The Right Tool for the Job…Base stock optimization to help minimize cost and complexity

X B CoxFebruary 21, 2012

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Use the right tool for the job…

• Different tools for different purposes

• Using the right tool makes a job more efficient, safer and gives a higher quality result

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Or… the right vehicle…

• Different vehicles for different purposes

• Each one has different lubricant requirements

• Lubricants require different base stock characteristics

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Base stock choices…

• Period of unprecedented change• New capacity

• Rationalization

• New players

• Changing supply routes

• Increasing lubricant performance requirements

• Stay the course, or change base stock supply strategies?• When?

• How much?

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Lubes Value Chain

• Base oils ~50% - 75% of direct cost• Also impacts:

• Inbound freight• Additive technology• Storage and handling

• Smart base stock choice improves your bottom line

• Minimizes complexity

• Reduces costs

• Maximizes return on investments• Tankage and logistics• Formulation cost

* ExxonMobil assessment of typical cost distribution for example products blended in a medium sized European blend plant with waterborne access

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How to select your base stocks• Identify limiting technical requirements

• Sufficient viscosity range for all lubricants• Formulations/addpacks available• High VI corrector fluid for top tier engine oils

• Maximize cost effectiveness• Minimize number of stocks, tankage• Leverage existing product formulations• Base stock slates for BOI / VGRA

• Assess supplier capability• Local / regional supply• Compatible logistics• Reliability• Consistent quality• Supplier committed to base stocks• Consider global / pan-regional suppliers

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Engine Oils Frame the Dialog

• Automotive ~ half total lubricant volume

• Harmonized engine oil specifications• API/ILSAC

• ATIEL

• OEM’s

• Rapid pace of change• Categories

• Viscosity Grades

• Increasing performance requirements• Demanding higher VI base stocks

• Often set limiting base stock qualities

*Source: ExxonMobil assessment of publicly available information

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Other Lubricants Equally Important

• Almost half of the market

• Specifications not harmonized

• OEM specific requirements

• Updates seldom regulatory driven

• Diverse performance requirements

• Wide viscosity range

• Solvency can be important

• Many applications cost-sensitive

• Synthetic market small but growing

• Value conventional base stocks in many applications

*Source: ExxonMobil assessment of publicly available information

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Group I / II Widest ApplicationExxonMobil:

• Majority of lubricant applications can be blended with Group I or Group II

• Role of Group III limited to high VI, light viscosity applications

Source: Brent Lok, ICIS Middle East Conference, Dubai, October 2012, used with permission of the author.

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• Marine and some Industrial

formulations prefer Group I

• Premium PVL / CVL moving to Group

II / II+ /III

• Very limited use of Group III+ or PAO

• Majority of applications can use either

Group I or Group II

• Pace of change is expected to be

consistent but slow

Lubricants to Base stock Demand

*Source: ExxonMobil assessment of publicly available information

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VI and Viscosity are important

ExxonMobil

• Group II/II+/III cover most engine oil viscosity grades

• 0W30 and lighter need Group III and III+/PAO

• Corrector stocks may be needed for performance

• Heavier lubricants require brightstockor PIB

Source: Brent Lok, ICIS Middle East Conference, Dubai, October 2012, used with permission of the author.

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Illustration: Base Stocks Slate

• Approved Base Oil Interchange (BOI) within the slate allows different base stock viscosity grades to blend the base oil for a given formulation

EHCTM 45

EHCTM 50

EHCTM 65

EHCTM 110

Engine Oil Product

10W-30

10W-30

10W-30

Same Product, Different Base Stock Mix, No Extra Engine testing

Slate

Source: Charles Baker, ExxonMobil Research & Engineering, 5th Asia-Pacific Base Oil Conference, March 2011

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Illustration: Base Stocks Slate

• Approved Viscosity Grade Read Across (VGRA) within the slate allows blending a range of viscosity grades

+ additives =

10W-30

5W-30

20W-50

Engine Testing Typically Reads in One Direction

Different Products, Different Base Stock Mix, No Extra Engine testing

Slate

15W-40

Engine Oil Product

Source: Charles Baker, ExxonMobil Research & Engineering, 5th Asia-Pacific Base Oil Conference, March 2011

EHCTM 45

EHCTM 50

EHCTM 65

EHCTM 110

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Base stock Viscosity Range*

*ExxonMobil assessment of publically available data; Estimated typical industry average refinery yield by viscosity.

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Group II / II+ Value into Engine Oils

• Key: Use base stocks designed to cover the limiting requirements

• Broad viscosity coverage

• Group II / II+ slate allows read-across

• Limits the amount of more expensive Group III required

PVL CVL

Example - EHC 45/65 Blend Coverage* 2015

0W 5W-Dx

5W 10W

20W

. 5W 10W

15W

Mono

Rel

ativ

e V

olu

me

Gp III

EHC 110

EHC 65

EHC 45

PVL CVL

Example - EHC 45/65 Blend Coverage* 2015

0W 5W-Dx

5W 10W

20W

. 5W 10W

15W

Mono

Rel

ativ

e V

olu

me

Gp III

EHC 110

EHC 65

EHC 45

N Am Engine Oil Blend CoverageGrp II/II+/III

*Source: ExxonMobil assessment of publicly available information

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Industrial Oil Blend Coverage

• Group I slate covers full range of industrial oil viscosities

• Wide-vis Group II slate can cover up to ~80% of industrial oil

• Group I Brightstock also required

• Base stock choice depends on:• Base stocks used in other products

• Blend plant tankage

• Size of indoil business

• Existing indoil product approvals

• Specific performance requirements

*Source: ExxonMobil assessment of publicly available information. Relative volumes are for North America

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Solutions Tailored to Your Business

• Each market is different

• Product demand mix

• Product performance categories

• Viscosity grade mix

• Base stock availability

• Logistics and distribution modes

• Base stock solutions unique to your situation

• Industry trends don’t always align with individual company needs

*Source: ExxonMobil assessment of publicly available information

*

*

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• Group I: Base load to economic maximum; Work with supplier

to evaluate long-term supply security

• Group II: Work with supplier on when/how to increase Grp II

use, to ensure reliable supply, minimize conversion costs

• Group III: Limited volumes can be used as volatility / ccs trim

stock and for low viscosity engine oils

• Group IV (PAO): Secure long-term supply as needed

Base Stock Strategic Approach

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Conclusions

• Period of unprecedented change in the base stocks business

• Base stocks are important part of lubricant value chain

• Base stock selection should be a long-term, conscious decision• Decision involves more than cost or “newest” products

• One size does not fit all

• Involve your base stock supplier in strategic discussions

• Use the right tool for the job….• Group I has a long and useful life, and suitable for most applications

• Group II growing in availability and use

• Group III oversupply with limited applications

• PAO continues an important niche product for synthetic performance

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Group II growing in availability and use…

• EM changes mirror industry trends

• Growing Group II

• Reducing Group I

• EM: building on our strengths

• Growing economic capacity

• Improving operations

• Leveraging new technology

• Optimizing the network

• Balancing viscosity mix

• Broadening raw material selection

• Aligning slates for the future

*Source: ExxonMobil assessment of publicly available information