Completed two months ahead of schedule for its budgeted U.S. $215 million, the API Group III plant plays a significant role in its owners strategic plans. For SK Energy, which owns 65 percent of the venture, the Dumai plant is a key step toward its goal of dominating the high-end base oil market with 50,000 barrels per day of Group III capacity by 2015. For Pertamina, with 35 percent ownership, the successful launch strengthens the companys lubricants business domestically and regionally and is an essential element in establishing Pertamina as a world-class national oil company.

At the official inauguration in July 2008, Pertamina projected the Dumai plant would create revenue of $400 million per year. While its unlikely to meet that goal in 2009 – SK has predicted that global Group III demand will fall 30 percent in 2009, compared to 2008 levels – the refinery is a highly valued asset for both partners.

THE JV

On April 23, 2006, Pertamina and SK Energy signed their Patra-SK joint venture agreement, and by late March 2008 SK Engineering was wrapping up construction. Two months later, commercial production was under way.

Were really proud of the achievement, Yea-Sun Yoon, general manager of SK Energys Lubricant Business Development Team, based in Seoul, told LubesnGreases. It was the shortest construction time in our history. It took about 15 months. We used 30 percent local [Indonesian] staff, and Pertaminas support was beautiful.

Under the agreement, Yoon explained, SK provides the technology and the marketing, and Pertamina provides the feedstock and the land. Sixty-five percent of the refinerys output is SKs, for its own use and to market throughout the world except in Indonesia. The remaining 35 percent of the plants output is Pertaminas, for its internal use and to market domestically in Indonesias growing lubricant market. SK Energy markets Dumais production under the brand Yubase Plus, while Pertamina has branded its share of production Dubase.

Indonesias crude is highly paraffinic, allowing the plant to produce the extremely high viscosity index (V.I.) base oil that is called Group III-plus. The American Petroleum Institute defines Group III base oils as having V.I. above 120, saturates equal to or above 90 percent, and sulfur at or below 0.03 percent. III-plus is the unofficial industry term for the highest V.I. base stocks, above 130.

The Dumai plants technology involves three partners: SK, ExxonMobil and Chevron, said Yoon. The refinery uses SK Energys technology with an ExxonMobil catalyst and involves a Chevron process. Feedstock for the plant is hydrocracker bottoms from Pertaminas adjoining fuel refinery.

Capacity is 7,500 barrels per day, or 350,000 metric tons per year. About 80 percent of the production is 4 cSt with a V.I. of 134, and the rest is 6 cSt, 146 V.I., according to Jay Kim, senior manager of SKs Base Oil Business Team in Seoul. This closely approaches the quality of polyalphaolefin and gas-to-liquid base stocks, Kim said.

R. Choerniadi Tomo, group head of product development in Pertaminas Lubricant Business Unit in Jakarta, agreed. Not only are the oxidation stability, very high V.I. and low-volatility performance of the Dumai base oils comparable to some PAOs, Tomo said, but at reduced costs of production.

PERTAMINAS DUBASE

According to Choerniadi Tomo, most of Pertaminas 35 percent share of Dumais output is ear-marked for the companys own use. Pertamina is using Group III with Group II or Group I to upgrade finished lubricants, working with [additive suppliers] Infineum, Lubrizol and Oronite, he said.

While the global recession has devastated many segments of the base oil and lubricants industry, Tomo noted that Indonesia has been relatively unaffected. Our domestic market stayed strong, with positive growth, he told LubesnGreases. Indonesias GDP expanded 4.3 percent in the three months to March 31 from a year earlier, compared with a 5.2 percent gain in the previous quarter, strong performance in recessionary times.

Lubricant demand in Indonesia totaled 670,000 kiloliters in 2008, said Tomo, and is expected to grow to nearly 800,000 kiloliters by 2012.

Motorcycles are the most popular transportation, and the motorcycle population is growing rapidly, almost 16 percent per year, Tomo said. Other vehicles also are showing strong growth, about 5 percent per year. This translates into a robust market for automotive engine oils.

Japanese motorcycle brands dominate the market in Indonesia, Tomo continued. Chinese OEMs tried to penetrate the market, but didnt succeed. With increased awareness of Japanese motorcycle oil standards, he said, the market for JASO MA 10W-30 genuine oil is starting to grow.

With access to Dumais high-quality oils, Pertamina is testing new formulations that are fully Dubase or that mix Dubase with Group I base stocks from the companys Cilicap refinery. Applications include JASO MA2 10W-40, JASO MB 10W- 30, passenger car and heavy-duty diesel engine oils, automatic transmission fluid, and an ashless hydraulic oil. In addition, the company is formulating a heat-transfer fluid and a refrigeration oil with excellent properties that are fully Group III-based.

Pertamina is eying expanded external markets for its finished lubricants. We now market [finished lubricants] via distributors in Pakistan, other Middle East countries, Australia and Taiwan, said Tomo. We will start to enter the international market.

SKS YUBASE

Dumai was designed for the international market from the beginning, YS Yoon pointed out. Group IIIs application is low-viscosity motor oil with superior performance. Thats not an easy goal, and thats why Group III is needed.

The recession, however, has jarred the global Group III markets. Group III producers were impacted much more [than Group I] because of the OEM decline, Yoon continued. Group III is used extensively for factory-fill engine oils, and auto plants production is down by 40 percent to 60 percent compared to early 2008. So our customers sales have decreased. Group III sales are down by 25 to 30 percent from the first half of 2008. Theres a lot of pain, but its a temporary problem.

SK has branded the high-V.I. Dumai base oils Yubase Plus, to distinguish them from the Group II and traditional Group III Yubase oils it makes in Korea. The biggest markets for Yubase Plus, Yoon said, are Japan, Europe, the United States and Korea, and SK also uses a sizeable amount of the production internally.

Mandatory tests are completed to read across from other Yubase stocks, Yoon said, but other OEM testing will take more time. SK is undertaking the testing now that is needed for OEM approvals for the Yubase Plus oils. Those tests should be completed by the second half of 2010, said Yoon, and that will allow production at Dumai to increase.

Caltex used to be a big SK customer before starting up its own base oil plant in Yeosu, South Korea, with joint venture partner GS, Yoon continued. We welcome their production. Theyre producing heavier stocks and are not a direct competitor. S-Oil is SKs principal competitor, but demand exceeds supply for all Group III. Despite years of growth, Group III base oils are just 6 percent of the global total – so far.

SK Energy is clearly convinced that Group III is the base oil of the future. His company has been in the Group III market since 1995, Yoon reminded. It was the worlds first merchant supplier of Group III, and is overwhelmingly its largest Group III producer, with 17,000 b/d of Group III capacity at its Ulsan, Korea, refinery. And with the opening of the Dumai plant last year it became the first merchant marketer of Group III-plus.

MORE TO COME?

At the ICIS Asian Base Oils & Lubricants Conference in Kuala Lumpur in June, Jay Kim stunned his audience with the news that SK is planning to double its base oil capacity by opening two additional Group III plants, one in 2012 and the other in 2014.

SKs current capacity, Kim said, totals 23,500 b/d, including Ulsans Group II and III capacity plus Dumai. By 2011 the company expects to increase capacity by 4,500 b/d via upgrades in Ulsan and Dumai. And in 2012 and 2014 it anticipates bringing two 10,000 b/d plants on stream.

We intend to diversify, Kim said of the possible locations for the new plants. Candidates are in Europe, South Asia and/or East Asia. We plan to confirm plans by the end of this year.

Our target is 50,000 b/d of Yubase in the market by 2015, Yoon told LubesnGreases. We want the industry to develop a lot of formulations using Yubase.

Control of base oil performance is very important. We are very proud of our technology, Yoon said. Weve been tested by international customers like Shell, Castrol and ExxonMobil. They demand consistent quality. It took about five years to perfect the product and break into the market. Today, we see our customers as partners. Theyve heavily invested in our base oils.

Will there be more Dumais in SKs future? To achieve an additional 20,000 b/d of base oil production, future joint ventures with third parties are possible, Yoon said with a smile, or not.

SK Energy looks forward to extending its cooperation with Pertamina, Yoon concluded, to go beyond base oils and lubricants. We cannot yet say what, but we find there are a lot of areas where we can cooperate.