[BiturboS4] More on "synthetic" & why most are no longer full synth.

[S Stiles]

More on "synthetic". Long, but good reading.

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Is Your Synthetic Motor Oil Really Synthetic?

There is a disturbing trend in the oil industry that is misleading
consumers. That trend is the playing of word games with the use of the
word =93synthetic=94 on motor oil labels.

The following article is a reprint from the August 2000 issue of
=93Lubricants World=94, an oil industry trade magazine. This information is
usually not available to most consumers.


Subject: Article in Lubricants World August 2000 by Katherine Bui

Marketers Take Advantage of =93Synthetic=94 Ruling

Last year, Castrol (Swingdon, U.K.) and Mobil (Fairfax, VA) brought the
debate over what is =93synthetic=94 into view, as Mobil challenged Castrol=
=92s
replacement of polyalphaolephins (PAOs) with hydroisomerized waxes in
their synthetic formulations. Exactly one year after the National
Advertising Division (NAD) of the Council of Better Business Bureaus=92
ruling in April 1999, upholding Castrol=92s position that wax isomerates
could be called synthetic, Petro-Canada (Toronto) advertised it would be
referring to its very high viscosity index (VHVI) basestocks as a
synthetic in the North American market. These products fall into the
same API group (Group III) as wax isomerates, but could vary
significantly in quality from wax isomerates. This market roar by
Petro-Canada has carried a quiet undertone of moves from PAO to VHVI
technology by several engine oil marketers.

The definition of synthetics aside, cost factors and performance
continue to drive marketers to carefully asses the use of PAOs and Group
III stocks (VHVIs). In the past year, several marketers have made the
jump from PAOs to VHVI-based =93synthetics.=94 VHVIs cost approximately half
what PAOs do and, according to VHVI producers, perform at a level
comparable to PAOs in formulated oils. Yet, Mobil 1, which has the
strongest hold on the synthetic market (estimated by one analyst at
60.4%) and factory-fill contracts with Corvette and Porsche, continues
to dominate the overall synthetic market with its PAO technology. On the
other hand, Castrol, whose market share of Syntec synthetic oil was
virtually nonexistent 6 years ago, now has more than 20% of the market.

Even ExxonMobil could not resist the appeal of competitive pricing. It
released a new synthetic blend that combines PAO technology with a
=93high-quality conventional oil=94 in February.

If the market projections are any indicator, simply using the word
=93synthetic=94 in any shape or fashion may guarantee a piece of the pie.
Synthetics and semi-synthetics make up only a niche 3%-6% of the
automotive oil market (June LW, p.30). ExxonMobil holds the largest
share in the market, followed by Castrol, Pennzoil-Quaker State, and
Valvoline.

Demand, however is expected to grow 5.7% per year, to 115 million
gallons in 2003, because of increased desire for high-performance
products, longer drain intervals, and lower emission formulations,
according to estimates from The Freedonia Group (Cleveland). However, at
least on market analysis says the consumer=92s lack of knowledge about
synthetics and the higher cost of the finished product compared with
conventional oil are not conductive to growth. The overall conventional
motor oil market is projected to remain flat.

Making the Move from PAO to VHVI

Current market trends, cost, and the =93open-door=94 policy established by
the NAD ruling have attracted a number of marketers this past year to
the VHVI technology and use of the term =93synthetic.=94

Castrol=92s substitution of wax isomerates for PAO after December 1997 was
the basis of the contoversal ruling by the NAD regarding the marketing
use of the word =93synthetics.=94 But with its buyout by BP Amoco, Castrol
may have to re-evaluate the components of its formulation relative to
the value of supply chain. BP has been one of the larger refiners and
producers of PAO. LW was unable to obtain comments from Castrol at press
time.

However, BP Amoco Chemicals=92 Joe Svoboda, PAO market manager, says,
=93Castrol has basically been set up as a stand alone business unit within
BP. Its position on Group III vs. Group IV will be based on what is best
for its business.=94 He notes that =93Castrol is a leading global marketer
of high-performance lubricants. Its position on PAO likely differs from
region to region =96 particularly in Europe, where stringent lubricant
performance requirements often mandate the use of PAO.=94

Brent Lok, production manager for base oils at Chevron Products Co. (San
Ramon, CA), says, =93We struggle with a similar situation in that we
produce both PAOs and VHVIs. However, I think that the marketplace often
dictates the operations, and the companies often have very little choice
in the matter.=94

Valvoline (Lexington, KY), which declines to detail the type of base oil
technology it uses, continues to advertise its VR1 Racing Synthetic
Motor Oil as a =93blend of thermally stable base oils.=94

VHVI refiners such as Chevron Products, which holds the licensing rights
to the hydroisomerization technology (Isodewaxing), says they have seen
an increase in sales of Group IIIs based on =93cost/performance balances.=
=94
=93We have seen a huge upswing in the sales activity of our Group III base
oils that could be measured in folds,=94 says Lok. =93Even with increased
sales activity, many in the industry are still in a gestation period,
where additive companies along with researchers are tinkering with the
packages and formulations to address this switch.=94 He says the big
driver for change is the cost/value tradeoff in all synthetic lubricant
segments. Specifically in the passenger car motor oil (PCMO) segment,
GF-3 offers a window of opportunity for formulators to reevaluate their
basestock choices because reformulation will be necessary to meet the
new performance specifications, he says.

Pennzoil-Quaker State (Houston) Product Manager James Newson told LW
during an interview 2 months ago that the company is currently using
PAOs to formulate its full synthetic. =93Since the beginning of this
issue, we have looked at every option at a very detailed level.=94 He
says. =93And we have found some of the nonconventional synthetics very
intriguing.=94

76 Lubricants (Costa Mesa, CA), a marketer of synthetics both in the
PCMO and industrial oil segments of the industry, currently produces a
=93limited slate of synthetics=94 formulated with PAOs. However the company
admits, research into the use of VHVI in ongoing. =93We will likely be
offering such products in the near future,=94 says Steve Tarbox, 76
Lubricants=92 product manager for engine oils and automatic transmission
fluids (ATFs). =93Moving some existing product formulations from PAO to
Group III basestocks always requires additional testing to both comply
with any product licensing requirements (engine oils and ATFs for
example) and also to provide existing customers the assurance and
documentation that familiar products still provide the full range of
performance benefits they have come to know and expect from their
synthetic lubricant.=94 Tarbox says adherence to American Petroleum
Institute (API; Washington) and ATF licensing practices also precludes
76 Lubricants from making changes in certain product families without
assuming significant test costs.

Petro-Canada, which initiated the recent public marketing of VHVI
synthetics, announced on June 8 that it had completed the testing for
its specialty base fluid in a 5W-40 grade engine oil. The test was
conducted on a formulation designed to meet the VW 502/505
specification, with 30% VHVI in place of PAO basestock.

=93With this new certification, we offer blenders an alternative specialty
base fluid that provides increased performance at a less expensive
price,=94 says Henry Fuchs, marketing manager for specialty base fluids
and automotive lubricants at Petro-Canada. Fuchs says the company will
continue to develop products that will meet specifications in Europe.

As part of its claims, Petro-Canada says the company uses =93the unique
patented HT Severe Hydrocracking, Hydroisomerization and Hydro-Finishing
process to produce the clear, colorless base fluid that is 99.9% pure
and highly isoparaffinic.=94 The company also says the =93high-quality=94 b=
ase
oil minimizes the effects of aromatics, sulfur, and nitrogen impurities
removed, and balances a high viscosity index with low temperature
fluidity and oxidative and thermal stability. At press time, LW had been
unable to obtain a comment from Petro-Canada about marketing strategies
for its new product.

=93I don=92t expect we will see the lubricant marketers advertising
components of the synthetic as we see here,=94 says Lok. =93Marketers are
more interested in marketing the performance and their brand.=94

Mobil 1, whose PAO technology was one of the many trade secrets that
changed hands during the merger between Exxon and Mobil, remains loyal
to PAOs. However, even ExxonMobil could not resist the appeal of
competitive pricing. It released a new synthetic blend that combines the
PAO technology with a =93high-quality conventional oil=94 in February of
this year.

=93Since Mobil has the most experience with the PAO technology, their
ability to manufacture a blended, semi-synthetic product would probably
offer them some advantage in the automotive market,=94 says Jerry Shelby,
president of Lubrication Consultant and Lubrecon (Houston). LW was
unable to obtain comment from ExxonMobil about its PAO technology by
press time.

Mark Pernik, global business manager for Chevron Chemical Company LLC,
says his company has not seen PAOs displaced out of PCMO applications,
though he admits Chevron Chemical is not a big player in the PCMO
market. =93Still, the VWT4 standard in Europe has demonstrated that PAO
sales have not skewed and have in fact increased in position,=94 says Perni=
k=2E

In addition, BP Amoco Chemicals=92 Svoboda says, =93We have seen some
tempering of growth for PAO in North America. We attribute this to the
increasing availability of Group IIIs. However, on an international
level, PAO demand continues to grow at a rapid pace. PAO in Europe is
more than double that of North America. Europe continues to be a strong
growth engine for PAO. This is based on the European OEM (original
equipment manufacturer) drive for higher performance and by
environmental considerations, such as emission reduction and extended
drain intervals.=94 He agrees with Pernik that the PAO market remains
strong in Europe and that eventually the rest of the world will follow
the higher performance requirements established there.

The primary downside to the NAD ruling and any resulting replacement of
PAOs with VHVIs, says Svoboda, =93is that North American PCMO consumers
will not be getting the higher quality performance level offered by the
PAO. Despite claims of equivalent performance, PAO continues to maintain
its superior performance over Group IIIs under extreme operating
conditions, particularly with regard to low-temperature performance and
high-temperature oxidative stability.=94

Yet, when LW asked several industry experts about the NAD ruling, their
feelings regarding market effects were mixed (LW, Oct. 1999, p. 30; Nov.
1999, p. 35). A Castrol representative then stated the VHVIs would be
competitive with PAOs and that the consumer would benefit from that
competition.

A PAO expert disagreed, saying the NAD decision would have minimal
impact on the formulation of synthetics. =93The quality of Group III
products in inconsistent, and their physical properties are different
from one manufacturer to the next,=94 he says. If the industry heads in
the direction of replacing PAO with VHVI, he says, =93consumers will be
misled and the high margin niche that has been developed by present-day
synthetics will erode.=94

Barrett Cupples, a consulting scientist who worked with PAOs at Chevron
Chemical for 20 years, cautions marketers against directly switching
from PAOs to VHVIs without adequate testing. =93According to API base oil
guide lines, Group III stocks may not simply be substituted for PAOs in
motor oil formulation,=94 he says. =93Any switch will require extensive
testing to ensure that the final product fully meets the requirements of
that lubricant.=94

Further downstream, the players in the synthetic PCMO market =96 Castrol,
Pannzoil-Quaker State, and Valvoline =96 have each released reformulations
and new blends in the past several months. The reason for this interest,
according to one industry market analysis, is the competitive nature of
the market, the projection for market growth, and the re-awakening of
cost savings in blends.

=93Though synthetics will exhibit strong growth through the end of the
20th century,=94 says The Freedonia Group, =93higher prices in comparison to
traditional petroleum-based products, as well as competition from
lubricants formed from hydrocracking processing, will limit their gains;
however, the introduction of synthetic blends will help offset the price
disadvantage of synthetics as blends offer higher performance than
conventional lubricants at a lower cost than full synthetics.=94

Retail shelf prices have remained constant despite changes in
formulation. Mass merchandise shelf prices for synthetic PCMOs average
between $3 and $4 per quart. In the first quarter, the price for a quart
of Mobil 1 synthetic was approximately $4.09. The cost of Valvoline
SynPower was slightly higher, at $4.22.

=93At an average price point of $3.89 per quart for full-synthetic oil,
these products attract a small segment of users,=94 says Larry Solomon of
Valvoline. =93Past trends indicate that the full-synthetic market is a
small segment. There is no reason to believe that this will change in
the future.=94

Lok points out the synthetic lubricant market is relatively price
insensitive. =93The customers in this market are more willing to pay for
the value of the product, despite the cost,=94 he says. =93In contrast, the
PCMO suppliers are continually looking for cost efficiencies in their
production, as long as it comes with no sacrifice to product performance.=
=94

Industrial Synthetics Seek Extreme Operating Conditions

Trends in demand in the industrial sector for synthetics differ from
those in the automotive oil market because of increasing requests for
higher performance and specialty products. According to The Freedonia
Group, the bulk of the synthetic market is composed of industrial
lubricants and demand for synthetic industrial lubricants is forecast to
increase 4.8% annually, to 72 million gallons in 2003.

This growth has Equilon (Houston) focusing its synthetic marketing on
the industrial market. Earl Blanchette told LW 2 months ago the company
saw a bigger growth in the industrial market for synthetics. The
company, as reported, introduced several new products within the past
year, including a new compressor oil.

Because of the drive for energy efficiency, extended drains, and
environmental factors in this sector, marketers of industrial synthetics
will have to pay closer attention to the performance factors in
formulation, perhaps with more emphasis than in the automotive segment.

Industrial synthetic oils currently us a variety of base oils, such as
PAOs, diesters, polyalkylene glycols (PAGs), and phosphate esters, among
others. In hydraulic applications, circulating oils, and turbine oils.
some industrial oil producers are looking at VHVI as a replacement for PAO.

Lok says, however, that increased activity in this market also shows
that the switch from PAOs and VHVIs is happening. =93Over the last year,
sales of Group III basestocks at Chevron Products have increased,
particularly into a wide variety of industrial oil applications.=94

Much, if any, move from PAOs to VHVIs in industrial synthetics may
depend on the oxidation stability factor. =93If the high-VI stocks can
obtain the oxidation stability of a PAO with a comparable performance, I
think the industrial segment would really consider that type of base oil
as a replacement for conventional synthetics, especially when you add
the lower cost factor,=94 says Shelby. =93However, I just don=92t see [VHVI=
s]
making as big a splash in the industrial segment as synthetics. They
will evolve into the market but will not be marketed in the same way as
synthetics are in the automotive sector=94 He suggests consumers in colder
climates will be more willing to accept the VHVI formulation if they
have viscometrics similar to those of true synthetics.

But industrial synthetics in general have not had the type of success
that automotive synthetics have had, according to Shelby. =93The
synthetics would only be a factor for those applications where longer
life, high temperature, and reduced downtime are big factors,=94 he says.
=93They don=92t have as much of a foothold in the industrial market as in
automotive.=94

Mobil, which formulates with PAOs, diesters, and PAGs, does have the
larger foothold in the market, with its full line of gear oils,
circulating oils, and hydraulic oils. Houghton International (Valley
Forge, PA) also produces a glycol-based synthetic hydraulic fluid
(Houghsaf) that competes with the Mobil poduct.

Fire safety is a big issue in the hydraulic market, emphasizing higher
flash point and fire point.

Another area of focus is the environment, which Equilon is emphasizing
in its marketing of vegetable-based synthetics. Likewise, reported
Chemical Engineering in July, American Synthol (Roswell, GA) is
marketing its New Technology Synthetic Base (NTSB) stock by boasting
that it is more biodegradable and thermally stable than PAO. According
to Joe Green, president of American Synthol. NTSB can be formulated to
be comparable to PAO by using improved stabilizers.

Conclusion

The synthetic market in general has seen an active year of new blends,
new product releases, and formulation changes. It remains a market
stricken by discrepancies in market share, cost, and growth, but the
word =93synthetic=94 retains the image of higher performance and product
development. Just as divided as the debate, market analysts are torn by
projections for growth and whether a big push for growth is worthwhile
given the size of the segment. There is little doubt that a trend is
appearing in the synthetic market, but where that trend will go remains
to be seen.






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