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May 10, 2017

Volume 17 Issue 52

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Bapco, Neste Marketing Pact to Dissolve

Bahrain Petroleum Co. and Neste Oil will dissolve, by October 7, 2017, their marketing agreement for base oils produced at their joint venture API Group III base oil refinery, a Neste representative said yesterday.

In the new arrangement, Neste would retain a 45 percent stake in the Bahrain Lube Base Oil Co., which is located at a solely owned Bapco fuel refinery in Sitra, Bahrain, along with rights to market that portion of the output. The Bahrainian partners – Bapco and Oil and Gas Holding Co., which each own 27.5 percent of the joint venture – would take over rights to market the other 55 percent.

Photo courtesy of Neste-Bapco

Despite the dissolution of the marketing aspect of the JV agreement, Finland-based Neste will continue to own and market 45 percent of the Bahrain base oil refinery’s output.

Bahrain Lube Base Oil Co. was established in 2009 and the base oil plant completed in September 2011. The plant has the capacity to produce 400,000 metric tons per year of API Group III base oils. The original agreement allows Neste to market 100 percent of the plant’s base oil output, while Bapco operates the plant. A dissolution of the marketing aspect of the original agreement will allow the Bahranian government to market its own output.

Despite the dissolution of the marketing aspect of the JV agreement, Finland-based Neste will continue to own and market 45 percent of the refinery’s output. “Neste will continue to supply approved top-quality Very High Viscosity Index Group III base oils from [the] Bahrain plant,” said Ulla Kotila, a representative from Neste’s marketing of specialty products division, in an interview.

Kotila also noted the JV partners intend to discuss “further cooperation at a later date.” She did not, however, elaborate on what kind of cooperation the companies will be discussing. Bapco did not respond to requests for comment for this article.

The Bahrain project and another in the Middle East were once part of a Neste plan to become the world's second-largest Group III marketer, after SK Lubricants. In 2011, Neste, which owns and operates a 250,000 t/y Group III plant in Porvoo, Finland, announced it would form a JV with Abu Dhabi National Oil Co. to build a 500,000 t/y Group II and III plant in the United Arab Emirates. The agreement with Adnoc never came to fruition and, after the base oil plant was built through an investment program, Adnoc marketed the output itself.

The dissolution of the agreement in Bahrain raises the question of who will sell the Bahrainians’ share of output and the possibility of a new marketer emerging. That happened with Adnoc, which had not sold base oils before the opening of its plant in Ruwais, U.A.E. In similar fashion, Saudi Aramco announced the launch of its own base oil marketing business in late February. Aramco is a joint owner of Luberef, which has long marketed Group I oils produced at two plants in Saudi Arabia, but Aramco’s base oil marketing business is new, and it plans to offer Group I, II and III oils. The company recently acquired Motiva’s refinery and Group II base oil plant in Port Arthur, Texas.

One of the main challenges that new Group III marketers typically face is obtaining approvals for engine oils and other finished lubricants formulated with their oils. Such approvals can be expensive and time-consuming, but they are considered practical requirements for companies wanting to sell Group III into the automotive engine oil segment.