SINGAPORE (ICIS)--Bahrain Petroleum Company (Bapco) is cleared to sell its own brand of Group III base oils alongside those marketed by its Finland-based joint venture (JV) partner Neste.
Neste and Bapco have a joint venture facility in Sitrah, Bahrain, that produces 400,000 tonnes/year of Group III base oils. Under the original JV agreement, Bapco was the sole operator of the plant, while Neste was responsible for sales and marketing of all output from the plant.
On 8 November, Neste said while the original JV agreement remained unchanged, the new commercial terms would allow Bapco to sell some Group III base oils under its own brand from 1 January, 2018. Neste, meanwhile, would continue to sell a “significant share” of base oils output from the plant.
It is unclear what percentage of production would be allocated to Bapco for it to sell under its own brand. Neste holds a 45% share of the plant in Bahrain, while Bapco and Bahrain's Oil & Gas Holding Company (OGHC) own the remaining 55%.
“Neste continues to sell product produced in Porvoo and in the Bahrain JV unit under its Nexbase brand, and Bapco will sell product produced in the Bahrain JV unit under their own brand,” Neste told ICIS, confirming the change in the previous set-up.
The new arrangement means Neste and Bapco would essentially be producing similar products from the same plant but would likely be sold at price differentials that could be as wide as $100/tonne, according to market players.
“Neste will have more edge considering the OEM approval,” said one market source.
Neste’s Group III base oils have already achieved Original Equipment Manufacturers’ (OEM) specifications approvals and as such, carry a premium over the price of base oils from refiners that have not yet secured such approvals.
“The price differential is the key issue here,” said another source in the Middle East.
As a gauge, 4/6 cst Group III base oils produced in northeast (NE) Asia, which have secured OEM approvals are priced between $785-800/tonne FOB (free on board) NE Asia in the week ended 3 November, according to ICIS data.
These prices are the highest levels seen since September 2016, amid an existing spot product scarcity of Group III material of northeast Asian-origin.
Prices for similar grade Middle East-origin Group III base oils which do not have OEM approvals are being offered at around $700-720/tonne FOB (free on board) UAE, according to market sources.
While OEM approvals are important for the automobile lubricant sector, base oils sold for industrial usage generally do not require such approvals.
Some regional markets in Asia are also typically open to purchasing material without OEM approvals.
Bapco had indicated its intent to market its own brand of base oils called “BAPbase” earlier in the year but market participants had questioned how the JV terms with Neste would be affected.
The JV started commercial production at the Bahrain plant in 2011, producing premium quality VHVI (Very High Viscosity Index) Group III base oils for use in blending top-tier lubricants, according to previous company statements.
In the Middle East, other Group III producers include the Abu Dhabi National Oil Co (Adnoc), which produces 500,000 tonnes/year and Shell’s Pearl GTL plant in Qatar, which has the capacity to produce 1.38m tonnes/year of Group III base oils.
Focus article by Izham Ahmad and Jasmine Khoo