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A step change is taking place in how base oils are manufactured in the US. The industry is moving from the American Petroleum Institute (API) Group I products to Group II. In addition the market will see more Group II+ and III. The aromatic content of the new base oil is significantly lower than that of Group I. Aromatics are an important factor in determining soap yields and additive solubility in grease. The lower aromatic content of Group II base oils can have a negative impact on soap yields and additives.

Grease manufactures may not be asking for Group II, but they very well could be using it now and in the future due to big picture supply and demand issues. Although replacing Group I with Group II in grease can be a negative experience, PetroTrends believes Group II/II+ and III will play an increasingly important role in grease manufacturing moving forward. It may, however, require grease manufacturers to revisit grease recipes and rethink the economics of soap making.

At first blush, one might wonder why PetroTrends is presenting a paper about the outlook for API Group II/II+ and III paraffinic base oils to grease manufacturers. Many think of these relatively new types of base oils as products designed primarily to meet the more stringent volatility requirements in passenger car motor oils and to better handle soot in heavy duty diesel engines fitted with exhaust gas recirculation (EGR) pollution control devices. In addition to engine oils, Group II/II+ and III also add value to automatic transmission fluids. Although Group II/II+ and III can also add value to a wide range of industrial lubricants, this segment of the market was not the driver for higher quality base oils.

So why give a paper on the outlook for Group II/II+ and III base oils in the grease market? In short, because you may be using Group II/II+ base oils now or in the future as a result of changes that have, and will continue to take place in the base oil business. In addition, Group III base oil could offer opportunities as a new and lower cost “synthetic” base oil.

Base oil is a major component in grease. It typically represents 80% to 90% of the finished product volume. Grease manufacturing commonly starts by forming soap in base oil. This process, known as saponification, is typically carried out by introducing base oil to a kettle along with fatty acids (usually in the range of C12 to C22 ) and alkali. An acid-base reaction occurs when these components are heated and mixed and a “soap” thickener is formed. This saponification process, commonly referred to as “cooking” takes roughly two hours to complete and is often carried out in a kettle containing 20% to 30% of the base oil volume that will be used in the final product. Fillers and such additives as antioxidants, extreme pressure (EP), rust inhibitors, and others are added after the soap is formed. The balance of the base oil (typically paraffinic) is also added to the batch at this time.

Naphthenic base oils are preferred in the “cooking” process because the fatty acids and alkali used to make the soap are solubilized in the aromatics that are present in naphthenic base oils. Naphthenic base oils historically had an aromatic content of roughly 23%, whereas they were roughly 10 – 12% in paraffinic base oils. A good soap yield for a NLGI No. 2 grease with a naphthenic base oil is upwards of 17% or higher, while paraffinic base oil will yield about 11% to 12% in the same grease. The higher aromatic content of naphthenics imparts greater solubility, therefore higher soap yields. Since fatty acids and alkali are leading contributors to the cost of the grease, soap yield is a critical issue in grease making.

Although naphthenics are preferred due to better yields, the use of paraffinic base oils in the saponification and finishing process has grown in recent years. This trend is driven by tighter supply of naphthenics and the base oil industry’s move to reduce the aromatic content of naphthenics in response to environmental issues. Base oil inventory is also an issue that guides base oil selection. Although naphthenic base oils may produce better yields, the challenge of procuring naphthenics when supply is tight and the tankage required to store it for use primarily in grease can also push paraffinic base oils in favor of naphthenics. This is especially true when a manufacturer has a product slate relatively light on grease and heavy on other lubricants where the use of naphthenics may be undesirable.

In addition to issues of price, availability, and inventory, the types and grades of base oils used in each step of the grease manufacturing process is a function of the type of grease made. The same issues that guide base oil selection in regular lubricants guide the base oil viscosity selection for grease. The typical viscosity grade used in the industry is 500 SUS at 100°C. The use of 800 SUS is also very common in most automotive grease applications. Bright stock (1,500 SUS) is typically used to make grease for heavy-duty applications, typical of steel mills. Additives are also frequently used with antioxidants being the most common, while such others as EP additives are occasionally used in steel mills and other heavy load applications . Rust inhibitors are also frequently used.

As far back as most in the lubricants business today can remember, paraffinic base oils have been made by a process scheme utilizing solvent-refining, hydrotreating, and solvent-dewaxing. The first step in this manufacturing scheme is to fractionate the feed used for base oils. This is typically done by producing three cuts, or viscosity grades (light, medium, and heavy). Each grade is then typically run through a solvent refining and hydrotreating process to reduce the level of such contaminants as sulfur and aromatics. This step improves the color of the base oil, its oxidation stability, and other performance characteristics. This is followed by solvent dewaxing process to remove long chain linear paraffins. Long-chain linear paraffins are undesirable because they can result in formation of wax crystals at cold temperatures and significantly compromise the cold flow characteristics of a lubricant.

Paraffinic base oils produced by this process, often referred to as “conventional base oils,” were the workhorses of the industry. They accounted for nearly 85% of the total base oil consumed in the US for most of the last decade. Naphthenics accounted for much of the balance. A relatively small slice of the pie in terms of volume was enjoyed by polyalphaolefins (PAO), polyolesters, phosphate esters, and other synthetic basestocks.

Although paraffinic base oils were often “tweaked” to improve performance, much of the burden to enhance the performance of finished lubricants prior to the early nineties was placed on additives, and or a bump up to “synthetic” base oils. This, however, changed with the introduction of the International Lubricant Standardization and Approval Committee (ILSAC) performance category GF-2 engine oil specification in passenger car motor oils. To understand where we are today with base oils and how it could impact grease requires a base of knowledge about ILSAC and passenger motor oil (PCMO).

Introduced in the mid 1990s, the first iteration of GF-2 included a comparatively stringent specification for volatility in multigrade passenger car motor oil. Volatility emerged as an issue in passenger car engine oils due to fuel economy and emission standards. In order to meet more challenging fuel economy initiatives, automobile manufacturers were faced with the need to move to lower viscosity multigrade engine oils (e.g. 5W-30 versus 10W-30). Lower viscosity multigrades allowed for increased fuel economy by reducing the parasitic load associated with the lubricant itself. It was found, however, that 5W-30s and other lower viscosity engine oils would thicken in use due to the evaporative loss of the light ends in the base oil. As a result, fuel economy at the start of an engine test would not necessarily reflect what one could expect with the same engine oil used in actual service. In addition to the issue of fuel economy, the evaporative loss of light ends was also considered an issue because of the potential that it could carry lubricant additives (phosphorus in particular) to the exhaust system and poison the catalytic converter.

In an effort to address this issue, ILSAC established a volatility hurdle for all multigrade passenger car motor oils. The first hurdle was seen in GF-2 and the first iteration of it sent a chill through the base oil manufacturing industry. It was tough, and the volatility of many of the base oils on the market at that time did not offer the performance necessary to meet GF-2. Base oil manufacturers had several alternatives. One option was to narrow the cuts on their distillation towers in an effort to compress the hydrocarbon distribution in the base oils. This solution was considered relatively costly because, although it would reduce volatility by effectively cutting off light ends, it also cut off longer chained hydrocarbons at the other end of the distillation curve. This approach placed a significant penalty on yields and as a result, was costly. Another approach that could have been used to meet the first iteration of GF-2 was to blend conventional paraffinic base oil with polyalphaolefin (POA). This too was considered a costly solution because PAO was over four times the price of conventional base oil. A third option was to work with ILSAC and other industry stakeholders in an effort to relax the specifications for volatility in GF-2. The argument being that the base oil industry was not ready for such a restrictive specification at that time, and to enforce one could limit the availability of OEM-recommended engine oil to the motoring public. Agreement was reached to relax the volatility specification for GF-2 and most base oil manufacturers were then in a position to meet the requirements with a reasonable level of investment. The final specification for volatility in GF-2 and how it compares to GF-1 is shown below:

a- D5800-99 Standard Test Method for Evaporation Loss of Lubricating Oils by the Noack Method

Most engine oils came in under the wire for the final version of GF-2. The process, however, sent a clear message to the industry that volatility would be revisited in the next passenger car motor oil specification (GF-3), and that something other than “conventional” base oil would likely be required in the near future for those interested in competing in the automotive lubricants business.

Although most of the base oil in the US market was “conventional” when GF-2 emerged, there were some exceptions. Chevron and Petro-Canada represented two exceptions. Both companies were operating with manufacturing schemes based on hydrocraking and wax isomerization, specifically Chevron’s ISODEWAXINGÔ. Rather than removing contaminants with solvents and hydrotreating, this process uses a hydrocracking process with special catalysts to literally break the bonds (crack) of aromatics in a high temperature, high-pressure atmosphere that is rich in hydrogen. Unlike “conventional” solvent refining where the aromatic content of the base oil is roughly 10%, hydrocracking typically reduces the aromatic content of paraffnic base oils to less than 1%. In addition, it typically produces a more refined cut in terms of hydrocarbon distribution. These attributes, with the catalytic waxing process that increase viscosity index, resulted in base oils that could meet the more stringent volatility requirements initially proposed in GF-2 and beyond. In an effort to differentiate these “unconventional” base oils from “conventional”, the API created definitions for three groups of paraffnic base oils, as highlighted in Table 2.

Table 2 American Petroleum Institute Paraffinic Basestock Groups
	Requirements
API group	Sulfur, % wt.	Saturates, % wt.	Viscosity index
I	> 0.03	< 90	80 - 120
II	< 0.03	> 90	80 - 120
III	< 0.03	> 90	> 120
IV – a	-	-	-
V – b	-	-	-
a- Includes polyalphaolefin (PAO). b- Includes esters and other basestocks not included in API Groups I through IV.

Group II and III base oils are generally considered superior to Group I because they have a lower aromatic content. Aromatic fractions tend to be more unstable than saturated hydrocarbons, and as a result, Group II basestocks have superior thermal stability and resistance to oxidation over Group I. In addition, as you move up the continuum from Group II to III, you move from base oils with a minimum viscosity index (VI) of 95 to Group III base oils with minimum VI over 120. This higher VI, together with other issues, makes Group III base oils an ideal blend stock to meet the more stringent volatility requirements in passenger car motor oil l. In addition, it gives these base oils an advantage in heavy-duty motor oil, and ATF.

Although the API Group classifications do provide clear guidelines to differentiate conventional and unconventional base oils, it is important to consider the differences between API Groups as a quality continuum based primarily on saturates and VI, as shown in Figure 1.

The value of this perspective is illustrated in the “Group II+” designation for base oil. Although Group II+ is not an official API definition, it emerged out of the need to describe a base oil with a meaningfully higher viscosity index than the 100 that is typical of most Group II base oils. Group II+ base oils will typically have VI in the range of 108 to 115. These base oils offer performance advantages over typical Group IIs in some passenger car motor oil applications. Viewing the base oil grades as a quality continuum also assists in appreciating the value that not all Group II base oils are equal. This can be a very important issue for grease manufacturers using Group II base oils since both the aromatic content and VI of a Group II can be different and consequently result in different soap yields and additive solubility, as discussed later in this paper.

Interestingly, although Group II base oils have been in the North American market for close to 15 years and demonstrate superior performance capabilities, they didn’t receive much attention until about the last seven years. The primary reason was limited supply. As discussed, there were only two producers in North America when GF-2 emerged – Chevron and Petro-Canada. This changed, however, when Excel Paralubes built a Group II plant that came on stream in 1997. The Excel plant, a joint venture between Pennzoil and Conoco, increased supply of Group II by nearly 20 TBD. This additional supply gave Group II the critical mass necessary to help convince automotive OEMs that it was now time to write more stringent specifications around volatility that represent a step change in PCMO performance. This specification would clearly favor the use of Group II. In fact, for some grades, the specifications virtually required the use of Group II and II+. In addition, Group II was also showing promise as value added base oils in heavy-duty motor oil applications and ATF.

The Group II base oil capacity brought on stream by the Excel plant sent a clear signal to all finished lubricant producers that Pennzoil - one of the leading marketers of PCMO - was committed to Group II base oils and this could give them a competitive advantage over those with only Group I. In addition, Chevron and Petro-Canada would now have additional support in promoting the advantages of “unconventional” base oils and would likely gain more traction in the marketplace. The Excel plant had another equally significant impact on the market. This facility added close to 10% additional capacity to the US base oil supply pool. Together with an expansion project by Petro-Canada and the capacity creep of others, the US had a paraffinic base oil supply overhang approaching nearly 15% in 1997. Base oil prices quickly dropped as the market sought to correct for the over capacity. Several smaller base oil plants were closed because they did not have the economies of scale to compete, or the business to justify investments in Group II. These exits, together with decisions by others to install new technology and close Group I base oil plants, reduced the ranks of paraffinic base oil plants from 22 in 1991 to 15 in 2001. In addition, the closures reduced the number of Group I suppliers by six plants. Interestingly, however, this did not have a significant impact on total base oil capacity volume. In fact, with the nearly 10% total increase in capacity added to US base oil pool by from the Excel facility, and capacity creep at surviving plants, the US capacity for paraffinic base oil reached nearly 169.7 thousand barrels a day (TBD) in 2001, up from 161.4 TBD in 1991. Group I base oil currently accounts for 90.7 TBD, or 53% of the total produced in the US, as shown in Table 1.

Although paraffinic base oil capacity was not reduced over the last ten years, there was a signficant drop in naphthenic base oil capacity. Total naphthenic base oil capacity reached only 50.1 TBD in 2001, down from 59.5 TBD in 1991. A large percentage of this decline is attributed to Exxon converting a naphthenic base oil processing plant over to one that produces paraffinic base oils. This decline in capacity has driven some to replace naphthenic base oils with paraffinic in grease.

Table 1 BASESTOCK MANUFACTURING - U.S. (Thousand Barrels a Day, TBD as of January 1, 2001)
U.S. Basestock Manufacturer	Location	Group I	Group II	Total
American Refining Group	Bradford, PA	2.4	-	2.4
Calumet Lubricants Company	Princeton, LA	-	-	-
Calumet Lubricants Company	Rouseville, PA	-	-	-
Chevron USA	Richmond, CA	-	14.0	-
Cit-Con	Lake Charles, LA	9.5	-	9.5
Crompton Corp.	Petrolia, PA	-	-	-
Cross Oil & Refining	Smackover, AR	-	-	-
Diamond Shamrock Refining	Three Rivers, TX	4.0	0.5	4.5
Equilon Enterprises	Deer Park, TX	-	-	-
Equilon Enterprises	Martinez, CA	-	-	-
Ergon Refining	Vicksburg, MS	-	-	-
Ergon - West Virginia	Newell, WV	1.8	2.9	4.7
Excel Paralubes	Westlake, LA	-	21.5	21.5
ExxonMobil U.S.A.	Baton Rouge, LA	16.5	-	16.5
ExxonMobil U.S.A.	Baytown, TX	10.1	8.4	18.5
ExxonMobil U.S.A.	Beaumont, TX	12.2	-	12.2
Flying J	Salt Lake City, UT	-	-	-
Golden Bear Oil Specialties	Oildale, Ca	-	-	-
Honeywell Specialty Chemicals	Smethport, PA	-	-	-
Lyondell -CITGO Refining	Houston, TX	-	-	-
Marathon-Ashland Petroleum	Catlettsburg, KY	8.8	-	8.8
Motiva Enterprises	Port Arthur, TX	-	22.0	22.0
Pennzoil-Quaker State	Shreveport, LA	5.9	-	5.9
San Joaquin Refining	Bakersfield, CA	-	-	-
Sun Company	Tulsa, OK	8.5	-	8.5
Sun Company	Yabaccoa, PR	-	9.2	9.2
Velero Energy Corp.	Paulsboro, NJ	11.0	0.5	11.5
Total		90.7	79.0	169.7
Source: National Petroluem Refiners Association (NPRA)

In addition to Group II, Group III base oils also enjoyed a significant boost in visibility and popularity over the last few years. The primary driver for this was an announcement by the National Advertising Division (NAD) of the Council of Better Business Bureaus (CBBB) on April 5, 1999 that Castrol North America could continue to advertise one of its products as “synthetic” motor oil. This announcement was made in response to a challenge by Mobil that the Castrol product was not “synthetic” because it used Group III rather than PAO base oils. The NAD announcement meant that Group III base oils now had the right to wear the elite “synthetic” lubricant label. This was a particularly important milestone for Group III since it’s cost, and therefore, market price was significantly lower than PAO. Many majors quickly replaced PAO with Group III in their synthetic engine oils in an effort to enjoy these cost advantages,

The market changes described above set the stage for today’s base oil business and how they can impact the grease business. In summary, these changes include:

- A step change in manufacturing technology from solvent refining and solvent dewaxing to hydrocraking and isodewaxing

§ Emergence of API Group I, II, II+, and III (a quality continuum based primarily on saturates and VI)

§ A paraffinic base oil supply pool with significantly less aromatic content; similar situation with napthehnics

Although Group II/II+ and III base oils emerged primarily to meet the needs of automotive lubricants; they are, and will continue, to impact grease manufacturers. In just under ten years, the volume of Group II base oil in the US supply pool increased from 10% of the total to 47% and the shift from Group I to Group II manufacturing is expected to continue. For grease manufacturers this means that Group II may have replaced Group I in their operation with little to no fan fare. It may have simply replaced Group I when a base oil supplier switched production from Group I to II. This would have likely have been received as a “higher quality” base oil for nearly the same price as Group I when the switch first occurred. In fact, for most applications this would be true; it was nearly a quality giveaway when initially introduced, because Group II did not enjoy a premium over Group I. Today, however, Group II base oil enjoys a price premium of nearly $0.10 a gal over that of a Group I.

Group II base oil could also replace Group I in the grease kettle, with little to no fanfare, because it may be brought in to meet the more stringent specifications of the higher volume automotive lubricants. Some lubricant manufactures must use Group II/II+ due to specifications. As such, it was considered to be only an issue in this automotive lubricant segment and again a quality giveaway in other applications, including grease.

What could easily be overlooked in the big picture of the switching dynamics from Group I to Group II, is that soap yields in grease are heavily dependent on the aromatic content of the base oil used during saponification. A switch to Group II typically drops the aromatic content of base oils to less than 1%, down from nearly 10% in a Group I. This drop could leave grease manufacturers scratching their heads, because although they had not made any perceived changes in the product or production processes, grease yields are down and additive solubility is now an issue.

Although Group II/II+ and III base oils can have a negative impact on soap yields and be a challenge to work with in terms of additive solubility, the grease industry is just starting to come up the learning curve with its use. The use of Group II/II+, and potentially Group III, could prove to offer both performance and marketing advantages in grease. As discussed, Group III has now been accepted into the fold as a “synthetic” base oil and it costs significantly less than PAO. This offers grease manufacturers the potential to make “synthetic” greases at significantly lower cost than if PAO were used. It is important to consider, however, that the value proposition for “synthetic” in industrial lubricant applications is quite different than it is in consumer automotive products.

Group II and II+ could prove to be advantageous in grease manufacturing due to its superior oxidation stability. The oxidation stability of these stocks nearly parallels that of PAO, which is an important factor in some grease applications. In addition, the time and materials required to add antioxidant to grease may not be required when using Group II base oil.

Finding a positive outlook for Group II/II+ and III base oils in the saponification process is expected to be a much greater challenge. Group II base oils are valued in a large part for their high saturates level. Base oils used in the saponification process are valued in part for their aromatic content. Group II moves away from the value proposition in soap making, not towards it. This reality is expected to give rise to a greater use of preformed soaps. By purchasing preformed soap and working to optimize additive performance in Group II/II+ and IIIs, grease manufacturers may be in the position to make better grease at a lower cost. Doing so will, however, require time to work with the new base oils and conduct a careful comparison of the total costs required to make a soap (inclusive of labor costs, energy, raw materials, and others) versus that of buying a preformed soap and adding base oil.

In conclusion, PetroTrends believes Group II/II+ and III will play an increasingly important role in grease manufacturing moving forward. It may, however, require grease manufacturers to revisit grease recipes and rethink the economics of soap making.

West Palm Beach, FL

IN THE U.S. GREASE MARKET