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June 18, 2019

Volume 3 Issue 3

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Neste Settles Dispute With Bapco

Finnish refiner Neste announced the settlement of a previously undisclosed dispute with Bahrain Petroleum Co. and Nogaholding, its partners in a joint venture API Group III base oil project in Sitra, Bahrain.

The settlement ends months of speculation over the status of the project as the companies agree to maintain the status quo in their existing agreement, which allows Neste to market 45 percent of the plant’s output and Bapco to market the remaining 55 percent.

The dispute was subject to arbitration proceedings in London, but details of the complaint and settlement have not been disclosed. Christian Stahlberg, Neste’s general counsel, declined to answer a question about the precise nature of the dispute or the terms under which a settlement in the matter was reached. “The terms of the amicable resolution are confidential, and the parties look forward to continuing to work together in their joint venture,” he said in an email statement.

Neste owns a 45 percent stake in the plant, which opened in 2011, while Bapco and state-owned Nogaholding each own 27.5 percent. For the first six years of the facility’s operations, the Finnish company had rights to market 100 percent of the output under its Nexbase brand name, but that arrangement broke down in 2017 when the partners agreed to the current marketing allocation.

Bapco then launched its BAPbase base oil brand. The 2017 agreement expired at the end of last year and was subject to renegotiation. Speaking on the sidelines of April’s Base Oil & Lubes Middle East conference in Dubai, a source familiar with the negotiations described the intervening discussions as “difficult.” But according to a statement from Bapco, the resolution announced last week represents a return to business as usual.

“Bapco is pleased to announce a dispute that had arisen in connection with the joint venture lubricants base oil manufacturing plant in Sitra, Bahrain, has been amicably resolved,” the company stated. “Bapco looks forward to continuing to work together with the joint venture’s partners and stakeholders.” The statement added that all base oil plant products from Sitra continue to be produced from the same manufacturing process and units, via the same tanks and discharge pipes to the same manufacturing specifications. Bapco says the products will be subject to the same quality assurance and quality controls.

Bapco’s prior marketing relationship with Neste was considered by analysts to provide a pathway for all-important technical approvals. BAPbase is produced in 4, 6 and 8 centistoke viscosity grades, and the Bahrain refiner has been actively seeking OEM approvals under the newly structured arrangement. Neste retains OEM formulation approvals specific to Nexbase base oils, which are owned by additive companies and Neste.

Neste’s arrangement with Bapco constitutes its only source of Group III base oils from the Middle East Gulf after Abu Dhabi National Oil Co. ended talks over a marketing agreement in 2016. Analysts say regional refiners want a greater share of the value chain as they attempt to maximize down-stream profits and are increasingly willing to shoulder the cost of obtaining approvals. According to Bapco, most of its current base oil production is shipped to Houston.

Photo courtesy of Neste

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.