Neste and Bapco have entered a new commercial agreement enabling the Bahraini refiner to begin marketing base oils while securing Neste a sizeable share of API Group III base oils from their joint venture plant.
The new marketing arrangement will run until the end of next year, though Neste says any renewal in 2019 and beyond is subject to further negotiations with Bapco. The six-year-old joint venture, in which Neste holds a 45 percent share, with Bapco and Bahrains OGHC (Overseas Oil & Gas Holding Co.) holding the remaining 55 percent, is unaffected by the new agreement.
Photo courtesy of Bapco
The Bapco-Neste joint venture base oil plant in Sitra, Bahrain, has capacity to produce up to 400,000 tons per year of API Group III base oil.
Neste announced the new agreement Nov. 9 after the original expired last month. The joint venture plant is located in Sitra, on the east coast of Bahrain.
From the 1st of January 2018 Bapco will launch its own base oils under the BAPbase brand. That mirrors a similar strategy of direct marketing adopted by other regional refiners, including Adnoc (Abu Dhabi National Oil Co.) and recently Saudi Arabias Aramco. Bapcos refinery has a capacity to make 400,000 tons per year of Group III base stocks with viscosities ranging from 4 centiStokes to 8 cSt.
Virpi Amoedo, Nestes speciality products director, told Lube Report the Helsinki-listed company expects to absorb a significant portion of Bapcos production. Neste will continue to sell the majority share of the output – Nestes 45 percent of the JV plus part of Bapcos share – and 100 percent of the Porvoo output. Nestes refinery in Porvoo, Finland, produces 250,000 t/y of Group III marketed under the Nexbase brand and 70,000 t/y of process oils. Neste predicts it will supply more than 500,000 t/y to global markets next year which could see it tapping at least an additional 70,000 t/y of Bapcos output, Lube Report estimates. Neste declined to comment on the estimate.
Still, with the commercial agreement between Neste and Bapco set to expire next year, Bapcos decision to assume responsibility for marketing its own base oils carries no guarantee of success, say analysts. Bapcos desire to get a larger slice of the pie by owning a larger part of the value chain is understandable – [but] it is not without risks. They need to get approval from additive producers and lube blenders that their material is OK to use, said Stefan Mueller, senior principal analyst at IHS Chemical.
Bapco did not immediately respond to a request for further details on its plans for approvals. However, a person familiar with the situation, who asked not to be identified due to confidentiality, said the Bahrain refiner was sending out molecular equivalency letters and will focus marketing efforts on the North American automotive market. Neste currently holds OEM formulation approvals and says its approvals are specific to Nexbase base oils and owned by additive companies and Neste.
Bapcos decision launch its own brand may be as much about timing as anything else. According to Norman Sheppard, base oil development at Bapco, the Group III market could soon move from a position of oversupply and start to rebalance in the next few years. Sheppard was speaking at last months ICIS Middle Eastern Base Oils & lubricants Conference in Dubai and told delegates Group III prices may be on an upward trend and that base oil margins should recover.