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Tianjin, Again

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Less than five years after constructing its first plant in the city of Tianjin, China, Shell broke ground Aug. 16 for a second lubricants blending plant there, to help supply finished lubricants to the countrys northern region. When it opens in 2015, this will bring to seven the num-ber of blending plants the oil major operates on Chinas mainland.

The new plant in Tianjin, which is southeast of Beijing, will have 300 million liters per year of initial capacity, with the potential to expand to 500 million liters per year. Mark Gainsborough, the executive vice president for Shell Global Commercial who announced the project, said the investment in the plant will be more than $100 million over two years, making it the biggest lubricants investment to date for Royal Dutch Shell in mainland China.

According to Gains borough, the planned greenfield plant will be constructed in the Tianjin Nangang Industrial Zone, a new industrial zone on reclaimed land. On completion, it will have the biggest capacity of any existing plant in China and also be the most automated, advanced plant in China, equipped with high-speed filling lines and automatic blending system.

Currently, production from the existing plant in Tianjin includes both transportation and industrial brands. But once on line, the new plant will focus on engine oil products and transport brands such as Shell Helix and Shell Rimula – including Helix Ultra, Helix HX3, Rimula R4 and Rimula R2Extra – while the existing plant will shift to focus just on industrial products, Gainsborough noted.

The new plant is 50 kilometers from the existing Tianjin lubricant oil blending plant, which is 80 km from downtown Tianjin, and 120 km from Beijing. The existing Tianjin plant was extended during 2011, and cannot be further expanded due to the limitation of the plot size, Gainsborough said. It is also situated in a dedicated industrial zone managed by the local government, where no further expansion is possible.

Located on a 50,000-square-meter site, Shells first blending plant in Tianjin started production in 1997. The 2011 expansion project increased its capacity by one and a half times.

In addition to six mainland facilities, Shell has blending plants in Hong Kong and Taiwan. Hong Kong is home as well to one of three global storage hubs that have been established for Shells gas-to-liquid Group III base oil, made at its Pearl venture in Qatar. Other lubricants blending plants are dotted around Asia, in Singapore, Thailand, Malaysia, the Philippines, Vietnam, South Korea, Pakistan and India.

Three of Shells eight global base oil manufacturing plants are in Asia: Pulau Bukom in Singapore, Kaosiung in Taiwan and Yokkaichi in Japan. In early 2012, it signed a conditional joint venture agreement with Hyundai Oil Bank to develop, construct and operate a base oil manufacturing plant at the Daesan Refinery in South Korea.

By 2020, the company estimates that the Asia Pacific region will represent more than 50 percent of all global lubricants demand. Almost half of that growth is expected to come from China. By 2015, when the new Shell Tianjin blending plant starts up, China is expected to overtake the U.S. as the largest country market for lubricants.

Consumer demand will be driven by the number of Chinese vehicles, Shell suggests, which is expected to triple in the next 10 years to just over half a billion units. Industrial lubricants demand will be led by infrastructure-related sectors such as mining, construction and steel production. It expects one-fifth of all construction projects globally will soon be in China.

As well, Chinas lubricants market is growing in both volume and quality, with commodity products giving way to more sophisticated, high-value offerings. According to a recent study from Kline & Co., sales of monograde engine oils are waning, and they now account for only 4 percent of Chinas passenger car motor oil sales and one-third of heavy-duty motor oils. Products meeting API categories SJ, SL and SM now service almost 60 percent of the gasoline engine oil market.

George Morvey, project manager in Klines Energy Practice, said Chinas lubricant market reached an estimated 7.6 million metric tons in 2011, valued at $22.4 billion. Just three years earlier, in 2008, the countrys consumption was 5.5 million metric tons, valued at $12.1 billion. Looking to the future, Kline forecasts Chinas finished lubricants demand will rise to 9.8 million tons by 2015. These data and projections are from the Parsippany, N.J., market research firms latest study, Global Lubricants 2011: Market Analysis and Assessment.

By volume, Morvey said, 47.3 percent of Chinas market in 2011 was industrial oils; 37.5 percent was commercial automotive oils (including heavy-duty diesel engine oils); and 15.2 percent consumer automotive (including lubricants consumed in all gasoline-powered vehicles, such as passenger cars, motorcycles, mini-buses and taxis).

Although the consumer automotive market currently is only 15.2 percent of the total volume, Morvey noted that it accounts for 23.2 percent of the market by value, or nearly $5.2 billion. The value was up from $2.7 billion in 2008.

According to Klines latest estimates, the top lubricant suppliers in China by market share in 2011 were Petro -China, with a 21.4 percent share; Sinopec at 19.5 percent; Shell at 7.3 percent; ExxonMobil at 5.4 percent; Monarch, 4.3 percent; and BP, 2.9 percent. The Monarch brand is made by Beijing Tongyi Petroc hemical Co., which since 2006 has been 75 percent owned by Shell.

A key industrial hub for Chinas northeast, Tianjin has been a magnet for lubricant investments. In addition to Shell, the city has lube plants operated by Chinese majors PetroChina and Sinopec, plus ExxonMobil, Chevron, JX Nippon, Idemitsu Kosan and Master Chemical, to name a few. More recently, SK Lubricants has built an 80,000 ton per year blending plant in the city, and French company Total is building a 200,000 t/y plant that is due to start up in first-quarter 2013.

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