Downstream Lube Oils
This downstream oil and gas overview discusses what we talk about in our popular ‘What is Downstream’ course which also discusses Lube Oils.
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As I’m sure you’ve picked up, the fuels business, high volume, millions of barrels a day, volatile pricing, fairly low margins.
We haven’t seen 25 dollars a barrel in refining for a long, long time. You know he margins, for a while in refining got negative.
By way of background, when I joined Exxon, one of my first jobs was to justify a lube plant for Singapore, so I did the market analysis for southeast Asia, was lucky enough to work on the design and go out and watch the plant being built.
I didn’t realize at the time how much I got out of my first 10 years in the industry, but, anyway, the thing I learned was lubes was a different animal.
It’s low volume, not volatile. I mean, it doesn’t change prices as often or as badly … or you’ll learn in the commercial section what drives the pricing, and very high margin.
The lube oils and specialty oils people always were a little bit different.
The other thing about lube oils and specialties, as you all might guess, it has more of a brand associated with it than just our commodity.
Our gasoline that we make in a refinery is made to a standard specification. I forgot to mention this earlier. In a lot of cases, it’s made to “pipeline grade.” The secret sauce and the additives are not added until it gets to the terminal.
We’re not moving Shell V-Power gasoline through the terminal system. We’re not moving the Tigers, or we’re not moving the little Chevron cars; we’re moving a standard brand.
The branding is done more at the end, but still, gasoline is seen to be a commodity. You notice how little gasoline advertising is on TV these days, because the market is so price sensitive and location sensitive, that I can’t talk you into Techron as much as I could 15, 20 years ago.
But with lube oils, the advertising, the race cars, the whole nine yards are still very, very prevalent.
We have a video that talks about it better than …
The base oils are the raw material that go into making finished lube oils. They are defined as the heavy hydrocarbons.
Remember, they come out of the crude oil bottoms after we go through the vacuum distillation unit. The key properties of a base oil depend on the type of crude and processing. Whether a crude is called paraffinic, it has wax, or napthenic, that has iron naphtha content, drives the availability of the lubricant yield, as well as its quality.
As mentioned in the video, the basic level of friction pretension and stability, and we need additives to become effective lubes.
When you see a can of 10W-30 motor oil, 81% of it or so is base oil. There is a viscosity VI. It stands for viscosity index, and there’s a viscosity improver, about 7 weight percent, and an additive pack that is between 9 and 12 weight percent.
To get lubes out of a refinery, here’s the vacuum distillation unit that was sitting under the crude distillation unit in the original refinery slides. The term that you might hear is long residue. It’s the maximum amount of residue from the atmospheric … [Pipe’s still 00:06:30] 700 degrees, plus. Typically 650 to 700 degrees Fahrenheit.
Out of that, I’ve got my vacuum distillation unit, and I’m just going to cover the bottom. I get a thing called short residue, which is about 950 or so, and it goes into a de-asphalter, and out of that comes my asphalt that I use to build the roads out on the highway.
Asphalt doesn’t really come out of here. It takes another process.
There’s a process called solvent extraction that basically improves the quality of the base oils. Each one of these lines is a different type of base oil.
I then go through a de-waxing process, and out of that comes wax for candles. It’s used in M&Ms. It’s used in jelly beans. It’s used in some of the skin products.
You can’t believe the uses of wax. In fact, when I, again, started my marketing assignment with Exxon, one of the senior guys said:
“The easiest way to figure out what’s going on with the economy is watch the wax.”
What is he talking about? In those days, a lot of the cardboard boxes that were used to move perishable goods around were waxed, so if the wax market was increasing, there was a lot of stuff moving through the consumer system and the economy was booming.
If the wax market was decreasing, it was just the opposite, so he said, “Watch the wax,” and I didn’t even know where it was in the supply chain, but that’s all right.
Finally, we get into a finishing process, and there’s 4 basic types of base oil.
A light neutral, medium neutral, heavy neutral, and bright stock.
What it’s all about, it’s all about viscosity. You’re blending and adding additives to get 10W-30, 20W-50, et cetera, like you’re blending gasoline or like you’re blending diesel.
The term for viscosity, which we’ll see in the next slide, is centistokes, or cSt. This ranges between 3 and 4, 5 to 7 for medium, 10 to 12 for heavy, all the way up to 30 plus for the bright stock, and, again, we’re going to have some blending and do some additives, and that is often done at a lube oil blending plant, LOBP seems to be an industry nomenclature for a lube oil plant.
Here’s viscosity. It’s the single most important property of a lube oil.
It’s a measurement of a fluid’s resistance to flow, and it’s in centistokes measured at 40 degrees centigrade.
Water is 1 centistoke. Diesel is here. Brake fluid, vegetable oil, all the way over to honey, which is 500 centistokes.
We want our lube oils, depending on the grade, to be roughly in here. Why is it measured at 40 degrees C? What happens to honey when you heat it up, or syrup?
It gets thinner, so you’re constantly measuring your viscosity at a standard index. You want to keep your oil viscous at a high temperature in your engine, so you put in viscosity improvers and you put in additives to make sure that the oil doesn’t turn into honey under temperature.
Very carefully controlled, and if you thought we had a lot of slides on how to make diesel, We found a zillion slides on how make base oil.
Believe me, this is the abbreviated version.
Viscosity’s the most important property. Why?
It’s critical for wear protection. It helps with your engine fuel economy. The base oil fluid viscosity determines, to a large extent, the final oil fluid viscosity.
So as you can imagine, with a heavy-duty pewter-built diesel truck that’s going 24 hours a day, you need a totally different formulation, like Rotella or like some of the Total industrial-strength lubes than you do for my little Genesis with a small V6.
What are additives?
They’re compounds that are suspended in solids, and they can range between 1 and 30% of the oil volume, and they have 3 functions.
They can enhance a base oil property by removing the oxidants, helping with corrosion, keeping the oil from foaming or breaking down and demulsifying.
Some base oil properties are undesirable, so here’s the VI, viscosity index improver that I talked about, and you’re trying to depress the pour point of the base oil to make it more efficient in your crank cases.
Or you can add new properties.
I’ve got additives, I’ve got detergents, metal deactivators, tackiness agents, some of the other stuff you see advertised. “Buy my lube, because it has detergents which help keep your engine clean.”
Lubrizol is one of the biggest manufacturers. It’s owned by Berkshire Hathaway, but still publishes a lot of information, if you’re interested in more about lubes.
I think we have another video on additives, if I can get it to click.
Base oil and viscosity index improvers are critical components of a lubricant can only do so much. Chemical performance additives are also needed. As the temperature rises in the application, the oil may …
Okay. anything to add on lube oils that was not covered here, or any questions?
Speaker 5: [I’ll date 00:13:43] myself, because when I was a kid, we had 30 weight, 40 weight 10W-30 synthetic oils today that are so popular. What makes them synthetic other than an additive?
Marty: Synthetic lube oils are manufactured with a different process. There’s, I think, mineral synthetics based, and there’s a hydrocracking process that can generate higher-quality, higher-viscosity lube oils.
That’s the extent of my knowledge, because most of my experience has been in the refining, non-synthetic products, but you see the Mobil 1 lifetime guarantees. Same lube oil properties, but manufactured totally different.
Speaker 5: Some of the newer cars, you’ve got to use synthetic from day 1, not old school, when you got up to 60, 70,000 miles, you switched to synthetic. I have a 2014. It calls for synthetic.
Marty: From the beginning?
Speaker 5: From the beginning. From day 1. My wife has an older Mercedes. You’ll void the warranty if you don’t run Mobil.
Marty: Mobil 1. Yeah.
Speaker 5: Yeah, whether you go to the dealer or you go to somebody else, so they’re getting real specific in some of the new cars and trucks, I’ve noticed.
Marty: Right. The other thing that’s happened is the old rule of thumb used to be 3,000 3,500 miles before an oil change. 7,000 easy on the higher quality oils, which also reduces the amount of rework and recycling of the oil.
Joe: I just did a quick Wikipedia, and it says that synthetics are derived through … Synthetic lube oils are derived through a chemical process rather than a distillation process, so they get a more consistent molecular size in the base oil.
They’re probably already taking something that’s already been processed off of one of the heavier units, and taking that and modifying it as opposed to just taking the bottom goo from the vacuum tower.
Marty: Right. Yeah. ConocoPhillips has a joint venture, or used to, in the Gulf Coast called Atlas, where they had a hydrocracking process that generated higher-quality synthetic base oils.
Speaker 7: They called them polyalphaolefins, the synthetic oils.
I’m not a chemist, so that meant very little to me.
Speaker 3: The idea is that it’s still a hydrocarbon. It’s not something else.
Marty: It’s not a plastic.
Speaker 3: But if you have … An olefin is a double-bonded carbon, so they can get that chain off FCC and others, and take those, and they’re doing some more chemical processing to put together a heavy hydrocarbon that didn’t come from the bottom of the vacuum tower, which is going to have all kinds of goo in it and not be uniform in its molecular distribution of its molecules.
Marty: The last slide I’ve got, and this is dated as 2005. Finished lubes are the blended 10W-30s, 20W-50s, and this is, again, as of 2005, and it was based on a private study, Shell, Pennzoil, Quaker State … Pennzoil-Quaker Steak was bought by Shell around 18% Exxon-Mobil, 12.5, 11.4.
I don’t know if these make sense. It’s hard to move market share, by the way, in any product, a tenth of a point or a hundredth of a point, but the 3 largest companies who are selling about 40, 45% of the motor oil market.
Speaker 3: Shell had fire and ice back in the 70s, and when they bought Pennzoil, which I don’t remember the exact date, and then Quaker State they bought market share, basically.
Marty: Who’s your biggest competitor that you see out there? All of these guys, or just …
We’re kind of between Phillips and Citgo, I guess, for our [crosstalk 00:18:21].
Joe: Yeah, which markets do you target? You mentioned automotive [crosstalk 00:18:27].
You’re down in the 5 to 7% of the market?
Joe: They may not target the retail [crosstalk 00:18:32].
[crosstalk 00:18:31]. Because Shell and Exxon, they are just [surrounded 00:18:33] …
Marty: They’re the [horse 00:18:32].
To compete with them, so usually we have to lower price a little bit, in order to get in the market.
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