Group I replacement in industrial oil formulations: A look at hydraulic fluids5to Encontro Internacional com o Mercado, June 2015Dr. Luis Bastardo-Zambrano, Nynas AB

Lubricant base oil slate development

2007 2014

Source LNG

“Evolution of the base oil pool”

Naphthenic market: A significant part of the global oil market

Global lubricant demand: 39.9 M Tons (1% of the total oil market)

Automotive LubricantsIndustrial Lubricants

Global naphthenic potential: About 10% of total base oil demand

(Source Fuchs Petrolub AG presentation at 18th ICIS-LOR World Base Oils conference Feb 2014 in London)

The coming 5 years –The boost of Group II/III capacity

Group II; 22.4 mmtpa (+8.6 mmtpa)

Group III; 8.2 mmtpa (+4.1 mmtpa)

Group I ? mmtpa

Source for historical data: Fuchs Petrolub

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Lubrican

t de

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mtpa)

The demand outlook will be the result of a balancing act between tailwinds and headwinds

• Increasing vehicle population• Increased mechanization

• Growing industrial production

• Longer lasting lubricants• Lower losses in use• Smaller sump sizes

However, the demand growth will not match the supply growth

Independently of the way the demand will develop, without closures we are heading towards a period of overcapacityThe demand outlook will only determine the size of the oversupplyIn the most optimistic growth scenario the excess capacity would reach 6 M mt/yIn the most realistic growth scenario the excess capacity would be over 10 M mt/y

Base oil Market in Europe

No closures of Group I refineries in 2014Europe has 15% of global Base oil capacityEurope has 25 % of global Group I capacity

Group I closures announcements Europe for 2015:

Group I capacity in South America has remained flat at 1.5 Mtpa since 2011*

Company Location Capacity (tpa)Shell Pernis, Netherlands 370000Total Gonfreville, France 480000Colas Dunkerque, France 290000Nynas Hamburg, Germany 165000

*LubesNGreases

How will this affect the lubricant industry?

The Group I production rationalization will push major Group I producers with own lubricant production to focus mainly on production for captive use

The product offering will not any longer be optimized on industrial lubricant requirements

The majority of Group I producers have an in-house lubricant business

Lubricant producers, 89%

Non lubricant producers, 11%

89% of the global base oil production comes from producers that have an in-house lubricant business

The “collateral damage” of the paraffinic quality shift

Group II and III paraffinic oils are excellent base stocks for the formulation of modern engine oils

However, Group II and III paraffinic oils display lower solvency compared to Group I paraffinic oils

Moreover, there is a limitation in the maximum viscosity that can be reached in Group II and III plants

Therefore, the shift from Group I to Group II and III paraffinic oils will pose challenges to industrial lubricant formulators, as it will lead to a loss of solvency and viscosity range availability

Group I oils are primarily used in industrial applications

Global Usageof Group IOils 2013

(total market approx.17 million tons)Source: Kline

Viscosity gap

API group Light neutral Medium neutral Heavy neutral Bright stock

Group I 38% 13% 33% 16%

Group II 55% 25% 20% none

Group III 80% 20% none none

The ongoing shift in capacity will generate availability issues for heavy neutrals and for bright stocks

Base oils: Chemical composition

Aromatic

100%

Paraffinic and One-ring Naphthenic Multi-ring naphthenic

PAO

0% 20% 40% 60% 80%

NAPHTHENIC

GROUP II

Group I replacement (NB)

GROUP I

SIMILARCHARACTERISTICS

A naphthenic based Group I replacementCan be widely applied in industrial lubricant formulations

Main advantagesMost similar product to Group I oilsHigh degree of flexibility in blendingOptional tailor-made blends readily availableSuperior low temperature performance

Main challenges vs Group I base oilsSlightly higher volatilityLower flash point Slightly lower VI

The Naphthenic based (NB) Group I replacement vs. SN reference base oils

NB 70 SN 70 NB 100 SN 100 NB 150 SN 150 NB 300 SN 300 NB 500 SN 500 NB 600 SN 600

Density (kg/m3) 0.873 0.849 0.867 0.859 0.871 0.868 0.886 0.876 0.889 0.879 0.876 0.880

FP COC (°C) 168 190 196 206 222 224 220 258 242 262 268 278

PP (°C) ‐27 ‐12 ‐24 ‐18 ‐24 ‐18 ‐21 ‐18 ‐30 ‐9 ‐15 ‐9

Viscosity@40 °C (cSt) 14 12 22 17 30 30 60 58 100 94 120 115

Viscosity @100°C (cSt) 3.1 2.9 4.2 3.7 5.0 5.2 7.3 7.8 10.2 10.7 12.6 12.2

VI 67 92 88 104 89 103 80 98 79 97 98 96

Aniline Pt. (°C ) 90 90 100 98 101 102 103 109 111 115 123 117

Sulfur (m‐%) 0.02 0.2 0.01 0.2 0.04 0.2 0.02 0.2 0.03 0.3 0.02 0.3

CA ,% 3 7 2 3 3 3 4 3 3 2 2 3

CN, % 42 27 36 32 35 33 36 32 36 31 30 29

CP, % 55 66 62 65 62 64 60 65 61 67 69 68

Refractive index 1.477 1.468 1.475 1.472 1.479 1.477 1.485 1.481 1.487 1.483 1.481 1.483

An example of reformulation: Hydraulic fluid

The formulation HM 46 - an industrial hydraulic fluid based on:

NB base oil (99%)

Additive package (anti-oxidant, anti-wear, rust & corrosion inhibitor, anti-foam)

Pour point depressant

M 46 a commercial product

HM 46

M 46

KV @ 40 ºC 46.8 45.8KV @ 100 ºC 6.6 6.6VI 92 96Density (g/ml @ 15 ºC) 0.877 0.879Flash point (COC, ºC) 202 244Pour Point (ºC) -39 -24Nz (mg KOH/g) 0.2 0.4Water (ppm) 20 11

Physical Properties HM 46 (NB) vs ISO

Test Unit HM 46 ISO 111 58, HM

Method

Filterability I/II* 97/94 80/60 ISO 13357-2

Foam I @ 24 ºC ml/ml 10/0 150/0 ISO 6247:1998

Foam II @ 93 ºC ml/ml 30/0 80/0 ISO 6247:1998

Foam III @ 24 ºC ml/ml 10/0 150/0 ISO 6247:1998

Air Release min 2 10 ISO 9120

Demulsibility min 10 30 ISO 6614

Oil/water/emuls. ml 40/40/0 40/37/3 ISO 6614

TOST (1000 h) mg KOH/g -a ≤2 ISO 4263-1

RPVOT min 374 300a ASTM D 2272-11 method A

*= Dry (no added water), Applied Pressure 100 kPaa = SS 15 54 34:2015, Swedish Standard for Hydraulic Fluids, Level A, equal to 1000 h TOST

Miscibility Study HM 46 vs. M 46

A miscibility study is undertaken to determine the physical properties of blends of two candidate fluids – any detrimental effects?HM 46 (NB) and M 46 (Commercial) were studiedThree blends were prepared (vol:vol)

90:1050:5010:90

The following physical propertieswere determined:

FilterabilityFoamingAir releaseDemulsibility (Emulsion stability)

Miscibility study HM 46 (NB) vs. M 46 (Commercial)

Test Unit Method ISO 111 58, HM 90:10 50:50 10:90

Filterability (I)* ISO 13357-2 80 98 96 99Filterability (II)* ISO 13357-2 60 95 92 96Foam I @ 24 ºC ml/ml ASTM D 892-13 150/0 10/0 10/0 10/0Foam II @ 93 ºC ml/ml ASTM D 892-13 80/0 20/0 20/0 30/0Foam III @ 24 ºC ml/ml ASTM D 892-13 150/0 20/0 30/0 30/0Air Release min ASTM D 3427-12 13 2.5 2.8 3.1Demulsibility min ASTM D 1401-10 30 10 10 15Oil/water/emuls. ml ASTM D 1401-10 40/37/3 40/40/0 40/37/3 40/38/2

*= Dry (no added water), Applied Pressure 100 kPa

Seal compatibility

The extent of each migration depends on the type of oil, elastomer and plasticizer

If the base oil diffuses very little into the elastomer → shrinkage and hardening

If the oil diffuses extensively → excessive swelling

Both shrinkage and excessive swelling are undesired as they compromise the stability of the sealing boot.

The oil’s solvency (aniline point) is a relevant parameter in the compatibility with the seal’s elastomer

Mineral oil

Plasticiser

Base oil or lubricant

Rubber

Seal compatibility: The tests

Seal samples were totally immersed into the oil and aged at 100°C for 168 hours

Changes in hardness and weight in the rubber were measured

The hardness was determined by the IRHD (International Rubber Hardness Degrees) method, where the rubber’s resistance to indentation is measured by pressing a rounded steel peak connected to a calibrated spring towards the material.

Seal compatibility HM 46 vs. M 46

Weight change (%)

Material HM 46 M 46

NBR 28% AN (Peroxide cured) 4.82 4.37

NBR 28%AN (Sulfur cured) 3.74 3.11

HNBR1 35% AN (Peroxide cured) 2.63 1.81

Hardnesschange (%)

Material HM 46 M 46

NBR 28% AN (Peroxide cured) 0 1.2

NBR 28%AN (Sulfur cured) -5.4 -4.3

HNBR1 35% AN (Peroxide cured) -3.6 1.2

ISO 111 58, acceptable increase in volume is 0-12%

Conclusions of the Formulation & Miscibility study

The novel Hydraulic Fluid HM 46 (NB) displays the desired and expected propertiesThe Oxidation stability result in the harsh RPVOT compares well versus e.g. demanding technical standards, and vs. Gr I based Turbine oilsThey benchmark well vs. a common industry leading formulation,called M 46The tested hydraulic fluids in the miscibility study were compatible:

HM 46 versus M 46No significant differences of the physical properties could be experimentally determined, i.e. no detrimental effects from the blending of different fluidsIt is therefore likely that the naphthenic based hydraulic fluids, would be compatible with similar systems in the field

Summary

The base oil industry has been going through important changes in the last few years

Group II and III base oil production has grown at the expense of Group I production

The rationalization of Group I production will result in a solvency and viscosity gap in the market

Naphthenic oils can fill part of that gap

Nynas Group Head OfficeP.O. Box 10700SE-121 29 StockholmSweden

Tel. +46-8-602 12 00Fax +46-8-91 34 27

luis.bastardo-zambrano@nynas.com