by Group III Base Oils

SK Energy IntroductionSK Energy Introduction

Backgrounds of Group III Base OilBackgrounds of Group III Base Oil

Trends of High Quality LubricantsTrends of High Quality Lubricants

SummarySummary

Energy Energy & &

ChemicalsChemicals

TelecomTelecom

Trading Trading &&

ServicesServices

HoldingHolding

CompanyCompany

• SK Holdings

• SK Energy• SK E&S• SK Chemicals • SKC• SK Incheon

Oil • Dopco• K-Power

• SK Telecom• SK C&C• SK Telink• SK Telesys• Helio

• SK Networks• SK Engineering & Construction • SK Shipping • Sheraton Walkerhill• SK Securities

• Sales : 73.7 billion USD

• Total Assets :

63.3 billion USD

• Employees :

About 30,000

Sales RatioSales Ratio

* Includes the sales from SK Networks(Data in 2006)

HistoryHistory

Established in 1962 as Korea’s first domestic oil refining company. Acquired by SK Group in 1982, and called YUKONG. Name changed to SK Corporation in 1997. Split into SK Holdings and SK Energy in July 1, 2007

Business AreasBusiness Areas

Refining, Petrochemicals, Exploration & Production, Coal, Lubricants, etc.

Leading Energy & Petrochemical player in KoreaLeading Energy & Petrochemical player in Korea

Largest refiner in Korea’s oil industry, holding over 1/3 of the market share, and leading Petrochemical, Lubricant player in Korea.

GlobalizationGlobalization

SK Energy is in a transitive phase, increasingly penetrating into overseas markets with a view to becoming a major player in the Asia- Pacific region.

SK Corporation(Former SK Energy) has been ranked as 98th in Fortune Global 500 company list, 2007

1997-

2007

YUKONGYUKONG

1982-1997

Korea Oil CompanyKorea Oil Company

1962-1982

Present

Ethylene: 830,000 Ton/Yr

Propylene: 540,000 Ton/Yr

BTX: 3,600,000 Ton/Yr

Engaged in 24 blocks in 14 countries

Oil equivalent reserves

: 510 million Bbl

Production(E) : 25,000 B/D

Lubricant: 4,000 B/D

Base Oil: 20,000 B/D

Grease: 6,000 Ton/Yr

Domestic market share: 34%

CDU capacity: 1,115 m b/d

Gas station: 4,185

World Top 10 Base Oil Suppliers

•

Capacity : 20,000 bbs/day

50% world M/S in Group III base oil market

Brand name is ‘YUBASE’

Has worldwide supply network for global customers

Found JV with PT. PERTAMINA for new 350,000MT/year capacity refinery in Dumai

Production Capacity

•

Lubricants : 4,000 bbls/day

Grease : 6,000 tons/year

No.1 player in Korea since 1968 in the competition of worldwide majors

Premium brand name is ‘ZIC’

Has a 30% M/S in engine oil market (Total 16% market share in Korea)

Continuing to expand markets abroad

Launched co-branding product named ‘ZIPEX’ with PT. PERTAMINA in Pakistan

API Category Viscosity Index Saturates (%)

Sulfur (%)

Group I 80-120 < 90 ＞0.03

Group II 80-120 ≥

90 ≤

0.03

Group IIIGroup III 120 +120 + ≥≥

9090 ≤≤

0.030.03

Group IV PAO

Group V All others

Item ASTM Method YUBASE 4 YUBASE 6 YUBASE 8

KV @ 40°C, cSt D445 19.6 36.9 47.0

KV @ 100°C, cSt D445 4.25 6.46 7.60

Viscosity IndexViscosity Index D2270D2270 123123 130130 128128

NOACK Volatility, wt% D5800 14.7 7.1 5.0

Pour Point, °C D92 -15 -12 -12

Flash Point, °C D97 230 240 260

2000

Group III

Group II

Group I

2005

4%2%

2010

7~8%

2015

10~%

25,000

20,000

15,000

10,000

5,000

30,000

[KMT]

Source: Lubes n Grease, 2006

[Unit: B/D]

[BPD]

Chemical Type Structure VI Pour Oxidation Toxicity

Very High~175

High~150

Good~130

Good~130

Poor~60

Poor~60

Very Poor<0

Solid@50°CGood

Good

Good

Good

Good

Good

Excellent

Excellent

Excellent

Good

Medium

Medium

Very Poor

Low

Low

Low

Low

Low

Medium

Very High

n-Paraffin (Wax)

iso-Paraffins

with Branched chains

iso-Paraffins

with highly branched chains (PAO's)

cyclo-Paraffin-

single ring with

long chains

Naphthenes, polycondensed

Monoaromatics, long chains

Polyaromatics

YUB

ASE High Isoparaffin Content

Some Naphthenic Compound

Small or Zero Aromatic

Gro

up I Low Isoparaffin Content

Some Naphthenic Compound

High Aromatic SS

NN

Low Temp. Performance:

CCS Viscosity[cp] Oxidation Performance: RBOT[min] 1)

Oxidation Performance: PCT[mg]

2) Oil Consumption: Noack

[wt%] 3)

1)

ASTM D2270, + 0.3wt% Antioxidant2)

10.3% A3/B3 DI Additive + 10% VII3)

250'C, 1hr

FeaturesFeatures

• Low Aromatics• Low volatility

• Very High VI• Low Aromatics

• High Saturates• Good Additive Response

• Low Volatility• Narrow Boiling Ranges

• Low Wax• Very High VI

ReasonsReasonsFeaturesFeatures

• Environmentally Friendliness

• Good Friction Behavior• Wear Reduction

•

Higher Thermal/Oxidative

Stability (Longer life)

• Low Oil Consumption • Higher Flash Points

• Better Low Temp. Performance

• Low Aromatics• Low volatility

• Very High VI• Low Aromatics

• High Saturates• Good Additive Response

• Low Volatility• Narrow Boiling Ranges

• Low Wax• Very High VI

Reduce Fuel Costs

Reduce Lubricant Costs

Reduce Emissions

Reduce Maintenance Costs

Reduce Personal and Social Costs

API Grade

API Grade

Synthetic?Synthetic?Low Temperature Performance

Low Temperature Performance

EmissionEmission

PhosphatePhosphate

Fuel

Econ

omy

Fuel

Econ

omy WearWear

Deposit

Deposit

SootSoot

ViscosityViscosity

OxidationOxidation

AshAshBackward

Compatibility

Backward Compatibility

SulfurSulfur

OEM

Specificat

ions

OEM

Specificat

ions

ACEA SequenceACEA Sequence

200420042004

ILSAC GF-4

200520052005 200620062006 200720072007 200820082008 200920092009

ILSAC GF-5

API CI-4+ API CJ-4

ACEA C3, C2

MB 229.31

ACEA E6

MB 228.51ACEA ??

MB 228.??

ACEA ??

MB 229.??

GM Dexron

IIIH GM Dexron

VI

USUS

JapanJapan

EuropeEurope

Gasoline

Diesel

ATF

Euro IVEuro IV Euro VEuro V

Gasoline

Diesel

LegislationLegislation

Source: Lubrizol

OEMsOEMs

Euro 3Euro 3

Euro 4Euro 4

Euro 5Euro 5

US Tier 2 bin 5US Tier 2 bin 5

NOx (g/km)

PM (g/km) Emissions Standards

- Passenger Car Diesel -

• Set Emission Target

• Reduce PM/NOx/SAPS

• Increase Fuel Economy

LegislationLegislation

Source: Lubrizol

OEMsOEMs

ILSAC : Phosphorus Content Limit

GF-1:0.12 max

1990 1995 2000 2005

P contentin oil(wt%)

0.12

0.10

0.08

0.06

0.04

GF-2:0.10 max

GF-3:0.10 max

GF-40.08 max

• Set Emission Target

• Reduce PM/NOx/SAPS

• Increase Fuel Economy

LegislationLegislation

Source: Lubrizol

OEMsOEMs

ILSAC : Fuel Efficiency Requirement

Seq.VI

F/E improvement %(vs.20W30)

SG

1990 1995 2000 2005

5

4

3

2

1

1

0

2

3

Seq.VIB

F/E improvement %(vs.5W30)

GF-

1

GF-2GF-

3

5W20 & 0W20

5W30 & 0W30

10W30

GF-

4

• Set Emission Target

• Reduce PM/NOx/SAPS

• Increase Fuel Economy

• Newly Designed Engines

• Severer Operating Condition

• After-treatment Devices

LegislationLegislation

OEMsOEMs Lubricant Lubricant ManufacturersManufacturers

• Set Emission Target

• Reduce PM/NOx/SAPS

• Increase Fuel Economy

High

Low

Low High

Cranking, Startability Wear

Pumpability Oil Consumption

LTHSLTHS HTHSHTHS

LTLSLTLS HTLSHTLS

CCS, KV@40℃ HTHS, TBS

MRV, Brookfield NOACK, KV@100℃

FuelEconomy

Major

Performanc

e

Test Item

SAE 40

SAE 10W

Max. Viscosity(Low Temp)

Min. Viscosity(High Temp)

Low High

x

Lubricating Lubricating AreaArea

Good Startability

Better Bearing Lubrication

Reduced Oil Consumption

Better Fuel Economy

General Benefits of Multi-grade Lubricants

SAE 10W/40

x

High

Low

Low High

High Viscosity Index

Low Viscosity Index

High

Low

Low High

Solutions to IncreaseViscosity Index

Consideration Points

Viscosity ModifierViscosity Modifier

High Viscosity Index Base OilsHigh Viscosity Index Base Oils

Formulation EconomicsFormulation Economics

ToxicityToxicity

Impacts on Other PerformanceImpacts on Other Performance

ILSAC : Fuel Efficiency Requirement

Seq.VI

F/E improvement %(vs.20W30)

SG

1990 1995 2000 2005

5

4

3

2

1

1

0

2

3

Seq.VIB

F/E improvement %(vs.5W30)

GF-1GF-2

GF-3

5W20 & 0W20

5W30 & 0W30

10W30

GF-4

Fleet Car Trial - Average Fuel Savings

High Sheer Viscosity

5W/30 10W/40

15W/4015W/50

20W/50R

elat

ive

Fuel

Sav

ing

• Longer Drain Intervals

• Better Fuel Economy

• Price Efficiency

ConsumerConsumer

Lubricant Lubricant ManufacturersManufacturers

Cost EfficiencyCost Efficiency

‘‘SyntheticSynthetic’’ ClaimsClaims

Product DifferentiationProduct Differentiation

Operational ConveniencesOperational Conveniences Lubricant Lubricant ManufacturersManufacturers

• Very Low Sulfur (≤

0.03 %)

• Very High Viscosity Index (120 + )

• Excellent Low Temperature Performance

• Low Volatility & High Flash Point

• Excellent Thermal and Oxidative stability

※

Can be marketed as ‘Synthetic’

Features

Group III Base OilsGroup III Base Oils

1st

2nd

S-Oil PetronasNeste

+5.5KBD

+7.5KBD

GS Caltex

+3KBD

+7.7KBD

GTL?

Demand (Case 1 & 2)

2003 2006 2009 2012

75,000

50,000

25,000

[BPD]

2015

Supply

Supply by SK energy

Viscosity Index NOACK

80

90

100

110

120

130

140

Gr-Ⅰ100N

Gr-Ⅱ100N

Gr-Ⅲ4cSt

New YUBASE4

PAO410

12

14

16

18

20

Gr-Ⅰ100N

Gr-Ⅱ100N

Gr-Ⅲ4cSt

New YUBASE4

PAO4

Technical Needs

−

Drive Towards Lighter Viscosity Multigrades

−

With Tightened Approval Specifications in Lube Industry

−

Limitation of using Harmful Additives to meet Demanding Performance

Marketing Needs

−

Drive Cost effective, ‘Synthetic’ labeling High Quality Lubricants

−

Is Encouraged by availability of large volumes of Group III/GTL production

Reduce Personal and Social Costs

Branch Office Storage Tank Agent/Distributer

Houston Tokyo

Jakarta

London

Tianjin

SK Corp.