Searching for Supply Crisis Solution

The Independent Lubricant Manufacturers Association called for provisional licensing early in the war as a way to offer lube marketers relief from the supply crunch. In fact, ILMA asked API and General Motors to ease rules for substituting base stocks in engine oils with existing licenses — in GM’s case for those already approved as meeting its dexos performance specification. API granted the request, while GM did not.

Provisional licensing is provided for by API’s Engine Oil Licensing and Certification System and has been invoked for during previous disruptions in raw material supply, for example in response to United States base oil plants being damaged by hurricanes or during a 2021 Texas cold snap that knocked chemical additive producers offline for extended periods.

In this case API invoked Emergency Provisional Licensing in response a halt in shipments from three API Group III base oil plants — the Shell-Qatar Energy gas-to-liquids joint venture in Ras Laffan, Qatar; Adnoc’s plant in Al Ruwais, United Arab Emirates; and the Bapco plant in Sitra, Bahrain. All three are located on the Persian Gulf and were cut off when the Strait of Hormuz was closed to ship traffic. In addition, the GTL plant — named Pearl — was damaged by an Iranian airstrike, as was the Bapco plant, and would take months to repair.

Together the plants have more than 20% of global Group III production capacity, so their loss caused upheaval for the lubricant industry, especially for the manufacture of passenger car motor oils, where Group III has become a near requirement for formulations meeting the latest performance specifications.

API is one of the most important engine oil licensing and certification organizations. It’s specifications for passenger cars are formulated in cooperation with ILSAC, the International Lubricant Standardization and Certification, representing U.S. and Japanese automakers. Ostensibly, these specs are developed for the North American market, but they end up being followed throughout much of the world — in markets where American and Japanese cars are popular.

Gaining permission to claim that they meet ILSAC and API specs requires passing the numerous engine and bench tests included in the specs, many of which are expensive. Normally API requires all tests to be repeated if a marketer replaces more than a minimal portion of the base stock. Under the provisional licensing program, marketers of licensed products may apply for temporary exemption from testing when replacing raw materials unavailable because of significant disruptions, such as force majeure declarations, so long as they provide documentation that the change does not affect performance.

Applications should include a description of the events causing the raw material shortage; an account of steps taken by the applicant to find alternative sources, both of raw materials and finished products; an estimate of the duration of the disruption; a list of products and viscosity grades of modified products, along with traceability codes. Applicants must also supply data supporting the conclusion that the substitution does not affect the performance claimed for the licensed product.

“There is no minimum standard,” for the evidence of performance, Bill O’Ryan, director of API’s Engine Oil Licensing and Certification System, said at an Aug. 13 webinar hosted by the Society of Tribologists and Lubrication Engineers. “What the API is asking is for the licensee to provide their judgement as to why the performance is not going to be impacted by the change that they have made and then to provide some data to support that.”

In cases where API grants provisional licenses, applicants then have six months to complete normally required tests and submit results. Extensions to the timeline may be requested, but requests must be accompanied by explanations of why they are needed.

Industry was slow to take advantage of the program. API invoked provisional licensing for the crisis on March 25, and by mid-August it had only received 12 applications. Over the next month, however, it received 24 more.

“Applications were slow to start and at a pace lower than anticipated,” said Dennis Bachelder, a senior engineer in API’s Engine Oil Licensing and Certification System. “It was understood that at the start of the war there were significant inventories of Group III base oils on a global basis. Lubricant companies were initially focused on maintaining and strengthening supplier relationships. As the extent of damage to the Group III refineries in the Persian Gulf and the opportunity to make repairs became unknown, the pace of applications increased.”

Bachelder added that API has granted approximately eight out of 10 applications, while in others it has requested additional information.

Industry insiders say at least some lube manufacturers have been forced to reduce passenger car engine oil production because of problems sourcing base oils, primarily Group III. Effects have been seen at the consumer level. In May Toyota and Nissan issued bulletins warning dealers of looming shortages of finished lubricants — of 0W-8 and 0W-16 passenger car engine oils in Toyota’s case, of lubricants more generally in Nissan’s.

“I have heard that some people have not been able to make dexos product because of the fact that they don’t have [the base oils] they need to be able to make it,” ILMA CEO Holly Alfano said Aug. 13 at a webinar hosted by the Society of Tribology and Lubrication Engineers.

Sources contacted for this article confirmed the Group III shortage is affecting passenger car engine oil availability around the world. In Japan, increased procurement by some lubricant distributors and end users created shortages for some other purchasers.

“Since the latter half of March this year, some distributors and end users concerned about future availability of supply have placed orders significantly exceeding the levels seen in the same period last year,” the ministry’s press office told Lubes’n’Greases. “As a result, although the overall quantity required in Japan has been secured, supplies to distributors and end users ordering normal quantities have been delayed. Consequently, some end users have experienced longer lead times in procuring lubricants, resulting in localized supply imbalances.”

Matti Adani, president of UEIL, the Union of the European Lubricants Industry, said he has seen shortages in that region.

“We are observing two main reactions,” he said. “One is drain-interval extension by consumers, which represents a net loss for lubricant producers and for the downstream sales chain. The other is [engine oil] grade downgrading. This is the most interesting development. Some OEMs have simply changed the formulations of their genuine products, while others have introduced new products with lower specifications alongside their usual approved products.”

He added, though, that the European counterpart for ILSAC and API, the European Automobile Manufacturers Association, or ACEA, has not received any applications for provisional licensing this year, even though it has a process similar to API’s.

 Bachelder warned that the Group III shortage could still worsen, that “peak risk” is expected to come during the period from November to January, and that assumes the conflict between the U.S. and Iran ends relatively soon.

ILMA’s Alfano noted the uncertainty surrounding that condition.

“A lot of [the situation improving] is tied to what is going to happen with the war,” she said. “That seems to change on a daily basis. We really don’t have any idea at this point. The strait really is not open.”  

Tim Sullivan  is executive editor for Lubes’n’Greases. Contact him at Tim@LubesnGreases.com.