Advancements in bright stock refining technology

Timothy Langlais Global Technical Marketing Manager, Specialty Base Oils

Outline

• About Ergon

• Bright stock market summary

• Refining technologies

• Economics of viscosity

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About Ergon

3

Ergon Corporate Profile

4

Vicksburg, Mississippi (USA) ISO 14001:2004 / ISO 9001:2008 / REACH Compliant

Naphthenic Refinery

Base Oil Capacity: 22,000 b/d (1,150 kt/yr)

Newell, West Virginia (USA) ISO 9001:2008 / REACH Compliant

Paraffinic Refinery

Base Oil Capacity: 6,000 b/d (297 kt/yr)

• Privately (family) owned and operated

• Headquarters: Jackson, Mississippi, USA

• Employees: >2,600

• Largest naphthenic base oil refiner in the world

• 60+ companies under the Ergon Umbrella

5

Available Global Base Oil Storage - 2.1 million barrels - 88.2 million gallons - 286,440 metric tons

Global Distribution of Specialty Oils

Bright stock market summary

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2015 Global Finished Lubricants Demand

7 Source: Kline & Company, 2015

764,000 B/D 37,800 kt/yr

2015 Global Bright Stock Demand

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53,000 B/D 2,700 kt/yr Source: Kline & Company, 2015

9 Source: Lubes ‘n’ Greases 2015 Guide to Global Base Oil Refining, LNG Research

Trends in finished lubricant technologies threaten conventional Group I refineries…

Group I decline

Group II & III Growth

Global Basestock Supply by Product Types, 2005 to 2015

…and associated bright stock production...

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API Classification

Group III

Group II

Group I

Light Neutral

Yes

Yes

Yes

Medium Neutral

Yes

Yes

Yes

Heavy Neutral

None

Yes

Yes

Bright Stock

None

Yes*

Yes

*Group II bright stock remains shorter in supply and lighter in viscosity than conventional bright stock

…in a market that demands viscosity…

11 Source: Kline & Company, 2015

*Includes Mexico

Def

icit

| S

urp

lus

Regional BS Supply & Demand Balance, 2015 (actual) to 2025 (projected)

…further increasing bright stock price premiums...

12 Source: ICIS Base Oils Asia Pacific

…and inviting investment/substitute solutions.

Bright stock substitute costs/benefit balance

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Material Relative Price $/MT

Equivalent BS replacement

Performance Advantage Performance Disadvantage

Bright Stock 850-880 1:1

PIB 1,900-2,300 5:1 + Wide viscosity range + Clean applications

- Material handling - Poor solvency

High viscosity PAO

4,500-6,500 1:1 + Good VI + Oxidation stability

- Seal compatibility - Poor solvency

PAG 4,000-5,500 1:1 + High VI + Water soluble + Varnish resistance

- Limited compatibility - Poor solvency

Formulators determine the technical need and product value provided for specific applications

Refining technologies

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Generalized process flow diagrams

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Paraffinic Crude Oil

Distillation

PDA

Solvent Extraction

Solvent Dewaxing

Hydrofinishing

BS

Conventional Group I

Naphthenic Crude Oil

Distillation

PDA

Hydrotreating

Catalytic Dewaxing

Hydrofinishing

BS

Alternate Group I

Hydro-processing now represents >45% of global base oil production

Typical Properties

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Parameter ASTM Conventional GI Alternate GI

Viscosity, SUS @ 100 °F D2161 2,200-2,800 4,900-5,300

Viscosity, cSt @ 100 °C D445 30-33 37-47

Viscosity, cSt @ 40 °C D445 465-495 940-970

Viscosity Index D2270 92-100 80-85

Viscosity-Gravity Constant D2501 0.809 0.819

Pour Point, °C D5950 -15 to -1 -15 to -1

Flash Point, °C D92 288-305 285-300

Color, ASTM D6045 2.0-8.0 2.0-4.0

Sulfur, % D4294 0.2-5.0 0.07

Process technologies yield a range of viscosity, VI, color and sulfur values

Alternate GI technology yields high viscosity with exceptional color

17 Conventional GI Alternate GI

Additional Typical Properties

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ASTM Conventional GI Alternate GI

Saturates, HPLC, wt% D7419 75 (typ) 64 (typ)

Molecular Weight D2502 690 680

Aniline Point, °C D611 122 (typ) 122 (typ)

Carbon Type Analysis, %Ca D2140 5 7

Carbon Type Analysis, %Cn D2140 28 28

Carbon Type Analysis, %Cp D2140 67 65

Polycyclic Aromatic Compounds, wt% IP 346 <3 <3

Advanced refining technology recovers heavy paraffinic molecules found in naphthenic crude

Economics of viscosity

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Alternate GI bright stock extends formulation capabilities to higher viscosity grades…

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Group III

Generalized max viscosity

Group II

Conventional GI bright stock

Alternate GI bright stock

… while reducing bright stock treat rates…

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20%

…and formulation costs!

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Americas ISO 460 Blending Options Oil A Oil B Oil C Oil D

Traditional GI BS 100% - - - HyGold 5000BS - 85% 80% 71% GII – 100/120 - 15% - - GII – 200/220 - - 20% - GII – 600 - - - 29% Base oil cost, $/MT 992 920 893 918 Savings (vs Oil A), $/MT - 72 99 73 31 May ICIS SPOT FOB USGC averages: BS @ $992/t, 100 @ $511/t, 200 @ $498/t, 600 @ $740/t

Blend properties remain acceptable

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Americas ISO 460 Blending Options Oil A Oil B Oil C Oil D

Traditional GI BS 100% - - - HyGold 5000BS - 85% 80% 71% GII – 150 - 15% - - GII – 500 - - 20% - GII – 600 - - - 29% Viscosity, cSt @ 40 °C 465 469 465 461 Viscosity Index 95 82 81 86 Flash Point, °C 304 226 233 238 Pour Point, °C -9 -13 -12 -17 Color, ASTM 4.0 1.3 1.2 1.0 Sulfur, % 0.14 0.05 0.05 0.05

Potential Applications for Alternate GI

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Application Comments

Grease High viscosity can improve yield in light of lithium supply constraints

Marine Alternate GI BS provisionally approved for use in 2 & 4-stroke marine applications

High viscosity/monograde engine oils

Alternate GI provisionally approved for use in 20W-50 and monograde engine oils

Industrial Oils • Improved economics where viscosity and appearance remain critical

• Suitable for use in high viscosity industrial gear oils, hydraulics, etc.

Process Oils Viscosity, appearance, excellent fogging performance

In summary…

• Conventional Group I refineries, including the associated bright stock production, remain threatened by trends in automotive finished lubricant specifications

• Market conditions invite innovation/substitutes for bright stock

• Alternate GI technologies allow formulation flexibility and create economic value

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Contact Information

Hideo Takitani Ergon Sales & Marketing, Latin America +55-11-96847-1099| office hideo.takitani@ergon.com

Gerardo Maldonado Ergon Sales & Marketing, Latin America +1-281-630-5562 | office gerardo.maldonado@ergon.com

For further questions, technical or commercial, please contact us.

North & South America | Phone: +1 601 933 3000 | ergonnsa.com

International| Phone : +32 (0)2 351 23 75 | ergoninternational.com

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Tim Langlais Ergon Global Technical Marketing, Specialty Base Oils +1-281-202-3607 | office tim.langlais@ergon.com