial language, health and safety communications have to be in all [national] languages. Its very costly.

ELGIs REACH consortium is our biggest project; REACH affects the soap-based grease industry heavily,and also the metalworking fluids industry that makes intermediates from reaction products. Work will also continue on the EU eco-label criteria, and on a Global Harmonization System for lubricant safety data sheets.

Another focus is standardization of packaging for greases in the 27 EU countries. Intermediate package size is a jungle of sizes now. ELGI has issued guidelines for standardization, and is looking for uniformity to benefit all.

One expected change is downsizing in European grease production. Grease production will move outside Europe, following the engineering work to lower cost countries. However,high-tech products will continue to come from Europe.

REACH could have abig impact on raw material supply. This could require reformulations and higher costs. We cant judge the impact yet, but small enterprises will be hit hard. Were all watching very carefully.

Daniel P. McCoy

McCoy Consulting

DanMcCoy is presidentofthe Society of Tribologists and Lubrication Engineers, Park Ridge, Ill., which provides professional education, technical information and certification programs. McCoy began his career as a lubrication engineer in a steel plant, spent a dozen years with Lubrizol, and started his own consultancy in Parma, Ohio, in 2005.

STLE did a survey in 2006, and the top [challenges] are creating lubricants that are both more cost-effective and environmentally friendly; material shortages, causing the need to adjust formulas; attracting good people to the lubricants industry; and the lack of proper training in the lube industry – theres a need for training because of company downsizing and the [resulting] loss of expertise.

For tribologists, the major concern is lack of funding for tribology and lubricant research, as companies downsize.

This year,STLEs major focus internally is to keep the organization structured and governed properly to meet tomorrows needs, using the latest tools. Externally,STLE plans to do a lot more with its web site to meet members needs and plans to increase its educational programs, both at meetings and on the web site.

The value of certification programs will continue to grow. One in three STLE members has an STLE certification.

Another change is the focus on long-life lubes to continue to reduce costs.

John P. Kirk

Supply Chain Manager, Canada

Chevron Global Lubricants

John Kirk is president of the Petroleum Packaging Council, San Clemente, Ca., whose members include oil companies, contract packagers, and packaging suppliers. PPCs scope has expanded in recent years to include broad manufacturing and supply chain, as well as packaging, issues.

PPC sees these issues impacting our industry in the coming year. Despite some recent relief,base oil and additive prices have gone through the roof,and the market isnt going to accept price increases that completely cover our cost increases. We have to find ways to mitigate those cost increases …including running manufacturing facilities more efficiently and reducing complexity in the supply chain.

Another challenge is predicting the rate of shift from API CI-4 PLUS heavy-duty engine oils to CJ-4, the new spec. CJ-4 is only required for 2007 engines, and its more expensive, so many owners of older engines are continuing to use CI-4 PLUS. Continuing to offer CI-4 PLUS requires manufacturing, packaging, storing and distributing additional SKUs, which take up warehouse and bulk storage tank space.

Finally …2005 showed that we need to be prepared with contingency base oil and additive supply plans, as well as plans to get facilities back up and running quickly after any kind of adverse event.

For2007, PPC will continue to work on providing strong technical content. …Feedback regarding our technical sessions and keynote speakers tells us that they are better and better each year.

PPCs first benchmarking initiative was started last September, to focus on operational issues such as quart and gallon line speed and reliability,man-hour utilization, and order fulfillment efficiency. The benchmarking will provide comparative data that will allow participating companies to manage their businesses more efficiently and effectively.

Looking ahead, Wal-Mart is in the process of requiring its suppliers to provide RFID tags on their products. … While this places an additional requirement on our industry, it will also provide an opportunity for lubricant industry participants to leverage this technology to create greater efficiency in our own supply chains. …We will need to find efficiencies such as those that will be realized from RFID to maintain reasonable margins. These cost pressures will compel the industry to reduce complexity and drive waste out of the supply chain.

Peter J.F.Vickers

Chairman &Managing Director

Vickers Oils

Peter Vickers is president of the U.K. Lubricants Association, headquartered in Berkhampsted, England. Leeds, England-based Vickers Oils – formally,Benjn. R. Vickers &Sons Ltd. -manufactures lubricants for the textile and marine industries.

Implementation of the REACH directive, which will require huge amounts of work and manpower,and could threaten both the supply of key raw materials and Europes competitiveness, is the single biggest challenge. UKLA will focus on implementation of REACH and the impact of the new European Waste Framework Directive, which could introduce producer responsibility obligations into statute.

Looking ahead: continued pressure on the supply side, increased use of environmentally adapted lubricants, and further rationalization.

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