Market Forecast and Technical Requirement Of PetroChina's Lubricating Oil Industry

Fu Xing-guo Zhang Qing-wei Li Qing-hua PetroChina Lubricant Company

Abstract
China began to produce petroleum lubricants commercially in 1940s. Due to the very low capacity in China at that time, most of the needed lubricants must be imported. After the establishment of People's Republic of China, the lubricating oil industry was developed very quickly. With great efforts for more than 50 years, the lube oil quality has been made great improvements. China's lubricating oil market has been opened since 1992. At that time the supply of lubricating oil falls short of demand so that the profit was much high. Petroleum companies built new facilities or expanded their existing capacity. Local and foreign blending plants were put into production sooner or later. Now the base oil capacity and blending capacity in China is more than 4.4million tons and 10million tons separately. China's lubricating oil can meet the requirements of machinery industry with not very high automation level. However, there are great caps of lubricating oil between China and advanced countries. With strict environmental protection laws and regulations and with technical improvements in automobile and other industries, the lubricating oil will be developed towards upgrading, multi grade and general applications.

Introduction
This paper falls into 2 sections, one covering the current situation and trends of PetroChina's Lubricating oil industry, and the other one discussing market forecast and technical requirement for its development.

1.Current situation and trends of PetroChina's lubricating oil industry 1.1 Review
It was middle 1940's when China began to produce petroleum lubricants commercially. According to statistics the grease production in China was no more than 40 tons in 1949 and most of lubricating oil needed must be imported. After the establishment of People's Republic of China, the lubricating oil industry was developed very quickly and the production reached 348,000 tons in 1965. There wasn't any
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national base oil standard available in China until 1983 when China has been carried out reform and open policy and has made great efforts in order to coincide with international standard. In 1995 the quality of gasoline engine oil, diesel engine oil, railroad engine oil and two-stroke engine oil reached the international level of the end 1980's. The quality of gear oil for automobile and industries, anti-wear hydraulic fluid, marine oil reached or approached the highest international level of the beginning 1990's. Now the China's lubricating oil capacity occupies third place after USA and Russia. The capacity of lubricating oils all over the world is shown in Table 1. Table 1 World lubricating oil capacity (104t/a) Country Capacity USA 925 RUSSIA 439 CHINA 260 SINGAPORE 233 JAPAN 230 FRANCE 211 ITALY 147 CANADA 119 AUSTRALIA 116 BRAZIL 104
Source: OIL & GAS JOURNAL

With the development for more than 50 years, China is capable to produce 600 products in 19 major

categories, such as SJ, SH mono- and multi-grade gasoline engine oil, CF-4, CF, CE mono- and multi-grade diesel engine oil, SJ/SG, SH/SF general used engine oil and also industry and processing oils. These products are sufficient to meet the needs of economic development, national modernization, and social progress.

1.2 Varieties and trends of China's lubricating oil

China's lubricating oil market has been opened since 1992. At the beginning of 1990's the supply of lubricating oil falls short of demand so that the profit was much high. Domestic petroleum companies built new facilities or expanded their existing capacity. Local and foreign blending plants were put into production sooner or later. Up to now there are more than 4000 blending plants in China with a capacity over 10million tons/a. PetroChina occupies 7 large lubricating oil blending plants and about 30 small blending plants. The total capacity is 3.22million tons. In 2000 the lubricating oil production is 3.33million tons and the demand on it is 3.25million tons in China. The internal combustion engine oil is 52.6% of the demand; the remainder 47.4% is the demand of processing oil and industry oil. Table 2 shows the product distribution of PetroChina from 1998 to 2000.

Table 2 Product distributions of PetroChina (104t) Products 1998 1999 2000

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Engine oil Gear oil Hydraulic fluid Compressor oil Turbine oil Electrical oil Total consumed oil Others Total

35.5 2.0 13.0 3.0 1.5 11.0 49.0 7.0 122.0

26.0 3.0 10.5 2.0 1.5 11.0 61.0 27.0 142.0

25.0 2.0 7.5 2.5 1.0 12.5 53.0 14.5 118.0

China's lubricating oil can meet the requirements of machinery industry with not very high automation level. However, there are great caps of lubricating oil between China and advanced countries. At the current engine oil market in USA, 90% gasoline engine oil conforms to SJ/GF-2 specification. The amount of API CH-4, CG-4 and CF-4 diesel engine oil is 85%. In Japan 70% gasoline engine oil can meet SJ/GF-2 and SH/GF-1 specifications, and 70% diesel engine oil meets API CD and CF specifications, and the other 25% conform to CE/CF-4 specification. Most of passenger cars in China require engine oils conform to SE and SF specifications. The detailed engine oil varieties of PetroChina and Sinopec are listed in Table 3. Table 3 Engine Oil Varieties of PetroChina and Sinopec (10 t) Description 1998 2000 General application 8.15 7.67 <SE 24.66 17.96 SE/SF 2.59 2.94 SH/SJ 0.014 0.014 <CC 0.18 0 CC 22.71 21.93 CD 11.81 11.98 >CD 0.07 0.09 Others 6.39 5.43 Total 76.57 68.06 Internal combustion engine oil is the most important kind of lubricating oil. The development of automobile industry will promote the technical improvements of internal combustion engine oil and gear oil. Upgrade, multi-grade is the trends of China's lubricating oil.
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1.3 Varieties and trends of China's lube oil additives

In modern lubricating oil process additives are used for improving lubes properties and ensuring lubes quality, especially for internal combustion engine oil. The future high speed and minimized engine will not only set severe requirements on additives but also bring opportunities for additive industry to make technical improvements. The first additive unit, alkyl naphthalene pour point depressant in China was built in 1954. Since then, many additives units, such as detergent additive unit of petroleum sulfonate, anti-oxidation, anti-corrosion additive units of ZDDP, detergent additive units of barium polyisobutylene phosphorate salt and alkyl salicylate, pour point depressant unit of poly--olefin, viscosity index improver unit of PIB and PMA, phenolate type antioxidant unit and so on, were built in China. All these facilitites produce
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qualified products and could meet the requirements of the lubricating oil in China at that time. In 1970's SINOPEC organized, developed and produced a series of additives, e. g, extreme pressure additive of sulfurized polyisobutylene, sulfurized phosphorate, viscosity index improver of ethylebezene copolymer, a number of anti-oxidant and anti-corrosive additives, oily additives of phosphoric ester and phosphoros, non-silicon defoaming agents, deemulsifier. The product structure was greatly improved. In 1980's China enhanced development force of lube oil additives. Sulfonate and ashless dispersant agent technology was introduced from foreign countries and that promoted the development of China's lube oil additive industry both in quality and in quantity. Meanwhile China developed a series of detergent additives of sulfurized calcium alkyl phenate and alkyl salicylate, copper passivators, dispersant agents of high polymer succinimide and succinic ester, dispersancy VI improver and antirust additives. In addition, China also quickened the development of additive packages to meet the requirements of SF and CD engine oils. For the purpose of upgrading lubricating oil, China's lube oil additive industry should focus its research and development on additive packages used for CF-4 diesel engine oil, SH gasoline engine oil, GL-5, MT-1 gear oil, HF-0 hydraulic fluid. Another major work is to develop viscosity index improvers and pour point depressant agents blending with API Group II and Group III base oils to manufacture multi grade lubricating oil.

1.4 Varieties and trends of China's lube base oils

There are 22 lube base oil plants with a capacity of 4,410,000 tons/a in China. PetroChina occupies 2,970,000tons while Sinopec 1,440,000tons. See Table 4 in details.

Table 4 Capacity of lube base oil in China (104t) Company Capacity Company Maoming petro-chemicals 47.0 Fushun petro-chemicals* Dalian petro-chemicals* 45.0 Yumen refining chemicals* Lanzhou petro-chemicals* 40.0 Jinmen petro-chemicals Karamai petro-chemicals* 40.0 Jinan oil refinery Gaoqiao petro-chemicals 40.0 Dagang oil field refinery* Dushanzi petro-petrochemical* 30.0 Henan oil field refinery Liaohe petro-chemicals* 30.0 Jiling petro-chemicals* Yanzhan petro chemicals 26.0 Hangzhou petro-chemicals Daqing petro-chemicals* 24.0 Jinling petro chemicals Jinxi petro-chemicals* 22.0 Nachong oil refinery* Daqing refining chemicals* 20.0 Jianghan petro-chemicals
Note: Company with * are subordinates to PetroChina.

Capacity 20.0 14.0 10.0 10.0 6.0 5.0 4.0 4.0 2.0 2.0 0.2

More than 90% base oil producing units use traditional manufacturing methods, such as solvent refining, solvent dewaxing, and clay refining and hydro treating. With rich resources and excellent processing equipment and technology, PetroChina Lubricant Company is able to provide API Group II and Group III base oils according to API Base Oil Categories and Definitions. In order to blend multi-grade lubricating oil and meet environment protection requirements of low volatility loss, the demand on Group II and Group III base oils will increase.

2. Market forecast and technical requirement 2.1 Market forecast

Development of automobile industry and other industries using lubricant will bring great opportunities for lubricating oil industry in China. Engine oil for automobile has a very bright future. With the upgrading of engine oils, the demand of high quality additives will be increased rapidly. Table 5 shows the production and types of automobile in China in the last few years. The production of automobile is increased very quickly. The auto type is also changed with the change of technology improvement. The production of medium and heavy duty vehicles needing low and medium grade engine oil reduced while it of mini car and passenger car raised. Passenger car using high-grade engine oil is the development trend of automobile industry from year 2000 to year 2005. Table 5 Production and type of automobile in China (104) Auto type Mini car Car Light vehicle Medium vehicle Heavy vehicle Total 1998 Quan. 40.3 50.7 47.7 20.1 3.5 162.3 % 24.8 31.2 29.4 12.4 2.2 100.0 1999 Quan. 42.3 56.3 56.3 21.3 2.7 178.9 % 23.6 31.5 31.5 11.9 1.5 100 2000 Quan. 54.6 60.5 63.9 19.8 8.2 207 % 26.4 29.2 30.9 9.5 4.0 100.0 2005(estimated) Quan. 36 144 93 18 9 300 % 12 48 31 6 3 100.0

Motor vehicle population and demand of internal combustion engine oil is calculated according to latest survey and estimation of domestic automobile market, see Table 6. Table 6 Motor vehicles population and engine oil demand 2000 2005 Oil Vehicles Lube Vehicles Auto type consumption population oil population t/auto 104t 104 104 Mini car 0.03 280 8.4 300 Car 0.04 500 20.0 1000 Light vehicle 0.05 390 19.5 890 Medium vehicle 0.08 460 36.8 500 Heavy vehicle 0.12 76 9.1 160 Total 1706 93.8 2850

Lube oil 104t 9.0 40.0 44.5 40.0 19.2 152.7

The demand on engine oil of each grade is attained according to the oil consumption of automobiles in China. See Table 7. Table 7 Demand structure of engine oil in China API 2000 2005 2010 Categories % 104t % 104t % 104t
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<SE SE/SF SG SH/SJ <CC CC CD CE/CF-4 Total In lube oil %

20.3 34.1 6.0 3.0 31.5 34.6 18.0 6.0 153.5 50.2

32.0 53.8 9.5 4.7 35.0 38.4 20.0 6.6

16.0 23.7 25.0 18.0 20.0 43.0 34.0 15.0 194.7 55.3

19.3 28.7 30.2 21.8 17.8 38.4 30.4 13.4

12.0 32.0 35.0 21.0 0 56.0 42.0 28.0 226.0 60.1

12.0 32.0 35.0 21.0 0 44.0 33.7 22.3

From Table 7 we can see that the demand on gasoline engine oil in 2000 and 2005 meeting API SF and beyond SF is 430,000 and 660,000 tons, and that on diesel engine oil meeting API CD and beyond CD is 240,000and 490,000tons. From the view of development the demand on lubricating oil with middle and high grade will be increased. The demand of additives in engine oil and other lubricating oils in China is counted according to the current engine oil formulation. See Table 8 and Table 9. Table 8 Adding amount and demand on additives (104 t) API Adding Demand Categories amount % 2000 2005 2010 <SE 2.0-5.5 0.99 0.77 0.63 SE/SF 6.0-6.5 2.16 1.48 2.01 >SF 12-13 1.10 5.32 6.93 <CD 2.0-4.0 2.01 2.12 2.24 CD 7.5 1.35 2.55 3.15 CE/CF-4 8.5-12 0.65 1.59 3.08 Total 8.26 13.83 18.04 Table 9 Prediction of lube oil additives demand (104 t) Additives 2000 2005 2010 Dispersant 4.00 7.10 9.27 Detergent 4.52 6.30 8.02 Anti-corrosion and 1.45 2.31 2.84 anti-oxidation agents Total 9.97 15.71 20.13

2.2 Technical requirements

With the development of lubricating oil towards upgrading, multi grade and general applications, the demand on additives will be increased progressively. We should make great efforts on developing new kinds of multi functions and environment friendly lube oil additives to match hydro-processed base oils. The increase of engine oils with the properties of energy conserving and environment friendly will result in large demand on hydro-processed base oils. Hydro-processing technology suitable for China's crude oil is needed. Make cooperation with companies and research institutes in Asia-Pacific region to establish lubricating oil specification not only suitable for Chinese characteristics but also coinciding with international
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standard.