FUELS & LUBES INTERNATIONAL
Quarter Two 2015
6
B A S E O I L C O L U M N
FOR SK LUBRICANTS,
producing Group III base oils in
Europe made a lot of sense. Europe is
the major market for Group III, and
until the third quarter of 2014, SK
was supplying Europe fromUlsan,
South Korea. It was sending two
shiploads per month to Rotterdam,
where it had a storage capacity of
120,000 metric tonnes (MT).
The opportunity to partner with
a European refiner came about
when Spain’s Repsol decided to
upgrade its Cartagena refinery,
which included installing a
hydrocracker. This triggered “the
start of the conversation,” said Alan
Bell, SK Lubricants’ sales director
in Europe based in London.
The EUR 3.1 billion (USD 3.4
billion) investment increased the
distilling and conversion capacity
of the refinery to maximise the
production of middle distillates,
which were in short supply in
Europe, decreased the production
of fuel oils and allowed it to process
heavier crude oils.
The other attraction for SK was
the residue from the hydrocracking
units in Spain. The residue is the
feedstock for the base oil plant, and
was similar to what SK’s plant in
Ulsan, South Korea, was using.
Additionally, Repsol was willing
to partner with SK Lubricants as
a shareholder owning 30% of the
joint venture firm Iberian Lube
Base Oils Company. The partners
announced their project in
November 2011, and by September
2014, the JV started production.
About EUR 250 million (USD
273 million) was invested in this
project.
SK plans to source most of its
European sales from this plant and
to send perhaps only one shipload
of base oils to Europe per quarter.
“Predominantly, we can be
self sufficient with European
production,” Bell said.
With a processing capacity of
630,000 metric tonnes per annum
(MTPA), the Cartagena plant is
two and a half times the size of
Neste Oil’s Porvoo Group III plant
in the Kilpilahti industrial area,
30 kilometres east of Helsinki,
Finland. These two are the only
significant Group III base oil
producers in Europe.
Cartagena used to be a small
fishing port, just south of Alicante,
Spain. The plant mostly produces
3-, 4- and 6-centistoke Group III
base oils, Bell said, although there
are plans to produce heavier grades
this year.
Bell said the key to SK’s success
is that the company is the “only real
global player, and that’s what the
majors latched onto.”
“The big players with plants
all over the world want the same
formulation and a supplier that is
available worldwide,” he said.
Bell said the European market
is one of the most complex in the
world.
“One of the things about
the European market is that it’s
probably one of the most complex
in the world as a region in regard
to automotive lubricants,” Bell
said. “There’s a big proliferation
of OEMs that’s very keen to have
a big say in lubricants and they go
in some detail to assess… what
they think we need for the next
generation oils, etc. They started
going into the synthetic route 10
years ago,” he said.
In the past, there was a big
debate whether Groups II and III
should be classified as synthetic
base oils. This issue was never
settled within a technical forum
like Technical Committee 1 of the
Society of Automotive Engineers
(now SAE International). It was left
to the marketplace and the courts
to decide what “synthetic” means.
Today, the term is loosely used to
encompass Groups II and III, along
with poly alpha olefins (PAOs),
the synthetic base stock used in
Mobil 1. Mobil (now ExxonMobil)
was a pioneer in the synthetic lube
market.
While North America went
the Group II route, Europe went
with Group III. Both are cheaper
routes to formulate higher quality
lubricants than PAO, which also
happens to be in short supply. Bell
explains why.
“Europe once upon a time was
more than self-sufficient with
Group I plants and there wasn’t
much opportunity to get rid of
those plants…. so Group I was the
main product [in Europe],” he said.
“Shell in the 1970s in fact was
probably one of the first to start
producing Group III with XHVI
in France. As the market became
more interested in Group III, top-
tier engine oils were starting to be
formulated with Group III.”
At that time, the Shell refinery
in Petit Couronne, France was
producing around 50,000 MTPA
of Group III, in addition to Group
I. Eventually, Shell began to back
away from third-party sales and
predominantly started using
XHVI internally. This created
an opportunity for SK. The plant
was eventually sold to PetroPlus
Holdings AG in 2008, which
operated it until the company was
declared insolvent in 2012. But
even before then, the XHVI unit
had to be shut down because the
waxy feedstock required to produce
XHVI was not available in Europe.
Bell said that while there hasn’t
been much volume growth in
Europe, technical requirements
from the automotive sector
continue to drive Group III
demand. U.S.-based Chevron Corp.
has been expanding its presence
in Europe by bringing in Group II
base oils, which compete with both
Group I and III, from its newly
expanded plant in Pascagoula,
Miss., U.S.A.
Regarding the future, Bell said,
“It could be another two or three
years before we see the market
catch up with demand to the point
where there is tightness again.”
Despite today’s economic
climate, the Cartagena refinery
was the perfect opportunity for SK
Lubricants to establish a footprint
in Europe.
A EUROPEAN BONANZA
By Vicky Villena-Denton
