Lube Blending plants

Global market study and Performance evaluation

Feb 2016

Vikram Razdan
Business Consultant
Plax Ltd, UK

Vikram Razdan (vrazdan@plaxgroup.co.uk)

 Objectives

• Present an overview of the global lubricants industry

• Lube blending, product formulations and growth

markets

• Propose a methodology for developing a Lube

Blending plant Performance Index, based on Plant
Index and Operating efficiency

• MonteCarlo simulation for sensitivity analysis of

Performance Index

Vikram Razdan (vrazdan@plaxgroup.co.uk)

 Global lubricants market overview

India,
China (6 million tonnes) and India (1.7 million China
1.7 million
6 million
tonnes) are the fastest growing markets. tonnes
tonnes

Global lubricants growth @0.6-0.7% for next

10 years as per Total, France (2015)
2012
Lubricants market dominated by International
Oil companies (IOCs) and National Oil
companies (NOCs), with Shell as the market Global,
35 million
leader. tonnes

World’s largest Independent lube blender: Fuchs

World’s largest blending plant commissioned by Total in Singapore in 2015 (310,000

metric tonnes per annum) with a workforce of 100

Vikram Razdan (vrazdan@plaxgroup.co.uk)

Top 20 countries in 2012 by lubricants consumption

Global consumption: 35 million tonnes

Vikram Razdan (vrazdan@plaxgroup.co.uk)

 Global lubricants demand snapshot

Fastest growing market is Asia Pacific (mainly China and India)

North America and Western Europe are mature markets

Vikram Razdan (vrazdan@plaxgroup.co.uk)

 Finished lubricants segment wise (2012)

Automotive oils segment dominated

by major oil companies (IOCs and
NOCs)

Industrial oils and MWF/CP/Greases

dominated by independent
manufacturers

Automotive oils Engine oils, gear oils, transmission fluids (ATF), brake fluids, coolants/anti
freeze
Industrial oils Hydraulic fluids, turbine oils, industrial gear oils, spindle oils, open gear
compounds, rolling oils, etc.
Process oils For manufacturing of textiles, optical-cables, tyres, polymers, cosmetics,
fertilizers, explosives and crop sprays.
MWF/CP/Greases Metalworking fluids, Corrosion preventives and Greases

Vikram Razdan (vrazdan@plaxgroup.co.uk)

 Key players in the global lubricants market

Manufacturers Top 15 (2012)

130 major oil companies (IOCs and NOCs)
590 independent manufacturers 1. Shell
2. ExxonMobil
Volume mix 3. BP
Top 10 manufacturers ~ 50% 4. Chevron
Rest 710 manufacturers ~50% 5. Total
6. PetroChina
7. Sinopec
Strategic drivers 8. Idemitsu
• IOCs and NOCs have market domination 9. Fuchs
• Rest of the market highly fragmented 10. Lukoil (1.3 MMTPA)
• IOCs benefitting the most in shift from mineral (SN) 11. JX Nippon Oil
to semi-synthetic/ synthetic base oils (PAO/Esters)
• Independents play a pivotal role in the industrial 12. Petronas
lubricants market 13. Petramina
• More focus on high gross margins speciality 14. Gulf/Houghton
lubricants (automotive and industrial), especially in
mature markets
15. Valvoline (Ashland)
(source: Fuchs)

Vikram Razdan (vrazdan@plaxgroup.co.uk)

Lube manufacturing/blending
Plant complexity
depends upon
type and number
of formulations /
grades

ABB: Automatic Batch Blender

SMB: Simultaneous Metering Blender
ILB: Inline Blender
DDU: Drum Decanting Unit
Vikram Razdan (vrazdan@plaxgroup.co.uk)
 Lubricants formulations are technically complex
Engine Oils
Base oil Group I, II (Low S), III
(Low S, High VI), IV (Synthetic) :
80 to 90%
Additives (10 to 20%)
ZDDP or TCP
• Anti-wear
• Corrosion inhibitor
• Anti-oxidant
Polymethacrylate or Olefin
Copolymer
• VII (Viscosity Index Improver)
Other additives
• Friction Modifiers
• Dispersants
• Detergents
• Pour point depressants
• Anti-foam agents
Mono-grade (SAE 10, 20 ,30, 40, 50)
Multi-grade (SAE 5W30, 10W30,
20W40, 20W50)
API SJ, SL, SM, SN (Petrol)
API CF-H, CG-J, CF-I (Diesel)
Vikram Razdan (vrazdan@plaxgroup.co.uk)
Gear Oils
Base oil Group I or IV
(Synthetic) : 85 to 90%
Additives (5 to 15%)
Sulphur-Phosphorus
• Extreme Pressure
• Anti-wear
• Corrosion inhibitor
Other additives
• Friction Modifiers
• Dispersants
• Pour point depressants
• Anti-foam agents
• Metal deactivators
API GL 4 (moderate duty, low speed)
GL 5 ( heavy duty, high speed)
Mono-grade (SAE 80, 90)
Multi-grade (SAE 80W90, 75W90,
85W140)
Grease
Base oil Group I (90-95%) or IV
(Synthetic) : 75 to 90%
Thickeners (5 to 20%)
• Lithium
• Lithium complex
• Aluminium complex
• Clay
Additives (0 to 10%)
ZDP
• Extreme Pressure
• Anti-wear
Molydisulphide or Graphite
• Solid lubricants
Other additives
• Oxidation inhibitors
• Friction Modifiers
• Tackifiers
• Corrosion and Rust preventives
• Metal deactivators
NLGI grade (6 softest to 000 hardest)
 Lube blending plants – some figures
Shell
• 50 blending plants
worldwide ExxonMobil
• 8 blending and 3 • 30 blending plants BP
grease plants in worldwide • 20+ blending plants
Top 3

China with largest in • Operates the 2nd worldwide.

Tainjin (280,000
MTPA)
• Indonesia (120,000
MTPA)
• India (55,000 MTPA)
largest plant in the
world.
• 2 blending plants in
China.
• India (70,000 MTPA)
• 2 blending plants in
China (Taicang and
Shenzen)
• 5 blending plants in
India (BP/Castrol)

Fuchs: 33 blending plants worldwide. Largest independent manufacturer in the

Independents

world. Gross margin: 37%, Net profit margin: 11.4% (2012)

77 Lubricants, Holland: Largest independent blender in Europe (130,000 MTPA)
Other key independent blenders: Motul, Pentosin, Liqui Moly, Unil-Opal,
Carlube, Royal Purple, Amsoil, Red Line, Torco, Exol (largest in UK)

Vikram Razdan (vrazdan@plaxgroup.co.uk)

 Lube blending in China and India – Growth markets
6 million tonnes (2012) 1.7 million tonnes (2012)

China India
Industrial lubricants have 46% Industrial lubricants have 54%
market share. market share
PetroChina is the largest IOCL is the largest blender (6
blender. 10 blending plants. plants in India 505,000 MTPA)
Total capacity: 1700,000 MTPA Chennai: 140,000 MTPA
Mumbai: 135,000 MTPA
Sinopec is the second largest Kolkata: 90,000 MTPA
blender. 11 blending plants. Silvassa: 30,000 MTPA
Taloja: 20,000 MTPA
Total capacity: 1146,000 MTPA Asaoti: 60,000 MTPA
Other local key players: 7th blending plant in Sri Lanka
• CNOOC. (18,000 MTPA)
• Feoso Group. 5 blending Other local key players:
plants. Total capacity: BPCL. 3 blending plants, 4 filling
227,000 MTPA plants
• Longcheng Shiye. 3 blending HPCL. 7 blending plants
plants (150,000 MTPA) TideWater: 5 blending plants
Vikram Razdan (vrazdan@plaxgroup.co.uk)
 Lube blending plant – Benchmarking possibilities

Performance Compare vis-à-vis the best practices of the leading Lube

blending plant
Strategic Critical success factors (compare with other industries like
FMCG and Paints)
Operational Evaluate running cost, staffing and productivity
Process Process mapping and technology
Product Product design/packaging (compare with market leader /
paints industry for best practices)
Financial Financial ratios and return on investment

Performance level = Strategic positioning x Operational effectiveness

Vikram Razdan (vrazdan@plaxgroup.co.uk)

 Proposed methodology for creating Lube blending plant
Performance Index

Plant Index Based on Strategic parameters

Operating efficiency
• Plant location
• Capital Investment
• Blending complexity
• Feedstock availability
• R&D capability
• Power and Utilities
• Quality and Environmental compliance
Based on Operational parameters
• Quality
• Cost
• Time

Performance Index (Plant Index) x (Operating Efficiency)

Net Performance Index (Performance Index) x (Capacity Utilisation)

Vikram Razdan (vrazdan@plaxgroup.co.uk)

 Lube blending plant – Strategic parameters
Multiplier
Parameter Weightage (%) Yardstick Level
(0.5 to 1.0)
Plant location (low freight cost, market proximity, > $10ph 0.5
30 Labour costs
duties and taxes, labour costs) < $10ph 1
Capital investment
> 200,000
• Plant size/Economies of scale (high production 1
Plant capacity
capacity, low cost per tonne)
25 in tonnes per 100,000 to 200,000 0.75
• Blending/Filling systems for product quality and
annum
quantity (high accuracy, low variance) < 100,000
• Storage and Warehousing 0.5
Fully automated 1
Blending complexity (formulations/batch Level of
15 Semi-automated 0.75
size/changeovers/cycle-time) automation
No automation 0.5
Feedstock availability 15 Base oil Manufacturer 1
manufacturing Non-Manufacturer 0.5
R&D capability 5 > 250 1
Product
100 to 250 0.75
formulations
< 100 0.5
Power and Utilities 5 Captive or Captive generation 1
Procure Procure 0.5
Quality and Environmental compliance (ISO ISO9000
5 Level of 0.5
standards)
compliance ISO14000 0.5
Scores to be allocated for each parameter to generate a Plant index

Vikram Razdan (vrazdan@plaxgroup.co.uk)

 Plant Index example
Two hypothetical Lubricants blending plants
Plant A Plant B
• In an OECD developed country • In a developing country
• 100,000 MTPA • 150,000 MTPA
• Fully automated • Semi automated
• Base oil manufacturer • Base oil manufacturer
• 200 product formulations • 300 product formulations
• Procure power • Captive power generation
• ISO9001/TS16949 and 14001 • ISO9001 /TS16949 compliant
compliant
Plant location 0.5 x 30 = 15.00 1.0 x 30 = 30.00
Capital investment 0.75 x 25 = 18.75 0.75 x 25 = 18.75
Blending complexity 1.0 x 15 = 15.00 0.75 x 15 = 11.25
Feedstock availability 1.0 x 15 = 15.00 1.0 x 15 = 15.00
R&D capability 0.75 x 5 = 3.75 1.0 x 5 = 5.00
Power and Utilities 0.5 x 5 = 2.50 1.0 x 5 = 5.00
Quality and Environmental 0.5 x 5 + 0.5 x 5 = 5.00 0.5 x 5 = 2.50
Standards
Plant Index (max 100) 75 87.5
(Detailed worksheet in Annex 1)

Vikram Razdan (vrazdan@plaxgroup.co.uk)

 Lube blending plant – Operational parameters

Tendency is to focus
on costs only
Quality
Value

25%

Cost

60%

Time
15%

Impact on plant performance

Vikram Razdan (vrazdan@plaxgroup.co.uk)

 Operational parameters in detail

Parameter Fixed Variable

Quality Additives Base oil
Blending process
• Level of automation
• Batch size
Product downgrades
Product testing
Cost Maintenance Base oil
Product testing Additives
Staff/Labour Inventory
Containers
Packaging
Product loss
Energy consumption
Time Cycle time Customer ordering to
• Blending delivery
• Filling
Procurement lead time
Product testing

Vikram Razdan (vrazdan@plaxgroup.co.uk)

 Operational metrics
Measurement Gross weightage Standalone Weightage
Parameter Operational metrics
unit (%) (%)
Base oil quality (VI, stability, fluidity, evaporation) % variation 10
Additive dosing accuracy % variation 2.5
Quality Bulk product downgraded 25
% of total 5
Number of filled product containers downgraded % of total 5
Product tests done per year number 2.5
Base oil cost per tonne 20
Additive cost per tonne 5
Raw material inventory cost per tonne 5
Work in process inventory cost per tonne 10
Cost 60
Maintenance cost per tonne 5
R&D cost per tonne 2.5
Product loss per tonne 2.5
Employee cost per tonne 10
Blending cycle time for ABB per tonne 2.5
Blending cycle time for SMB/ILB per tonne 2.5
Decanting cycle time for DDU per tonne 1.25
Time Filling cycle time for cans per tonne 15 2.5
Filling cycle time for drums per tonne 1.25
Procurement lead time per tonne 2.5
Customer ordering to delivery time per tonne 2.5
Total 100
Scores to be allocated for each metric with reference to best-in-class blending plant to generate Operating efficiency (%)

Vikram Razdan (vrazdan@plaxgroup.co.uk)

 Operating Efficiency example
Two hypothetical Lube blending plants
Plant A
• High quality base oil
Setting the benchmark • Low process variation
best-in-class as reference • Low product downgrades
would be the main issue in • Medium base oil cost
generating blending plant • High maintenance cost
operating efficiency. • High R&D cost
• High employee cost
• Optimum cycle time
• Median procurement lead
time
Quality 10 x 1.0 = 10
25
2.5 x 1.0 = 2.5
5 x 1.0 = 5
5 x 1.0 = 5
2.5 x 1.0 = 2.5
Cost 44
Time 14.5
Operating Efficiency (max 100%) 83.5
Vikram Razdan (vrazdan@plaxgroup.co.uk))
Plant B
• Medium quality base oil
• Some process variation
• Medium product downgrades
• Optimum base oil cost
• Low maintenance cost
• Medium R&D cost
• Low employee cost
• Median cycle time
• High procurement lead time
10 x 0.75 = 7.5
20.38
2.5 x 0.9 = 2.25
5 x 0.8 = 4
5 x 0.9 = 4.5
2.5 x 1.0 = 2.5
53.88
11.06
85.31
(Detailed worksheet in Annex 2)
 Performance Index example

Two hypothetical Lube blending plants

Plant Operating Performance Capacity Net Performance
Plant Index Efficiency (%) Index Utilisation (%) Index

a d c=axb d cxd

A 75 83.5 62.63 95 59.49

B 87.5 85.31 74.64 85 63.45

Key observations

Plant A, based in an OECD developed country, achieves a good Net Performance

Index as compared to Plant B (located in a developing country), in spite of higher
operating costs

Plant Index should have minimal variation, and thus scope for improvement lies
mainly in increasing Operating Efficiency and Capacity Utilisation
Vikram Razdan (vrazdan@plaxgroup.co.uk)
 Performance Index sensitivity (MonteCarlo simulation)

Two hypothetical Lube blending plants

Capacity Net
Plant Operating Performance
Utilisation Performance
Plant Index Efficiency (%) Index
(%) Index
a d c=axb d cxd

A 74.54 82.86 61.76 95 58.67

Minimum
B 87.12 84.63 73.73 85 62.67

A 74.95 83.50 62.58 95 59.45

Average
B 87.57 85.31 74.71 85 63.50

A 75.41 84.20 63.49 95 60.32

Maximum
B 87.91 85.98 75.58 85 64.25
(Detailed worksheet in Annex 3)

Standard deviation (SD) of 5% has been assumed for all scores in the example.
However, SD should depend on historical data which should give more realistic results
Vikram Razdan (vrazdan@plaxgroup.co.uk)
End of presentation

Vikram Razdan (vrazdan@plaxgroup.co.uk)

 Annex 1
PLANT INDEX SCORE
Weightage
Parameter (%) Yardstick Level Multiplier Plant A Plant B
Plant location (low freight cost, market proximity, duties and taxes, >$10ph 0.5
30 Labour costs 0.5 15 1 30
labour costs) <$10ph 1
Capital investment
>200000 1
• Plant size/Economies of scale (high production capacity, low cost
Plant capacity
per tonne)
25 tonnes per 0.75 18.75 0.75 18.75
• Blending/Filling systems for product quality and quantity (high 100000 to 200000 0.75
annum
accuracy, low variance)
• Storage and Warehousing <100000 0.5
Fully automated 1
Level of
Blending complexity (formulations/batch size/changeovers/cycle-time) 15 Semi-automated 0.75 1 15 0.75 11.25
automation
Manual 0.5
Base oil producer 1
Base oil
15 Non-base oil 1 15 1 15
Feedstock availability manufacturing
producer 0.5
>250 1
Product
R&D capability 5 100 to 250 0.75 0.75 3.75 1 5
formulations
<100 0.5
Captive or Captive generation 1
5 0.5 2.5 1 5
Power and Utilities Procure Procure 0.5
Level of ISO9000 0.5 0.5 2.5 0.5 2.5
5
Quality, Safety and Environmental compliance (ISO standards) compliance ISO14000 0.5 0.5 2.5
75 87.5

Vikram Razdan (vrazdan@plaxgroup.co.uk)

 Annex 2
OPERATING EFFICIENCY SCORE
Gross Standalone
Measurement weightage Weightage
Parameter Performance metric unit (%) (%) Plant A Plant B
Base oil quality (VI, stability, fluidity,
evaporation) % variation 10 1 10 0.75 7.5
Additive dosing accuracy % variation 2.5 1 2.5 0.75 1.875
Quality Bulk product downgraded % of total 25 5 1 5 25 0.8 4 20.38
Number of filled product containers
downgraded % of total 5 1 5 0.9 4.5
Product tests done per year number 2.5 1 2.5 1 2.5
Base oil cost per tonne 20 0.75 15 1 20
Additive cost per tonne 5 0.9 4.5 0.9 4.5
Raw material inventory cost per tonne 5 0.9 4.5 0.7 3.5
Work in process inventory cost per tonne 10 0.9 9 0.7 7
Cost 60 44 53.88
Maintenance cost per tonne 5 0.5 2.5 1 5
R&D cost per tonne 2.5 0.5 1.25 0.75 1.875
Product loss per tonne 2.5 0.9 2.25 0.8 2
Employee cost per tonne 10 0.5 5 1 10
Blending cycle time for ABB per tonne 2.5 1 2.5 0.75 1.88
Blending cycle time for SMB/ILB per tonne 2.5 1 2.5 0.75 1.88
Decanting cycle time time for DDU per tonne 1.25 1 1.25 0.75 0.94
Time Filling cycle time for cans per tonne 15 2.5 1 2.5 14.5 0.9 2.25 11.06
Filling cycle time for drums per tonne 1.25 1 1.25 0.9 1.13
Procurement lead time per tonne 2.5 0.8 2 0.5 1.25
Customer ordering to delivery time per tonne 2.5 1 2.5 0.7 1.75
83.5 85.31

Vikram Razdan (vrazdan@plaxgroup.co.uk)

 Annex 3
NET PERFORMANCE INDEX
Operating Efficiency Capacity Utilisation Net Performance
Plant Index Performance Index
Plant (%) (%) Index
a d c=axb d cxd
A 75 83.5 62.63 95 59.49
B 87.5 85.3125 74.65 85 63.45

MonteCarlo simulation (minimum, 5% standard deviation)

A 74.54 82.86 61.76 95 58.67
B 87.12 84.63 73.73 85 62.67

MonteCarlo simulation (average, 5% standard deviation)

A 74.95 83.50 62.58 95 59.45
B 87.57 85.31 74.71 85 63.50

MonteCarlo simulation (maximum, 5% standard deviation)

A 75.41 84.20 63.49 95 60.32
B 87.91 85.98 75.58 85 64.25

Vikram Razdan (vrazdan@plaxgroup.co.uk)