BASE OIL

By Budiarto Tedja

Lubricant Marketing
Marketing & Trading Directorate

Jakarta 2007
FUNDAMENTALS & DEFINITION

Page 1
Mineral Base Oil Classification

• Crude sources
• Paraffinic
• Naphthenic

• Refinery processes – API classification

• Group I – solvent refined – neutral / bright stock
• Group II – hydrotreated
• Group III - hydrocracked

Page 2
Base Oil for Lubricant Requirement

• Minimize/Reduce/Prevent
o Friction
o Wear
o Corrosion
• Act as Engine Coolant
• Low Consumption
• Enhance Fuel Economic

Page 3
Two Basic Need

• Respond to Customer Request

o Price Quality/Performance
o Track Quality Changes

• Internal Need – Product Development

o Predict Impact of Base Oil in Finish Lube
o Produce Cost Effective additive systems

Page 4
Fraction of Various Crude Petroleum Product
Gasoline
Kerosene
LPG Stove Oil
Furnace Oil
Auto Diesel
Residual Bunker Diesel
Regular Diesel
Dist. Bunker Diesel
Catalytic Cracker Charge
Thermal Cracker Charge
Industrial and Bunker Fuel Oil
Lube Oil and Wax
Jet Fuel Paving Asphalt

-100 0 100 200 300 400 500 600 700 800 900 1000 Residue
Degrees Fahrenheit

Page 5
API Base Stock Definition

“A base stock is a mineral hydrocarbon or synthetic

lubricant component that is produced by a single
manufacturer to the same specifications (independent of
feed source or manufacturer’s location); that meets the
same manufacturer’s specifications; and that is identified
by a unique formula, product identification number, or both.
Mineral base stocks may be manufactured from crude oil
(virgin base stock) or from used oil (rerefined stock) by
refining or rerefining processes. Rerefined stock shall be
substantially free from materials introduced through
manufacturing, contamination, or previous use.”

Page 6
CLASIFICATION & SPECIFICATION

Page 7
Lubricant Base Stock

• Mineral Oil
• Synthetic
• Vegetables and Animal

Page 8
Base Oil Properties

• Physical Properties • Chemical Properties

o Viscosity o Saturated Content
o Viscosity Index o Aromatic Content
o Volatility o Sulfur Content
o Flash Point o Nitrogen Content
o Pour Point
o Specific Gravity

Page 9
Nomenclatur of Base Oil

• Neutrals
– SUS* Units at 100°F
• Bright Stocks
– SUS Units at 210°F
• Naphthenics
– VI <80
• Example
– 100N = 100 SUS at 100°F or 4.0 cSt at 100°C

Page 10
 Mineral Base Oil – General Properties by
Crude Source

Base Oil Typical chemical composition : solvent General physical properties

stock type refined
Paraffinic Straight/branched chain carbon : 70-76% Viscosity index : 90 or higher
Cyclic carbon : 22-24% Pour point : -15 to -3
Aromatic carbon : 0-8% Air release : Varied
Sulfur : <1000ppm Solvency : Varied
Nitrogen : <200ppm
Naphthenic Straight/branched chain carbon : 50-55% Viscosity index : 30 to 70
Cyclic carbon : 45-50% Pour point : -50 to -3
Aromatic carbon : 0-5% Air release : Poorer than paraffinic
Sulfur : <1000ppm Solvency : Better than paraffinic
Nitrogen : <200ppm

Page 11
BASE OIL are divided into five groups
API classification based on chemistry – specification
Group I Group II Group III Group IV Group V

Saturates < 90% > 90% > 90%

All
AND/OR AND AND Basestocks
not in
Sulphur > 0.03% < 0.03% < 0.03% PAOs Groups I, II
III, IV
AND AND AND

VI > 80 < 120 > 80 < 120 > 120

All Standard Severely Shell XHVI®, Includes other

Shell and PIOs synthetics, esters,
many Hydroprocesse BP HCs, and
competitors’ d TexHVI (some) Naphthenics (if VI
HVI base (SHP) Shell/ <80)
stocks HVI base stocks Neste/SK/Pet.
Canada VHVIs

Page 12
 Mineral Base Oil – General Properties by
API Types
API Group Typical chemical composition General physical properties
I Straight/branched chain carbon : 50-70% KV@40oC : 8 to 170 cSt
Cyclic carbon : 20-50% Viscosity index : 90-100
Aromatic carbon : 5-10% Pour point : -15 to 0oC
Sulfur : <0.1% Air release : Varied
Nitrogen : <200ppm Solvency : Good
II Straight/branched chain carbon : 50-80% KV@40oC : 8 to 140 cSt
Cyclic carbon : 20-50% Viscosity index : 95-110
Aromatic carbon : <1% Pour point : -15 to -6oC
Sulfur : 1ppm Air release : <5 mins
Nitrogen : <10ppm Solvency : Poorer than Group I
III Straight/branched chain carbon : 100% KV@40oC : 13 to 46 cSt
Cyclic carbon : 0% Viscosity index : >110
Aromatic carbon : 0% Pour point : -24 to -15oC
Sulfur : 1ppm Air release : <3 mins
Nitrogen : <10ppm Solvency : Poorer than Group I

Page 13
 Base Stock Performance Attributes

Group I Group II Group III

Low Temp. Properties Baseline Better Better
Volatility Baseline Equal to better Better
Oxidative Stability Baseline Better Better
Solvency Baseline Equal to poorer Poorer
Seal Swell Baseline Equal to poorer Poorer
Soot Handling Baseline Better Better

Page 14
CORRELATION WITH LUBRICANT

Page 15
Lubricant Design

Wear Corrosion
Properties
Low
Temperature
Behavior Chemical
Activity
Oxidation Acid and Sludge
Friction Viscosity Stability Formation
Reduction Base Oil
Properties
Demulsifying Surface
Activity Volatility
Ability
Solvency Residue
Foaming Formation
Tendency

Additive
Compatability Seal Compatability

Page 16
 Base Oil Quality Influencers

Fuel Economy Reduced Friction

Extended Drain Enhanced Oil and

Intervals Additive Durability

Reduced Emissions
Emissions
Converter
Compatible

Page 17
API Group Vs Fuel Economy

% Fuel Economy
API Group Improvement
I 0.90
I 0.94
II 0.97
III 1.14
III 1.42
IV 1.36
V 1.57

Page 18
Solving The Performance Puzzle

Base oils are lubricants Additives are utilized

with missing performance to fill in the missing
attributes performance pieces

Page 19
 Key Base Oil Properties for Industrial
Lubricants

• Air release • Oxidation stability

• Thermal stability • Pour point
• Carbonation tendency • Sludge formation tendency
• Heat capacity • Solvency
• Viscosity index • Foaming tendency
• Volatility • Emulsibility
• Fuming tendency • Water separation properties
• Flocculation point

Page 20
 Challenge of Fuel economy and use of
Multi-grade Engine Oils

0W-20
Lower 5W-20 Group III
Viscosity
5W-30 Group II+
10W-30 Group II Base
Oil Quality
10W-40 Mixed Base Oil

15W-40 Group I+

20W-50 Group I

Mono

Page 21
PRICE REFERENCE & PUBLICATION

Page 22
Price Reference

• ICIS-LOR : Base Oil Group I Publication from Singapore

o FOB Singapore
o FOB Asia
o CFR East Asia

• Lube Report : Base Oil Group I, II, III Publication from USA
o Gulf Coast
o West Coast
o East Coast

Page 23
ICIS-LOR Price (FOB Singapore)

ICIS-LOR Price Jan 2004 - Sept 2006

1070
1030
990
950
910
870
Harga (US$/MTon)

830
790
750
710
670
630
590
550
510
470
430
390
350

Harga Jan-2004 - Sept 2006

HVI-60 HVI-95 HVI-160 HVI-650

Page 24
BASE OIL SUPPLY & DEMAND

Page 25
 BASE OIL Demand Interlinked Drivers

Supply/Demand Structure Competitors introducing new

Technology & Formulations
In order to gain competitive
Advantage
Demand
/Supply Competitors

Base Oil
Cost effective lubricants Customer Quality Government Governments have legislated
• Reduction in running requirements legislation
Demand Strict emission levels which
costs Driver OEMS to develop
New technology

OEM
Technology specifications

Engine technology OEM drive lubricant

Improving driving Specifications in order for them to
Lubricant technological Meet customer expectations and
advance Emissions legislation

Page 26
 Base Oil Supply & Demand
Produksi Nasional

1,000,000
900,000
800,000
Konsumsi Nasional
700,000

V o l u m e (K L )
600,000 600,000
500,000 500,000
400,000 400,000
Volume (KL)

300,000 300,000

200,000 200,000

100,000 100,000

0
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Group III 2,804 3,811 4,540 5,400 5,628 6,318 7,322 8,975 10,830 12,220 14,439
4,673 6,669 8,254 10,350 14,539 19,321 23,535 28,608 34,895 41,163 51,568
Group III 0 0 0 0 0 0 0 360,000 360,000 360,000 360,000
Group II
Group I 304,024 370,620 399,906 434,250 448,833 451,136 455,443 458,467 460,225 462,692 460,381 Group II 0 0 0 0 0 0 1,774 7,800 10,220 12,300 15,410
Tahun
Group I 338,775 473,297 410,365 500,527 489,613 439,333 503,946 500,200 499,780 501,700 502,102
Group I Group II Group III
Tahun

Group I Group II Group III

Note : Page 27
DOMESTIC BASE OIL PRODUCER

• Pertamina = Pure Base Oil from Crude Oil and the Capacity is
450.000 KL/Yr (90% from National Production), produced in
Cilacap
• PT. Wiraswasta Gemilang Indonesia (Penzzoil) = Recycle
Base Oil from Used Oil in Jakarta
• PT. AGIP Indonesia = Recycle Base Oil from Used Oil in
Surabaya.

Page 28
Base Oils Demand from 2005 to 2010
• Estimated growth of base demand from 2005 to 2010 is
3.5% per year.

• Base oil demand is estimated to be 500,000 kl in 2005 and

600,000 kl in 2010.

KL
700,000

600,000

500,000

Base Oils
400,000
Pertamina BO
300,000 Other BO

200,000

100,000

0
2005 2006 2007 2008 2009 2010

Page 29
 Base Oil Demand by API Groups

• Group I will still dominate the market until 2010

• Group II started to grow slowly in 2000. Demand for Group
II has been increasing since the need of high quality
lubricant for extended drain interval is increasing. Market
share is expected to be 6% in 2010.
• Group III had a long history in Indonesian market before the
deregulation in 2001, Since lubricants using Group III is
considered as “synthetic”, it was allowed to be imported
before 2001.

Page 30
 Base Oil Demand by API Groups

• “Synthetic” lubricants using Group III has a potential

market because the price is far below the price of PAO.
“Synthetic” brand is an effective “marketing tool” in the
Indonesian market. Market share is expected to be 4%
in 2010.
• Due to its high price, PAO is not a favorite base stock
and the growth is very slow. PAO is used only for top
tier products and for marketing. In 2010 the market
share is expected to be 0.5%
• Many new specifications such as Dexron III-H, ILSAC
GF-4, and API CI-4 will be introduced to Indonesia and
will require Group II or Group III base oils.

Page 31
Base Oils Production by Grades in 2005
With current Pertamina lubricants sales, all grades are in
excess. But off-take agreement with Shell makes HVI 160S
very tight. Pertamina still can sell other grades for local
blenders and for export.

KL
160,000

140,000

120,000

100,000
Production
80,000 For Pertamina
Excess
60,000

40,000

20,000

0
HVI-60 HVI-95 HVI-160S HVI-650

Page 32
Base Oils Production by Grades in 2010
Due to the increase of lighter base oil market share, in 2010
excess production maybe only for HVI 650

KL
160,000

140,000

120,000

100,000
Production
80,000 For Pertamina
Excess
60,000

40,000

20,000

0
HVI-60 HVI-95 HVI-160S HVI-650

Page 33
BASE OIL Global Demand

Global
Global Base
Base Oil
Oil Supply
Supply Global
Global Base
Base Oil
Oil Demand
Demand
KBD KBD

900 900

800 800

700 700

600 600

500 500

400 400

300 300

200 200

100 100

0 0
2004 2010 2015 2020 2004 2010 2015 2020

Page 34
 BASE OIL Global Production
Est. 2005 Paraffinic + Napthenic Capacity Utilisation est.
GI 81%
GII 88%
GII 87%
Napht. 85%
Africa 2% Latin America
Middle East 5%
Asia Pacific
5% 29%
FSU 11%

Europe 22%
North America
26%
Capacity Utilisation est.
Asia Pacific 82%
N. America 87%
Europe 90%
FSU 65%
N/M East 85%
L.America 80%
Africa 82%

Page 35
Yubase Supply & Demand
25,000
Demand
20,000 Supply

15,000 SK-Pertamina LBO Plant

(Dumai, Indonesia)
10,000

SK 1st,2nd LBO Plants

5,000 (Ulsan, Korea)

-
'06 '07 '08 '09 '10 '11 '12
Unit: B/D

2006 2007 2008 2009 2010 2011 2012

Supply 9,758 9,960 9,960 16,960 16,960 16,960 16,960

Demand* 10,190 12,781 13,871 15,247 16,772 18,449 20,294

Difference -432 -2,821 -3,901 1,713 188 -1,489 -3,334

Page 36
PRICE TREND

Page 37
Price Trends
for 5 years before & after
(USD/MT)

$5.25 1,200

(USD/Gal) 1,100
Group III

1,000
Group II+
$3.36 900
Basestock & additive cost

Group II
$2.92 800
Group I
700
$2.58
$2.54
600

500

400

300

04

05
04

05
04

05
03

04

05
g-

g-
y-

y-
b-

b-
v-

v-

v-
PAO

Au

Au
Group I Group II Group III Ma

Ma
Fe

Fe
Group II+
No

No

No
[US Market Price]

Page 38
Domestic Price Trends
for 5 years before & after
API Grade Type 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US$/MTON US$/MTON US$/MTON US$/MTON US$/MTON US$/MTON US$/MTON US$/MTON US$/MTON US$/MTON US$/MTON
Group I HVI 60 (SN 130) 360 379 390 431 471 533 561 590 620 652 686
HVI 95 (SN 260) 375 404 419 443 485 602 643 687 733 783 836
HVI 160 (SN 500) 389 423 440 462 490 620 662 707 755 807 861
HVI 650 (150 BS) 450 464 490 538 562 829 920 1,021 1,134 1,258 1,397

Group II VCBS 60 (SN 150) 385 419 434 520 568 703 762 826 895 970 1,052
VCBS 160 (SN 500) 420 441 460 497 546 688 740 797 857 922 992

Group III 4 Cst ? ? 718 759 763 900 947 996 1,048 1,102 1,160
6 Cst ? ? 712 753 773 892 935 980 1,027 1,076 1,128

Note : Gr I Price is FOB Jakarta and Gr II/III Price is FOB Singapore

Page 39
 Price Trend 2002 - 2005
USD/MT

1000

900

800

700

600

500

400

300

200

100

0
2002 3 5 7 9 11 2003 3 5 7 9 11 2004 3 5 7 9 11 2005 3 5 7 9 11

C ost Y U BA S E A vg P rice IC IS 150S N IC IS EH C 45 D ubai

W TI D iesel(G /O ) LS W R USA Europe

Page 40
Pricing Driver
Market Price

Cost Based Value Based

• Internal competition • Specification changes
• Raw Material Cost • Opportunity cost
– Related to the price of • Competitive dynamics
Crude, VGO, fuel etc. – Customer response
– Competitors response

(USD/MT)
1,000
Value Based EHC 45
900 Increase
Value Based
800 Decrease SN150
700
600
Diesel
500 WTI
400 DUBAI
LSWR
300
200 Cost Based
Cost Based Increase
100 Decrease

2002 2003 2004 2005

Page 41
FUTURE TREND

Page 42
Gr III Base Oil in the Future

Lubricant Future Trend

Emission Control Lower

SAPS Supportive
Base Oils

Better
Lower Group III
Volatility
Fuel Economy Viscosity
Base Oil

Oxidation
Stability
Thermal
Stability
Longer of Life

Page 43
 MARKET TREND GROUP III DOMESTIK

16000
Nasional, KL
14000 Pertamina, KL

12000

10000

8000

6000

4000

2000

0
2005 2006 2007 2008 2009 2010

Page 44
Base Oil in The Future
• Global finished Lubricants Demand is expected to grow at a AGR of approx. 1.0%-1.5% p.a
between 2005-2015.

• Market Base Oil Demand is forecasted for mirror this growth. Asia, Latin America & Africa are
expected to account for almost 96% of this growth

• A number of legislative, technological & supply trends are forcing a quality upgrade with
increasing need for Group II/III formulation to meet this demands

• Therfore, Global Demand for Group I base stock is expected to decline at approx. 0.5%-1%
p.a. while Group II & III demand is expected to grow by approx. 7%-8% p.a. respectively

• Base Oil Global Capacity is expected to rise to reach more than 50mln MT by 2015. Global
Base Oil Market is therefore expected to remain in surplus

• Most of the capacity additions are in Asia-Pac & Middle East, whose share of BO capacity is
expected to rise.

• There will be significant changes within different slates with G I surplus still rising, Group II
surplus expected to decline While G III surplus will rise mainly driven by Gas projects.

• GI surplus will be mainly in North America, Europe and partly Asia Pacific, putting pressure
on non-cost competitive base oil plants. The flow of trade will continue to be heavily
influenced also by freight market conditions.

Page 45
Refining Trend Vs Lube Base Impact
• LUBE BASESTOCKS ARE LESS THAN 1% OF GLOBAL REFINING OUTPUT
• REFINING DECISIONS CAN HAVE UNINTENDED CONSEQUENCES FOR LUBES

KEY REFINING TRENDS LUBE BASESTOCK IMPACT

™ CRUDE PRICE & AVAILS ™ LOWER LUBE AND WAX YIELDS

- CHEAPER RAW MATERIALS - GRP I PLANTS MOST AFFECTED
- DIFFERENT CRUDES

™ REFINERY RATIONALIZATION ™ OLDER REFINERIES SHUT DOWN

- CLEAN FUELS, ENV. DRIVERS - GRP I PLANT RATIONALIZATION
- RAW MATERIAL CHALLENGED

™ GAS – TO – LIQUIDS ERA ™ BASE OIL OVERSUPPLY

- DIESEL VOLUMES SMALL VS. MARKET - INDUSTRY RATIONALIZATION
- MEGA – PLANTS MAKE GTL LBS - GRP I PLANTS MOST AFFECTED

Page 46
GTL BASE OIL potential new capacity 2006-2015
(Announced project)
80 5500
6000

Potential Base 5000

Oil (Kt/a)
4000

• Oryx GTL Ltd KL

3000
(Qatar Petroleum/Sasol JV) 150-250
2000
• Oryx GTL Ltd Expansion 310-500
1000
• Shell GTL/Qatar Petroleum 700-1500
0
• ExxonMobil GTL/Qatar Petroleum 800-1200 2005 2015

• Conoco Philips/Qatar Petroleum 400-600

• Sasol-Chevron/Qatar Petroleum 600-900

• Marathon GTL (Petrocanada,

Occidental)/Qatar Petroleum 400-600

Page 47
ATTACHMENT

Page 48
 Pertamina Group I Base Oil
Specification
Items Test Methods HVI 60 HVI 95 HVI 160 HVI 650

Appearance Visual B&C B&C B&C B&C

Viscosity 40oC,cSt ASTM D 445 Reported Reported Reported Reported
Viscosity 100oC,cSt ASTM D 445 4.40 - 4.90 6.70 - 7.40 10.7 - 11.8 30.5 - 33.5
Viscosity Index, min. ASTM D 2270 95 95 95 95
Flash Point, oC, min. ASTM D 92 204 210 228 267
Pour Point,oC, max. ASTM D 97 -15 -9 -9 -9
Color ASTM, max. ASTM D 1500 1.5 2 3 4
Color stability,min. Pass Pass Pass Pass
Cloud test, max. SMS 2556 No Cloud No Cloud No Cloud No Cloud

TAN, mgKOH/gr, max. ASTM D 664 0.05 0.05 0.05 0.05

Ash Content, % wt, max ASTM D 482 0.01 0.01 0.01 0.01

Sulfur Content, % wt, max. ASTM D 2622 0.1 0.1 0.1

NOAC Volatility, % wt, min. ASTM D 5800 18

Page 49
 Pertamina Group II Base Oil
Specification
Items Test Methods VCBS 60 VCBS 95 VCBS 160
Appearance Visual B&C B&C B&C
Cloudiness, 3 hrs SMS 2556 No Cloud No Cloud No Cloud
Spesific Gravity ASTM D 1298 Reported Reported Reported
o
Viscosity Kinematic at 40 C cSt ASTM D 445 Reported Reported Reported
Viscosity Kinematic at 100oC cSt ASTM D 445 4.0-4.8 5.02-6.14 9.10-11.79
Viscosity Index ASTM D 2270 113-120 113-120 100-110
Sulfur Content, % wt, max. ASTM D 2622 0.01 0.01 0.01
Automatic Content, % wt, max. ASTM D 2007 2.0 2.0 2.0
Saturated Content, % wt, max. ASTM D 2007 98.0 98.0 98.0
Flash Point PM cc, min ASTM D 92 210 210 215
Pour Point, max ASTM D 97 -12 -9 -9
Color, max ASTM D 1500 0.5 1.0 1.5
Copper Corrosion max ASTM D 130 1-A 1-A 1-A
TAN, mgKOH/gr, max. ASTM D 664 0.02 0.02 0.02
Condradson Carbon Residue, %w, max ASTM D 189 0.01 0.01 0.01
Ash Content ASTM D 482 0.005 0.005 0.005
Noack Volatility, max ASTM D 5800 13 13 5

Page 50
 Pertamina Group III Base Oil
Specification
Items Test Methods UCBS 3 UCBS 4 UCBS 8
Appearance Visual B&C B&C B&C
Spesific Gravity ASTM D 1298 Reported Reported Reported
Viscosity Kinematic at 40oC cSt ASTM D 445 Reported Reported Reported
Viscosity Kinematic at 100oC cSt ASTM D 445 2.81-3.43 3.96-4.84 6.89-8.42
Viscosity Index ASTM D 2270 128 128 128
Sulfur Content, % wt, max. ASTM D 2622 0.004 0.004 0.004
Aromatic Content, % wt, max. ASTM D 2007 2.0 2.0 2.0
Saturated Content, % wt, max. ASTM D 2007 99.0 99.0 99.0
Flash Point PM cc, min ASTM D 92 204 210 210
Pour Point, max ASTM D 97 -21 -15 -15
Color, max ASTM D 1500 L0.5 L0.5 L0.5
Copper Corrosion max ASTM D 130 1-A 1-A 1-A
TAN, mgKOH/gr, max. ASTM D 664 0.01 0.01 0.01
Condradson Carbon Residue, %w, max ASTM D 189 0.01 0.01 0.01
Ash Content ASTM D 482 0.005 0.005 0.005

Page 51