Base oil Selection – Beyond the Bench

Compoundings Magazine
February, 2001
By Thomas F. Glenn, Petroleum Trends International, Inc

Although mergers, acquisitions, and exists have reduced the number of US base oil suppliers, the number of options lubricant manufactures have to consider when formulating finished lubricants has risen sharply. This is due primarily to the emergence of Group II, II+ and III base oils over the last five years. Blending is a much more complicated activity today than it has been in the past and there is considerable room for success and failure in the choices that are made.

At one level, success and failure will be measured by the impact base oil selection has directly on the costs of good sold. A decision to use a typical Group I instead of Group II to blend a 10W-30 passenger car motor oil (PCMO), for example, can cost a manufacturer as much as $0.10 a gallon more in total formulation costs for that product. This could be a very costly mistake if 10W-30 PCMO is the primary product in the supplier’s portfolio. The opposite could be true, however, if a blender uses Group II to manufacture its industrial lubricants and only has a small share of its business in PCMO. Although these examples may present what appear to be obvious and relatively easy blending challenges to resolve, they can get very complicated when one factors in other considerations. These include differences in product portfolios, supply line assurances, contract issues, tankage limitations, competitive positioning, supply and blending logistics, and variation in base oil quality, among others.  As shown in Figure 1, base oil costs can vary considerably if a blender does not optimized inventory around product portfolios.

Base oil quality does vary even within a given API Group and viscosity grade, and this variability caninfluence total formulation costs. The aromatic content of a heavy Group II, for example, can vary as much as 4 to 5% between suppliers. Differences of several VI units between suppliers of light and medium neutrals are also not unusual. For some, these variations in VI open the doors for opportunistic ways to reduce costs by backing out VI improver. For others, however, they could result in cost burdens, or tradeoffs in volatility or low temperature performance. Even greater differences in quality and impacts on costs can be seen in the supply of Group I. In fact, some Group I base oils are very near in quality to Group II, whereas others have a long way to go.  

Lubricant manufactures are now challenged to optimize base oil costs and performance across product lines with increasingly different appetites and thresholds of sensitivity on price and performance. In some cases this process may require a decision to install more base oil storage tanks. In others, it may require forming a strategic alliance with another lubricant manufacture in an effort to optimize costs through reciprocal manufacturing agreements that allow each member of the alliance to focus on its most profitable business segments. Still others may find the best solution is to outsource manufacturing of a given product line, or simply drop it all together.

These and other decisions go well beyond simply the cost of goods sold for a given product in the portfolio. Base oil selection will increasingly have strategic implications that can result in long-term competitive advantages and disadvantages.  As a result, although formulation of lubricants at the bench top is clearly best left in the hands of chemists and other professionals with similar expertise,the probability of economic success beyond the bench can be greatly increased if base oil selection is assessed within the context of the company’s overall business strategy and includes ongoing dialog with business managers, sales and marketing and others in the organization.

   
Copyright © Petroleum Trends International, Inc. 2002