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What Price Interchange?


As performance demands for automotive engine oils continue to rise, and with them the costs of development, two things are becoming increasingly precious to the lubricant industry: formulation flexibility, and opportunity for cost savings.

Attracting interest as a potential means to both is the concept of base oil interchange, which offers an opportunity to switch one base oil for another without repeating expensive engine tests. With the growing emphasis on the use of Group III base oils, formulators are especially keen for rules that would allow wider interchange of those stocks.

In North America, the American Petroleum Institute (API) has interchange rules that allow engine oil formulators a significant amount of flexibility. Europe, on the other hand, has few such rules and is seen by the industry as lagging. Lubricant additive companies recently launched a quiet effort to explore the possibility of pushing through new rules. Industry sources say that nascent undertaking faces significant hurdles and that it is too soon to tell if it will bear fruit.

Many agree, though, that Europes need for Group III interchange rules will become more acute in the next few years. That should create more financial incentive for adoption of such rules, and perhaps offers hope that the region can find its way to greater flexibility.

Tests No One Likes

Base oil interchange guidelines are part of the body of rules that companies must follow in certifying that an engine oil meets a particular standard. The core elements of such standards are laboratory and engine tests designed to assure that the oil meets performance expectations – that it protects engines and addresses environmental concerns. The latest European specification for passenger car engine oils prescribes 15 lab tests plus six engine tests. The counterpart category in North America has 13 bench tests and five engine sequence tests.

These tests are expensive, especially the engine tests. A full testing regime costs more than $130,000 for one viscosity grade of API passenger car engine oil; its quadruple that for a heavy-duty engine oil. And thats if the candidate oil passes every test on the first try. Frequently, a candidate oil fails some test along the way and must be run through it again after formulary adjustments. Moreover, the cost of individual tests continues to rise, as increasingly sophisticated standards incorporate more and increasingly rigorous tests. Testing costs for one new oil can rise quickly over a million dollars.

Its no wonder, then, that companies want to skip tests where possible. Thus arose the concept of base oil interchange, which asks the question, If an engine oil formula has demonstrated compliance with a specification, why not assume that a formula that exchanges a base oil of equal grade but otherwise remains the same would also comply?

To date, Europe has been reluctant to accept that assumption. The Association Technique de LIndustrie Europeenne des Lubrifiants, commonly known as ATIEL, represents many of the leading engine oil manufacturers and marketers in Europe and is charged with promulgating best practices for meeting oil standards in the region, including guidelines for base oil interchange. Market sources generally agree that the associations Code of Practice allows little flexibility to substitute one Group III oil for another. The latest edition states that formulators substituting more than 10 percent of the Group III volume in an approved formula must rerun the new formula through all tests except two: the Peugeot-sponsored TU3 MH engine test for ring sticking, piston varnish, viscosity increase and oil consumption; and the Sequence V engine test for sludging.

For light- and heavy-duty diesel engine oils, ATIELs Group III interchange rules are more rigid still, requiring formulators to rerun the full battery of tests when interchanging more than 10 percent of the Group III in an approved formula.

By comparison, APIs rules in North America are more flexible. They allow formulators to skip four tests when substituting one Group III for another in an oil that has been approved for the latest gasoline engine oil standard, ILSAC GF-4 and API SM with energy conservation. Three of those tests are forgiven when interchanging in a formulation that has met the API SM specification for non-energy-conserving oils.

Valvoline sees a strong need for strengthened Group III interchange in Europe, said Thomas R. Smith, technical director for lubricant marketer Valvoline. In the past, the number of Group III base oils available to a blender were limited, and the number of products requiring these stocks were limited. This meant that typically an approval program would have been run in the Group III that was available to you, and coverage in other stocks was not that important.

The number of products requiring Group III and the number of Group III manufacturers have both grown significantly so that today a blender is using Group III in many products, and supply and demand are such that he can not always be certain of the availability of a specific Group III. Having coverage in multiple Group III stocks is necessary for security of supply.

There seems to be broadening consensus in Europe that the market urgently needs more flexibility to use Group IIIs. Additive companies recently agreed to pool their existing data to see if they have enough collectively to serve as the basis for interchange rules. To avoid sharing their proprietary information, the companies are turning the data over to a third party for analysis.

Its still in its infancy stages, but whats happening is that the additive companies are gathering data and providing it to the European Chemical Industry Council, said Arlene Rebello, customer technical services advisor with Afton Chemical Co. Once the council has everything, it will work through the data to see if there is enough there to draw any conclusions.

If the answer comes back yes, the additive companies plan to take the information to automakers to seek their cooperation, probably in the coming weeks or months.

Obstacles Aplenty

Sources blame a number of factors for hampering adoption of Group III interchange rules in Europe. The biggest is a shortage of test data that could be used as the basis for consensus rules. Both ATIEL and API are strict about not adopting interchange rules without data, to assure that lubricant quality will not be compromised.

In Europe, test data is lacking partly because the market has traditionally depended on a limited number of suppliers. Western Europe has just five Group III refiners – ExxonMobil, Neste, Repsol YPF, Shell and Total – and some use their product mostly for their own internal needs, with little to spare. Some say Neste and ExxonMobil were for years the only suppliers selling significant volumes on the merchant market. Once formulators certify engine oils using those stocks, there is little incentive to develop interchange rules, let alone basis for doing so.

There are also commercial concerns that keep test data from being shared. Theres a ton of politics going on, observed Ernie Henderson, technical manager for Lithcon Petroleum USA, which markets Group III oils produced in Korea by SK Corp. Everybody sees that and understands why one company is pushing for something and why another company gets in the way, or at least doesnt actively help. But if the companies that have the data dont want to share it, then there is nothing to do.

European OEMs have also been a force against interchange rules. For one thing, while car and truck manufacturers in North America support industry-wide standards, their counterparts in Western Europe largely adopt and promote their own specs, thereby fragmenting the market. In addition, OEMs in Europe have taken a much harder line against test avoidance.

OEMs in Europe want to see data for every test, said Sylvain Leblanc, European marketing manager for Infineum. This is not true for all of them, but for most it is. Not only can you not modify your base oil [without repeating all tests], you cannot modify your viscosity index improver, you cannot modify your detergent-inhibitor.

In at least one sense, sources say, development of Group III interchange rules is becoming even more difficult. As engine oil standards rise, greater precision is required, which is to say less variability – and that runs counter to the very idea of interchange. The Group III basket already contains stocks that differ significantly on key parameters. Viscosity indices range from 120 to upwards of 150. Petronas Francis Lee has cited Group III Cold Cranking Simulator scores ranging from 1,400 to 9,900, and Noack volatility losses that can be as low as 6 percent or as high as 14 percent.

Some say it may become difficult to prove that any of these stocks can be substituted for another without compromising engine oil performance. To address these concerns, some suggest the industry may need a new basis for defining base oil categories, such as chemical performance. This might make it easier to write interchange rules for base stocks that are similar enough in terms of key characteristics so as not to affect lubricant performance.

The base oil categories we have today have been around for awhile now, and the market has changed a lot, so maybe it is time to look at something like changing to definitions based on chemical properties, Henderson said. But that would be a big undertaking. It would probably take years to accomplish.

Urgency – and a Solution

The cost of not having Group III interchange flexibility, some sources warn, will grow in the next few years. The worlds appetite for highly refined base oils will only increase. Many predict the European and North American markets will depend more and more on imports to meet that demand. The good news is that new projects are in the wings – new plants in Taiwan, Malaysia, Indonesia, India and Bahrain, plus two gas-to-liquids base oil projects in Qatar. The bad news is that all will open without any specification approvals.

Of course, every base stock subjected to tests has the potential to contribute data needed to develop interchange rules. Petronas officials suggested how the situation could play out. Malaysias national oil company is scheduled to open a 5,500 b/d Group III plant in Melaka, Malaysia, in June 2008 and says it plans to pitch some of the product to Europes engine oil market.

We would like to see some base oil interchange rules for Group III, said Ong Eng Kiang, Petronas technology manager for base oil marketing. [But] at this moment there is not enough engine test data, and to adopt any interchange position is premature. He stated that Petronas expects it will have to invest to gain its own approvals, but he added, We are willing to provide our engine test data to ATIEL and API so that they may build credible data to support base oil interchange rules.

Participation from a few more new suppliers might be enough to grease the way for Europes adoption of Group III interchange rules – especially in view of the growing expense of not having them. Perhaps thats why, despite the impediments, industry sources sound surprisingly confident that such rules will be adopted.

It will be challenging, absolutely, because it is a complex issue and you have all the different stakeholders, Infineums Leblanc said. But I think we will find a solution. The need is big, and it is getting bigger.

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