Fuels & Lubes International Q4 2010 by F+L Asia

Quarter Four 2010 Volume 16 Issue 4

I N T E R N A T I O N A L

Greener railways around the Pacific and Indian Ocean Wind power blows across Asia Looming lubrication challenges by land and sea

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Editor’s Corner First-Ever Green Commonwealth Games INDIA TOOK CENTER STAGE IN OCTOHowever, the last-minute preparations for the ber as The Commonwealth Games, the Games were marred by the collapse of a footbridge largest multi-sport event conducted to that was being built outside the main stadium, injurdate in India, began. ing 27 people, in late September. Teams from 71 nations parAlthough some infrastructures ticipated in 17 sports which were remained unfinished even as the held at 12 competition venues in Games got started, the roll-out Delhi from October 3 to 14. of Bharat Stage III or BS-III fuel— India’s Urban Development which is equivalent to Euro 3 emisMinister S. Jaipal Reddy said a sion specifications—across the total of Rs28,054 crore (US$6.3 country was well ahead of its Ocbillion) have been spent on the tober 1 schedule, according to the Games, out of which Rs16,560 oil ministry. crore (US$3.7 billion) went to the BS-III was introduced through Delhi Government for upgrada phased roll-out that started April Although some infrastructures remained ing the capital infrastructure and 1. India’s smallest state Goa, on unfinished even as the building of various stadia. the west coast of the country, was Games got started, The infrastructures that were the first to introduce BS-III in April, the roll-out of Bharat Stage built for the Games are in clear and the roll-out was completed III or BS-III fuel—which view as soon as you arrive in Delnine days ahead of schedule in is equivalent to Euro 3 hi. The Indira Gandhi Internationthe remote northeastern states on emission specifications— across the country was al Airport has been modernized, September 22. well ahead of its October 1 expanded and upgraded. The Earlier, BS-IV gasoline and gasschedule, according to airport has been connected to oil were introduced in 13 major Inthe oil ministry. the city via a six-lane expressway dian cities on April 1. Vicky Villena-Denton Editor-in-Chief & Publisher (Delhi–Gurgaon Expressway) and “This is a major landmark the US$580 million Delhi Airport which has been achieved with an Metro Express line. investment of over Rs320 billion In response to concerns over the large number ($7.1 billion) as part of government efforts to supply of trains that pass by the Delhi metropolitan region better quality fuels in the country,” Oil Minister Murli daily, construction of road under-bridges and over- Deora said. bridges along railway lines were undertaken. Links India’s oil industry is to be commended for helpbetween the Games and the city were also undertak- ing ensure that the 2010 Commonwealth Games is en through the construction of flyovers and bridges. the first-ever “Green Commonwealth Games.”

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CONTENTS

Greener railways around the Pacific and Indian Ocean

24 32 MTBE Bust and Boom

Features

Personal care business lures BASF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grassroots world-class additives plant to rise in Singapore . . . . . . . . . . . . . . . . . . . . Wind power blows across Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lubricants blowing in the wind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MTBE bust and boom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Looming lubrication challenges by land and sea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A hybrid future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Fuels & Lubes International Quarter Four 2010 Volume 16 Issue 4 ISSN 0117-9470 CopyrightÂŠ 2010 F&L Asia, Inc. Photograph by Chili Dogs

If you look at economic growth and population growth across Asia... the significance and impact Asia can have pagefuel savings is on overall even higher than western European markets.

page

14 36

page

P H O T O CO U R T E S Y O F B A S F

WIND POWER BLOWS ACROSS ASIA

Columns Defying gravity . . . . . . . . . . . . . . . . . . . . . . 8 Motorization trends in Asia . . . . . . . . . . . 12 Editor's Corner . . . . . . . . . . . . . . . . . . . . . . . 3 Advertisersâ&#x20AC;&#x2122; Index . . . . . . . . . . . . . . . . . . . . 42

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Contributors

Hank Hogan is an Austin, Texas-based freelancer who writes about business, energy, technology and science. Like others in Texas, heâ&#x20AC;&#x2122;s sold exploration rights to an independent but a gusher hasnâ&#x20AC;&#x2122;t come in yet. Kelly Thornton is a freelance writer based in San Diego, Calif. She was a staff writer for 18 years at the San Diego Union-Tribune, covering law enforcement and legal affairs. Hogan

Jeroen Looye spent seven years as a base oil trader for AP Chemicals in Belgium. He is now an entrepreneur based in The Netherlands and is director of the Dutch company Losiwo B.V. that launched the base oil platform, www.baseoilmarket.com, in 2008.

Thornton

Looye

Gota

Sudhir Gota works as a transport specialist in the Clean Air Initiative for Asian Cities (CAI-Asia) Center in Manila. He specializes on environmental issues related to transport an d has extensive experience in road design and safety aspects. He started his career as a highway design engineer by designing high speed roads and after five years of hard work, realized the need for more sustainable solutions and thus took a paradigm shift in his career. Bert Fabian is the transport program manager of the Clean Air Initiative for Asian Cities (CAI-Asia) Center in Manila. He takes the lead in managing and developing transport-related projects and conducts research and analysis on issues related to transportation, environment and urban planning.

Fabian

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Mejia

Alvin Mejia is an environment specialist working under the Transport Program of the Clean Air Initiative (CAI-Asia) for Asian Cities Center in Manila. He is actively involved in research projects on transportation and energy. He is also involved in training activities on clean fleet management and GHG accounting.

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BASE OIL COLUMN

FOB Europe

FOB Asia

FOB Middle East

FOB Baltic

p Oc t No v De c Jan Fe b Ma r Ap r Ma y Jun Jul

FOB Europe

FOB Middle East

$1200 $1100 $1000 $900 $800

FOB Baltic

p Oc t No v De c Jan Fe b Ma r Ap r Ma y Jun Jul

$700 $600 FOB Europe

FOB Asia

FOB Middle East

2009-2010 Base oil SN500 prices ($/MT)

$1200 $1100 $1000 $900 $800

p Oc t No v De c Jan Fe b Ma r Ap r Ma y Jun Jul

$700 $600 CFR NE Asia

CFR India

2009-2010 Base oil SN150 prices ($/MT)

$1200 $1100 $1000 $900 $800 $700 Se

p Oc t No v De c Jan Fe b Ma r Ap r Ma y Jun Jul

$600 CFR NE Asia

CFR India

2009-2010 Base oil BS150 prices ($/MT)

$1300

$1200 $1100 $1000 $900 $800 $700 Se

DURING THE THIRD QUARTER IT BECAME CLEAR THAT THE economic recovery, after the balance sheet crisis of 2008, is running out of steam. The cyclical part of the recovery, consisting of pent-up demand from consumers and restocking by companies, has run most of its course. The strong, albeit partly artificial, growth from government spending is slowing as governments shift their focus from stimulating the economy to keeping government debts under control. During past recessions, boosting government spending has led to a pick-up in corporate activity and investment, which in turn increased employment and consequently, consumer spending. The crisis of 2008 was caused by excessive debt levels in the financial sector, amongst households and in parts of the corporate sector, leading to several asset bubbles, with the housing market in the U.S. and several European countries as prime examples. After the bubbles burst, the long and painful process of deleveraging began and is far from over. Private sector debt has been partly transferred to the public sector, but the core problem of excessive debt has not been solved. The private sector remains too weak and cautious to replace government spending as the prime economic growth engine. Economic activity in the U.S. has slowed significantly in the third quarter (estimated at 1.7%) and the U.S. housing market seems to be weakening again. China is seeing the effects of government measures to slow economic growth, which are designed to avoid a hard landing. Although Europe is performing relatively well, the main driver is Germany which profits from its high quality and extremely competitive export sector. However, we doubt that exports will remain as strong as it is, as growth in the other economic superpowers is slowing down. Southern Europe remains problematic due to high debt levels, high unemployment and a manufacturing sector that just isnâ&#x20AC;&#x2122;t competitive.

FOB Asia

2009-2010 Base oil BS150 prices ($/MT)

p Oc t No v De c Jan Fe b Ma r Ap r Ma y Jun Jul

GRAVITY by Jeroen Looye

2009-2010 Base oil SN150 prices ($/MT)

$950 $900 $850 $800 $750 $700 $650

Defying

p Oc t No v De c Jan Fe b Ma r Ap r Ma y Jun Jul

P H O T O CO U R T E S Y O F W W W. R O S N E F T. CO M

2009-2010 Base oil SN500 prices ($/MT)

$1000 $950 $900 $850 $800 $750 $700

CFR NE Asia

CFR India

Source: www.baseoilmarket.com

F U E L S & L U B E S I N T E R N AT I O N A L

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Fuel Additives Refinery Additives

KeroLine™ – Your passion brand for fuel Everything we do at BASF, we do with passion. KeroLine™ also bears this hallmark. Our new brand for the petroleum industry combines the unrivaled scope of the Kero product range and stands for the highest quality and a first class service. The Keropur® product name, which is part of the KeroLine™ range, represents an innovative selection of fuel additives which efficiently improve the quality of standard, commercially available fuels in terms of performance, corrosion protection and emissions. As individually formulated, multifunctional additive packages, these products convert any fuel into high-grade, brandquality gasoline and diesel. Differentiate your fuel – with KeroLine™.

www.basf.com/keroline

“That’s what we call the KeroLine™ Effect.”

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™ = trademark of BASF SE EVO 1030e

Feel relaxed. That’s what we call the KeroLine™ Effect.

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In this environment, it’s easy to understand why financial markets have been negative during the last few months, with equity prices giving back part of their previous gains. Capital markets are pricing in a deflationary scenario. Long-term interest rates in the U.S. and core European countries have fallen to the lowest level in decades. Financial markets realize that governments and central banks have done everything within their power to stabilize their respective economies and return to their positive growth. If the private sector does not recover or new problems arise, there simply is no Plan B. Crude oil has been very volatile, but generally range-bound during the third quarter, trading between US$72 and US$83 per barrel for the benchmark crude oil, West Texas Intermediate (WTI). The effects of the weakening economic picture are partly countered by the insecurity over the fallout of the BP spill and the coming hurricane season. Fuel oil and heating oil prices show a similar trend, although fuel oil seems to weaken more strongly. In the third quarter, base oil prices trended higher despite the clear slowdown of economic activity worldwide and rangebound crude oil prices. The base oil market was mainly driven by exports of Group I and II base oils to the United States and South America in June/mid-July. Base oil market activity was slow, characterized by low volumes and a wait-and-see attitude amongst buyers, many of whom consider current price levels unsustainable in the long run. The summer recess in Western Free Membership

Real Time Base Oil Prices

Base Oil Graphics

Countries and the Ramadan in Islamic countries further depressed activity. Base oil prices in Europe continued to rise steadily in June and July. Demand for European base oils was mainly driven by the United States and South America. The decline in base oil prices in the U.S. and the lack of demand from the Far East caused European export prices to stabilize in August. Supply still remains tight due to the shutdown of several refineries in Russia (Rosneft’s Novokuibyshevsk refinery in the Samara region and Angarsk refinery in the Irkutsk region in Eastern Siberia) and Europe (Galp Energia’s Porto refinery in Northern Portugal and Eni S.p.A.’s refinery in Livorno, Italy). More refineries are expected to shut down for their annual turnaround. Base oil grades SN500 and SN150 were offered at US$970 and US$950 per metric ton, respectively, FOB Europe, at the end of August. In July, the base oil market in the United States remained stable, after significant price increases in May and June. Several cargoes of Group II material from Taiwan and Korea arrived in July/ August. In August, domestic demand for base oils in the United States softened, but base oil prices for SN150, SN500 and BS150 remained stable at about US$920, US$1,100 and US$1,210 per metric ton, FOB U.S. Gulf Coast, respectively. Rising production and softening demand were supported by rumors of spot trades of Group II material heading in the direction of China and India. Prices in the U.S. are expected to decrease, except for BS150, which remains Latest Base Oil News

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very tight. However, in South America, demand for base oils remained strong. Large quantities of base oils (Group I and II) were shipped to this region from Europe in July and August. Demand in the Asian region weakened. In China, domestic base oil prices were lowered by Petrochina and Sinopec due to high inventory levels. P H O T O CO U R T E S Y O F W W W. R O S N E F T. CO M

“Rising production and softening demand were supported by rumors of spot trades of Group II material heading in the direction of China and India.” However, temporary shutdowns of several refineries, including CPC Shell in Taiwan and PetroChina Daqing and Sinopec Gaoqiao in China, led to expectations that prices will rise in the coming months. Only the market for BS150 seems to be tight. Offers for BS150 were heard at US$1,300 per metric ton FOB Taiwan. In Southeast Asia, the base oil market seems to be in equilibrium. SN500 from Thailand was offered at US$1,050 per metric ton ex tank Singapore. Currently, Pertamina’s refinery in Cilicap, Indonesia, still only runs on one train instead of three, so exports from this refinery are not expected this year. The weakening economic environment and crude and fuel oil price trends seem to point to base oil prices weakening going forward. Tight supply of base oils has kept prices high until now, but an increase in supply may very well show that current prices do not accurately reflect base oil fundamentals. However, considering the structure of the base oil market, it seems reasonable to expect that prices will only decrease slightly or remain at current levels as supply will remain tight due to limited production and temporary shutdowns of several refineries in the coming months.

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AUTOMOTIVE COLUMN

Motorization Trends in Asia by Sudhir Gota, Bert Fabian and Alvin Mejia

The increasing buying power of Asian consumers, coupled with the growing array of choices for satisfying mobility needs is resulting in a drastic increase in the number of vehicles in the region. Truly, future motorization trends are worrisome. If the trends continue, Asia would have more than one billion vehicles by the year 2030. The availability of such a huge number of vehicles would exert enormous pressure on fuel security and would generate huge emissions and other externalities. Motorization trends

Motorization in Asia can be understood from the perspective of booming economic and population growth rates. For example, in Chinaâ&#x20AC;&#x2122;s urban areas1, the average growth in overall trips was above 5% per year, which was higher than population growth (2.5%) and just below income growth (8%). The trend is similar in other Asian countries. Common patterns in vehicle growth can be observed at different stages of economic development. Low-income economies (with less than US$2,500 Gross Domestic Product or GDP per capita) are normally dominated by two-wheelers with low levels of car ownership, while middle-income economies (US$2,500 to US$10,000 GDP per capita) are dominated by cars, with a huge 1

I L LU S T R AT I O N BY C H I L I D O G S

increase in motorization levels. The saturation in vehicle ownership is reached at incomes above US$10,000 per capita. Looking at the Asian fleet, the propensity to own a vehicle is so great that within a decade (2005-2015) analysts believe that the fleet would double. The Asian fleet is largely composed of two-wheelers. In 2005, the percentage of two-wheelers in Asia varied from 2% in Japan to 96% in Vietnam, with an average of approximately 50%. The richer countries are dominated by cars, while the lower income countries are dominated by two-wheelers. This trend is expected to remain in the future. In terms of goods vehicles in urban areas, light-commercial vehicles are showing high growth rates. Intercity movements, which have been traditionally dominated by two-axle trucks, are slowly making way to multiple-axle trucks, as infrastructure is rapidly being improved. However, it is important that future transportation of goods and services should be looked at in an integrated manner, where rail, road and shipping transport are considered. Motorization is also influenced by government policy interventions and economic policies. For example, in a city like Delhi, where huge alternate fuel infrastructures have been built, the alternate-powered vehicles have shown a huge increase in numbers. In contrast, Singapore, which has diligently implemented vehicle ownership and road pricing policies, has shown a moderate increase in the number of vehicles, even with higher disposable incomes. Compare the case of Singapore and Malaysia, for example. Malaysia has nearly twice the number of cars for 1,000 people compared to Singapore, but only one-fourth the per capita income. Another interesting point is the increase in the number of diesel vehicles as seen in the high growth rates of diesel fuel consumption, especially in countries where diesel fuel is subsidized. % of Diesel in the Transport Fuel Mix in Selected Asian Countries 2 Country Bangladesh China India Pakistan Philippines Thailand Vietnam

1980 73.3% 13.4% 55.0% 71.4% 17.6% 52.2% 15.5%

2005 79.0% 40.2% 66.4% 84.1% 54.4% 68.6% 55.6%

Urban Transport and CO2 Emissions: Some Evidence from Chinese Cities 2 Data from IEAâ&#x20AC;&#x2122;s Energy Balances of Non-OECD Countries as quoted by Timilsina and Shrestha (2009)

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It is also important to note that current environmental and energy policies contribute towards making future vehicles cleaner. China, Korea and Japan are leading the way in establishing fuel economy standards; China and India are leading the curve in implementing stricter vehicle emissions standards. It’s interesting to note that Asian countries have a greater chance of cleaning the fleet as the motorization index is still low, as shown in the table below. Countries like Indonesia, Sri Lanka and Pakistan need to make concrete plans for Euro IV before the fleet starts accumulating on roads and not miss opportunities like Thailand and Malaysia. Motorization Index for Light Duty Vehicles (LDVs) (LDV/1000 people from the perspective of emission standards) Country Bangladesh Nepal Vietnam India China (diesel) Pakistan Indonesia Sri Lanka Philippines Thailand Singapore (diesel) Malaysia European Union (average) South Korea

Euro II 2 2 6 8 10 14 18 18 27 68 101 272 370 -

Euro IV 22 13 27 26 124 130 291 415 247

More intense motorization in cities

In cities, with increasing population, housing and employment opportunities, motorization is getting more intensive. For example, though the motorization

index for two-wheelers in Vietnam in 2006 was only 140, a city like Hanoi has nearly 530 motorcycles per 1,000 people i.e. an increase in intensity of more than three times when compared with national levels. Increased concentration of vehicles in urban areas exacerbates the externalities but also provides opportunities for mitigating the same. For example, in 2005, Metro Manila had nearly 27% of the total Philippine vehicle population. If the policies are tailored to reduce the cumulative passenger vehicle travel in Manila by 30% during 2011-2015, the total Philippine passenger transport CO2 emissions would be reduced by nearly 10%. Rising vehicle ownership levels are not a big problem in itself. The problem intensifies with the increase in individual vehicle usage. Consider the case of Delhi, where the per capita trip rate (number of trips per person per day) in 1969 was only 0.49, which then increased to 1.55 by 2008. This means that with an increasing array of choices, people are travelling more in cities. The other significant observation is the gradual increase in trip lengths. For example, in India3, it has been observed that as cities grow from having a population of one million to a population greater than eight million, trip lengths have increased by more than seven kilometers (km). Research has indicated that even if current trip mode shares are retained for the future, say 2025, CO2 emissions would inflate two to three times due to the increase in the number of trips and trip lengths.

Motorization Index (vehicle per 1,000 people) Growth in Asia Motorization Index [v/1000p] 2005

Motorization Index [v/1000p] 2008

Motorization Index [v/1000p] 2015

Motorization Index [v/1000p] 2025

Motorization Index [v/1000p] 2035 900 800 700 600 500 400 300 200 100 0 Vietnam

Philippines

Thailand

Indonesia

India

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China

See http://www.cleanairnet.org/caiasia/1412/article-73353.html

Srilanka

Nepal

Malaysia

South Korea

Bangladesh

Singapore

Pakistan

“Rising vehicle ownership levels are not a big problem in itself. The problem intensifies with the increase in individual vehicle usage.” Business as usual?

With such high motorization levels in the future, continuing “business-asusual” would become difficult as severe congestion, higher emissions, and other externalities like traffic accidents, would degrade the quality of life in cities. A menu of sustainable solutions is available for policy makers to break this motorization trend, i.e. prioritizing public transport and non-motorized transport, coupled with controlling vehicle growth and utilizing clean vehicles. Policies are needed to support the implementation of sustainable urban transport systems and these should be based on the avoid-shift-improve approach, whereby: • Avoid: avoiding the need to travel • Shift: shifting travel to more sustainable modes • Improve: improving the sustainability of modes

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FE AT U R E

Personal care business lures BASF

EAUTY, AS THE OLD saying goes, is only skin deep. BASF SE of Ludwigshafen, Germany, is also hoping it is more profitable and less volatile than other aspects of the chemical business. On June 22, BASF announced that it was acquiring Cognis Holding GmbH, a German specialty chemical maker based in Monheim. In discussing the goals behind the €3.1 billion (US$3.8 billion) deal, John Feldman, a member of the BASF board of executive directors, said that “We want to achieve a leading position globally in the personal care ingredients business, including cosmetic ingredients.” The deal will have an effect on the lubricants market as well. Cognis has a line of ester-based synthetic lubricants, under its Functional Products strategic business unit (SBU). Feldman said that these product lines were complementary to BASF’s own line of additives for the automotive market. He also predicted that the purchase will strengthen BASF’s position in that area. The deal is expected to be completed by November, assuming that the appropriate regulatory approvals are obtained. If that happens, said Feldman, all of Cognis’ businesses will be integrated into the appropriate product segments of BASF, the world’s leading chemical company, by 2012.

Cognis Headquarters in Monheim, Germany

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Henkel, before being acquired by a private equity fund backed by Permira, Goldman by Hank Hogan Sachs Capital Partners and SV Life Sciences. The fund paid €1.4 billion (US$1.2 billion) to acquire Cognis in November 2001, €500 million (US$446.2 million) of which was equity financed. The fund has been trying to sell the As for where the lubrication-related company since 2005. After an unsuccessful products will end up, he said those would attempt in 2006, efforts were made to sell become part of BASF’s Performance ProdCognis again, but the global financial crisis ucts segment, which had sales of €9.4 bilhalted its plan in 2008. Overall, the buyout lion (US$13.6 billion) in 2009, which was firms cashed in about three times their ini15.2% higher than 2008 sales of €8.1 billion tial equity investment, media reports said. (US$10.9 billion). However, earnings before The sellers’ initial asking price was supposinterest, taxes, depreciation and amortization edly €3.5 billion (US$4.3 billion). A last(EBITDA) was down 23.2% in 2009, to €926 minute higher bid €3.2 billion (US$4 billion) million (US$1.3 billion). The Cognis acquisi- by American firm Lubrizol Corp., which tion is expected to help turn that around and is based in Wickliffe, Ohio, was rejected. power future growth for this segment. BASF’s price, including debt, translates into “Our aim is to grow at least two percent- a multiple of 7.3 times annual earnings beage points faster than the relevant market fore EBITDA, slightly less than what listed and achieve an EBITDA margin of at least European chemicals makers are trading at 20% in the Performance Products segment on average. by 2012. We expect the acquisition to conOver the last tribute positively to earnings per share startfew years, BASF ing from as early as 2012,” said Feldman. has been trying Achieving that will require the sucto reduce its decessful integration of the 5,500 employees pendence on comand the €2.6 billion (US$3.2 billion) in anmodity chemicals, nual revenues that the deal will bring. In an area known for preparation for this effort, BASF said it was volatility. To help reorganizing its own nutrition, personal achieve this goal, products and health businesses into two it acquired SwissJohn Feldman divisions, one called Nutrition & Health based specialty and the other, Care Chemicals. The BASF chemical maker Ciba Holding AG for €3.8 reorganization is aligned with Cognis’ set- billion (US$4.9 billion) on April 9, 2009. up, with three SBUs, including Nutrition & Deutsche Bank analysts Tim Jones and Health and Care Chemicals. Martin Dunwoodie believe the Cognis The deal was not entirely unexpected. deal could help BASF’s cost cutting efforts. Cognis was formed in 1999 as a “carve“Savings accruing from the acquisition out” from the German DAX-listed group of Cognis (we estimate €125-150 million) should also support the earnings through 2011-12,” their report said. Analysts Thomas Gilbert, Joe Dewhurst and Laurent Favre at Swiss-based UBS projects combined savings from the Ciba and Cognis acquisition to net BASF in excess of €500 million (US$634.2 million). BASF has announced plans to sell off or close 23 of 55 Ciba production sites and eliminate 3,700 jobs, or 28% of Ciba’s workforce. Something of a similar nature may happen once the integration of Cognis with BASF is completed. Editor’s note: Due to the recent volatility in the currency market and to report a more accurate US dollar equivalent, we have used several conversion rates for the Euro in this article. They are as follows: November 2001: 0.8925 Year-end 2008: 1.343 April 2009: 1.3138 Year-end 2009: 1.4416 June 2010: 1.2312 August 2010: 1.2685 P H O T O CO U R T E S Y O F CO G N I S

P H O T O CO U R T E S Y O F B A S F

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“The facility, which the company describes as world class and state-ofthe-art, is scheduled to open for business in the second half of 2013.”

Grassroots world-class additives plant to rise in Singapore

by Kelly Thornton

Oil additive maker Infineum is taking advantage of the booming AsiaPacific market by building a new plant in Singapore for production of calcium salicylate, a detergent component that maintains a clean surface on an engine’s moving parts to maximize performance and durability. INFINEUM, A JOINT venture of ExxonMobil and Shell, specializes in the formulation, manufacturing and marketing of petroleum additives for lubricants and fuels. Its additives are primarily used for automotive, heavy-duty diesel and marine engine oils. The facility, which the company describes as “world class” and “state-of-the-art,” is scheduled to open for business in the second half of 2013. The plant’s precise capacity was not released by Infineum. It will supplement the production of the company’s existing plant in Berre, France, and will serve

global customers, not just Asia-Pacific. “The precise details of the investment are confidential, though it should be noted that it represents a major commitment to Infineum customers and further strengthen Infineum’s position as a global leading supplier of top-tier differentiated products,” said Infineum Spokeswoman Karen Woon, on behalf of Xavier Leleux, the venture manager for the project who is responsible for its success. Infineum opted to locate the plant at Jurong Island, Singapore, rather than China, because of the country’s well-

developed infrastructure and its proximity to Infineum’s other Singapore operations and technical expertise.

“Singapore is an excellent location for this project as it allows us more readily to supply the fast growing Asia-Pacific market,” said Sara Lefcourt, Infineum Group vice president of supply. “Together with our similar facilities in Berre in France, this plant will offer increased supply reliability to our customers around the world.” Infineum declined to discuss the global supply and demand situation for detergents in general. Salicylates are industryleading detergent components for the formulation of toptier crankcase additives, said Woon. They are also the key performance components of trunk piston engine oils for marine additives. “This investment allows us to keep pace with the projected growth of our existing customers in these segments which are growing faster than the additives market overall,” Leleux said. The salicylates plant will be integrated with Infineum’s existing Singapore plant. “Infineum operates independently from our shareholders [ExxonMobil and Shell],” Woon said. Raw materials will be sourced both locally and from other countries, she said.

Xavier Leleux

Sara Lefcourt

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COV E R

S TO RY

by Hank Hogan

Around the Pacific and Indian Ocean

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SH SALARDINI THINKS DIVERTING some of the flights ferrying people between Sydney and Melbourne could be good for the environment. It also could be a boon for Australia’s railways and could indirectly impact lubricant makers and markets. Salardini, an economist with the Kingston, Australia-based Australasian Railway Association (ARA), said that the 900-kilometer Sydney-toMelbourne route is the third busiest in terms of passenger traffic in the world. The time it takes for a door-to-door trip between the two cities runs about three hours, which happens to be about the same as that estimated for high-speed rail. The time may be equivalent, but the energy and environmental cost isn’t. “High-speed rail is more energy efficient than plane travel and that’s how it’s being positioned in Australia,” he said. Plans call for a feasibility study of high-speed rail next year, but Australia is not the only country looking at rail as a greener option. India has plans underway, while China and Japan already operate high-speed rail. In all cases, the deployment is part of a broader effort to cut the energy cost and carbon footprint of moving people and goods quickly over long distances. Some of these efforts will require new lubricant formulations or result in the emergence of new markets for lubricants. An example of what’s being tried can be seen in activities at the Tokyo-based East Japan Railway Co., or JR East. As part of its service for 17 million people daily, JR East operates a five-route highspeed rail network. It has plans to deploy new railcars with an operational speed of 320 kilometers per hour (kph). The company also is researching and developing ways to cut energy usage. Much of this is through incremental improvements, but some involve new technology. In 2007, JR East demonstrated a diesel-powered, electric-motor-driven hybrid railcar, claiming to be the first in the world to do so. Plans call for the new technology to be deployed on resort trains in 2010. The fuel consumption and carbon footprint of the new trains are expected to be 10% lower, while the emission of nitrogen oxides (NOx) will be slashed by 60%. Not all of the new technology has been successful in transitioning from trial to actual use.

Another JR East pioneering effort was a fuel-cell hybrid railcar, a technology that potentially features highly efficient generation of electricity while emitting only water. In 2006, testing was done to demonstrate the railcar’s performance at speeds of up to 100 kph, but these runs revealed problems that have not yet been solved. On-going research aims to improve the efficiency of the technology but according to a JR East report last year, “There are still many challenges to overcome with fuel cell technology.” In China, high-speed rail refers to any passenger train service with an average speed of 200 kph or higher. Thanks to the Chinese government’s economic stimulus program, 6,000 km of new high-speed lines are now under construction. When completed in 2012, the new lines will nearly double the country’s high-speed rail network, at a cost of about 800 billion yuan (US$120 billion). These lines will use Chinese technology, China having developed its own expertise in this area. Chinese efforts have been so successful that local companies have begun high-speed rail construction in Turkey, Venezuela and Saudi Arabia. China’s rail ministry has also reached preliminary agreements with the State of California in the U.S., to build and operate high-speed rail lines there.

Chinese efforts have been so successful that local companies have begun high-speed rail construction in Turkey, Venezuela and Saudi Arabia. In another sign of growing know-how, the Changchun Railway Vehicles Co., Ltd. in Changchun City has begun producing a new generation train with a top operating speed of 380 kph. The engine will be put to use in 2011. A final bit of evidence as to China’s growing capabilities is the Wuhan-Guangzhou high speed rail route, which began carrying passengers late last year. Covering more than 900 km in less than three hours, these trains offer the world’s fastest average speed over a long-distance run. Not all of China’s high-speed rail efforts have been as conventional. A demonstration magnetic levitation (maglev) train, with a top

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operational speed of 430 kph, has been in use since 2004. The 30.5 km maglev connects the international airport to the Shanghai suburbs. Plans for the deployment of locally developed maglev technology in Beijing have met with resistance, with critics citing concerns over electromagnetic pollution. Nonetheless, construction of the new line, which will only have a top speed of 120 kph, has begun. Indian Railways, the state-owned railway company headquartered in New Delhi, transports people and freight across the country. A paper published by the company in December 2009, Vision 2020, calls for both reducing its carbon footprint and implementing high-speed rail. The two goals turn out to be complementary. The carbon reduction measures being pursued by Indian Railways include the use of regenerative braking features on suburban trains in Mumbai. This will reduce energy consumption by as much as 40%. Indian Railways

JR East fuel cell hybrid railcar

Shanghai maglev train

The carbon reduction measures being pursued by Indian Railways include the use of regenerative braking features on suburban trains in Mumbai. This will reduce energy consumption by as much as 40%.

Ash Salardini

plans to reduce energy consumption by 15% elsewhere, through the introduction of new-generation locomotives and rolling stock. The company also plans to implement dedicated freight and high-speed passenger train corridors, which have the potential to reduce millions of tons of CO2 emissions per annum. Two dedicated freight corridors are being considered, one running eastward from Ludhiana to Dankuni and one westward stretching from Mumbai to Delhi. Indian Railways has also identified six possible high-speed corridors and hopes to have implemented at least four high-speed rail projects offering speeds of up to 350 kph by 2020. India, like China, hopes to develop its own expertise in this area. One challenge, though, is that currently Indian Railways loses money on its passenger service. Thus, passenger fares will almost certainly not be enough to cover the cost of building the high-speed infrastructure and operating fast trains. One solution may be to tap government funding at both the national and regional levels. In Australia, the situation is somewhat similar, in that high-speed rail and the possible carbon reduction from it requires more capital investment than the potential passenger traffic seems to be able to support. However, a recently completed review of taxation within the country may change things. Known as the Henry Review after the man who headed it, the Final Report—Australia’s Future Tax System did not address the issue of environmental sustainability directly, said ARA’s Salardini. It did, however, call for adjusting the tax structure to address what are sometimes hidden external expenses. Examples of this might be the burden of climate change mitigation, which currently is not a factor in determining the cost of a particular mode of transport. If that were to happen, said Salardini, then rail transport of freight and people would get a boost. With regard to the former, rail has about a tenth of the emissions per ton kilometer of goods moved as compared to transport by road. Rail also is more efficient in moving people. The other advantage that rail offers is that it doesn’t have to depend on petroleum, unlike current cars, trucks and planes. Thus, it offers Australia and other countries the opportunity to reduce their reliance on imported oil, which is another important consideration. Salardini also brought up a point that is critical not only for Australia. “Energy security is probably more important right now than climate change, unfortunately,” he said.

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0VS 7*4$01-&9Â&#x2021; BEEJUJWFT BSF JOUFHSBM UP FGGPSUT UP DIBOHF GVFM FGGJDJFODZ HPBMT JOUP BDDPNQMJTINFOUT "T GPSNVMBUPST BOE 0&.T EFWFMPQ OFX XBZT UP JODSFBTF GVFM FGGJDJFODZ UIFZ DPVOU PO UIF 3PI.BY OFUXPSL PG FYQFSUT UP QSPWJEF FRVBMMZ JOOPWBUJWF TPMVUJPOT 'PS NPSF JOGPSNBUJPO WJTJU XXX SPINBY DPN

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FE AT U R E

by Hank Hogan THEREâ&#x20AC;&#x2122;S A NEW NUMBER ONE. China added more wind power in 2009 than any other country in the world, according to a recent report by the U.S. Department of Energy. The previous installation leader, the U.S., has a 26% market share while China has 36%. Asian markets are expected to add 10 to 15 gigawatts (GW) a year of wind capacity. That bodes well for Asiaâ&#x20AC;&#x2122;s wind power industry and for gearbox lubricant suppliers as well. But realizing that promise will require the right mix of four key ingredients, said Soren Karkov.

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F ONE OF THE FOUR FACTORS IS OUT OF LIMITS, it will not take off,” said Karkov, a director at the Clean Energy Technology Center recently set up by the Danish consultancy DNV in Singapore. The first factor is having enough wind to make power generation economically feasible. The others are an appropriate electricity grid and a legal framework covering payment arrangements, such as feed-in tariffs (FiT), a policy mechanism designed to encourage the adoption of renewable energy sources and to help accelerate the move toward grid parity, or power purchase agreements (PPA), a legal contract between an electricity generator and a power purchaser. The last of the four key components is right financing. A look at several Asian countries shows that in many cases, one or more of these four factors are weak or missing. There is also an industry-wide need for new technology, including advances in lubrication (see sidebar). First, consider China. Even the world leader in new installations faces barriers to success. For example, the windiest places tend to be far from population centers, said Karkov. “China has huge potential, but that’s up in Mongolia. That’s 5,000 kilometers away from where you need the power. You need to connect the wind areas with the users,” he said. Solving that grid problem involves putting up transmission lines, which can sometimes be difficult because of local resistance or terrain. Simply running lines, however, isn’t enough. There’s also the question of how much wind can be fed into the electricity grid without destabilizing it. Wind power tends to be variable, which makes grid operators nervous. A look at India reveals a mix of challenges. These include tariffs, policy, resource availability, local resistance, timeliness of payment, and other factors, said V. Subramanian, CEO and secretary general of InWEA, the New Delhi-based Indian Wind Energy Association. In a presentation at a June conference in Manila sponsored by the Asian Development Bank (ADB), Subramanian noted that 95% of the money invested in wind power in India came from the private sector. There are now 16 manufacturers of wind turbines in the country, he said. Among those is Pune-based Suzlon Energy, the third largest turbine maker in the world. Lately, it has decided to focus more of its efforts on emerging markets, such as those in Asia, because of slowing demand in the West. At the conference, Subramanian listed the wind power tariffs on a state-by-state basis, with the low being US$0.069 and the high US$0.096. He also cataloged the percentage of power derived from renewable sources for each of those states, the lowest being 2% and the highest 13%. Higher reimbursement for wind power doesn’t always translate into more power generation, he said. For example, the states of Kerala and Maharashtra had a 3% and 6% renewable procurement rate, respectively, in 2009. Both were far below the 13% rate in Tamil Nadu. However, the wind tariff in Kerala was US$0.069 per kilowatt-hour (kwh) and in Maharashtra, it was US$0.078, while in Tamil Nadu, it was US$0.075. In explaining these differences, Subramanian pointed to noneconomic factors. “Kerala has just started looking at wind energy

projects. Till recently, they did not even look at this option. Even now, land availability is an issue in this state since the density of population is very high.” But, he said, the biggest challenge for the Indian wind power industry involves payment. There are issues with the amount of reimbursement, the timeliness of those payments, and the fact that grid operators may have to pay for power they don’t need and don’t take delivery of. The latter is a typical dilemma for grid operators around the world and is often part of the negotiations that result in a PPA. What about those countries with much less of a wind industry than either China or India? A look at Vietnam, Thailand and Sri Lanka reveals different situations which translates to a different set of challenges. A key question in many of these fledgling players is the wind itself. Before a wind farm can be built, data must be collected. Such information can be critical in properly locating wind turbines, in operating them and even in getting financing for them, said Angelika Wasielke, chief technical advisor for German Agency for Technical Cooperation GTZ. The cost of determining whether there is enough wind is not that expensive, said Wasielke. “The investment in a wind farm is huge, more than US$1,000 per kilowatt. So the investment in wind measurements, about US$40 per measurement mast, is small compared to the overall investment.” This difference means that funding the initial study is usually not a problem. GTZ sometimes pays for these measurements. That may be done in the case of Vietnam, where the wind power market is not taking off as fast as expected, she said. Nguyen Anh Tuan, director of the Department of International Cooperation in Vietnam’s Institute of Energy, said that the government would like to compile a wind atlas for the entire country. Due to a lack of funding, the project has not yet started.

V. Subramanian

“A key question in many of these fledgling players is the wind itself. Before a wind farm can be built, data must be collected. Such information can be critical in properly locating wind turbines, in operating them and even in getting financing for them…”

“Even if it were to start soon, measurements will have to be taken for at least two to three years, so the data won’t be available right away,” he said. Currently, 37% of Vietnam’s power comes from renewable sources. By 2018, all of the country’s hydropower potential will be exploited, said Nguyen. Wind, or some other renewable form of energy, will have to come on line then; otherwise, Vietnam’s relatively high renewable energy potential will begin to fall. Thailand was long thought to have too little wind. That turns out not to be the case, said Ruangdet Panduang, director of the “Wind Power...” continued on page 30 >>

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>> “Wind Power...” continued from page 29

Lubricants blowing in the wind by Hank Hogan

WIND MAY BE FREE, BUT WIND power isn’t. Part of the reason why is that wind turbines don’t last forever. In particular, their gearboxes fail within five years or so, according to reports from the field. For a 1.5 megawatt (MW) turbine, replacing a gearbox can cost the owner-operator hundreds of thousands of dollars. That figure includes the cost of a gearbox, the labor and equipment to replace it, and the lost revenue due to weeks of downtime. That explains why the wind industry is looking for ways to stretch out the time between scheduled turbine repairs and minimize unexpected downtime. The reasons for gearbox failures are unclear, but it’s thought that one way to improve their reliability is through better lubrication. Such a solution is likely to include both improved ways to lubricate and enhanced lubricants. The best way to achieve the latter depends upon who you ask. For example, Evonik RohMax Additives of Darmstadt, Germany, touts its polyalkylmethacrylate base fluids as the way to go. On the other hand, Dow Chemical’s

Performance Fluids division in Midland, Mich., contends that a newly developed polyalkalene glycol-based lubricant is the answer. The company is conducting trials in China and Denmark to prove that its formulation will provide better protection than others, something Dow bases upon its experience with the power generation industry.

“The reasons for gearbox failures are unclear, but it’s thought that one way to improve their reliability is through better lubrication.” Collecting data to establish these benefits will take time, said Chuck Carn, strategic marketing manager for Dow lubricants. For instance, the Chinese field trials the company is currently taking part in include on-going assessments and tests, but the evaluation won’t be complete until March 2012. In talking about the length of the tests, Carn made a point that reveals why fixing gearbox problems isn’t easy. As he said, “Field data is incredibly difficult to get and be scientifically conclusive because there are so many variables.”

wind energy group at Thailand’s Bureau of Energy Research. Thailand’s wind map which was completed in July 2010 showed that sufficiently high winds could be found on hills in Chaiyaphum province in the country’s northeast. Installing wind farms and the necessary transmission lines to connect to the country’s electricity grid does not present too many difficulties, he said. He noted that there’s no political unrest in the area, which is not the case for all Thai provinces. There are challenges, though, in some potentially productive wind power locations. A few sit in national parks or sensitive watershed areas, making development of wind farms in these sites problematic. Because of such situations and the fact that the country is not a windy place, there’s interest in a particular type of technology, said Ruangdet. “Thailand would like to know about low-wind speed wind turbine technology because this mainly is a land that has low average wind speed.” The country has a 15-year development plan, with the goal of getting to 20.3% renewable energy. Considering that that number today is 5% or so, achieving this could be a challenge. Thus, the Thai government is actively looking for foreign investors for its wind power projects. It has a variety of incentives in place to encourage wind power, with higher premiums for smaller projects which need the support of experts to activate local know-how. Finally, there’s the case of Sri Lanka. The country has strong to moderate winds, said Upali Daranagama, a planning and development secretary in the Ministry of Power and Energy. The country has reliable monsoon winds and a long coastal belt, which together add up to good wind potential along Sri Lanka’s west coast and central hills, he said. In addition to having enough wind, DNV’s Karkov noted that at US$0.20 per kwh, Sri Lanka has some of the best tariffs in the world. But, he added, the wind industry there has yet to blossom. The first 10 megawatt commercial plant was only commissioned in June. One twice as large is under construction. For Karkov, this puzzling lack of progress has a simple explanation. One of the four key ingredients is missing, proving once again that everything must be in place for success. “We discussed this for awhile and tried to figure out why the wind industry is not taking off in Sri Lanka. Then we realized there is no financing available.”

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Bust and Boom by Kelly Thornton

METHYL TERTIARY BUTYL ETHER, the controversial fuel component known as MTBE that boosts octane levels, is making a dramatic comeback in Asia. The factors driving this recent trend, which caught some producers by surprise, appear to be the introduction of new fuelquality standards, and consequently, increasing consumption of high-grade gasoline, combined with the explosive vehicle growth, particularly in China. Analysts predict that China’s MTBE consumption will more than double this year from just three years ago. According to a report by China-based C1 Energy, MTBE consumption rose by 26% from 2007 to 2008 (from 2.3 to 2.9 million tons) and by 12% from 2008 to 2009 to 3.26 million tons. This year, C1 is forecasting consumption to rise an astounding 68%, to reach almost 5.5 million tons. Part of this growth is attributed to the rise in the number of gasoline-fed vehicles in China; another part is attributed to the growth in regulation-driven demand for higher quality gasoline, according to C1. Analysts are comparing the latest MTBE boom in Asia to the time when it was wildly popular in the U.S. in the 1990s and early 2000s, before controversy over its safety virtually halted its consumption. “That’s a big time increase,” said Mark Hetherington, who tracks MTBE markets

as vice president of fuels for Jim Jordan & Associates, a Houston, Texas-based consultancy. “That’s a huge build out for them. It happened here (in the U.S.) when they wanted MTBE to go in gasoline in the 1990s. It’s not quite on par with what happened in the U.S. but it’s kind of freaky what’s going on in China. But then again, China can be dramatic. When they go big, they go big.” The number of vehicles on the road rose dramatically in China, by 56%, from about 80 million units in 2005 to 125 million units in 2008. These numbers are projected to double by 2015 and reach more than 400 million units by 2035, according to the U.S. Agency for International Development (USAID). Currently, China uses about 70 million tons of gasoline annually, and that amount could reach more than 100 million tons in the next few years. New environmental standards that require the reduction of harmful emissions mean producers are looking for ways to accomplish that and using MTBE is one way of doing so. “You need gasoline components that can make it work, and ethers such as MTBE can raise fuel quality to meet higher quality standards of Euro III and Euro IV, improve octane and remove dirty components at the same time,” said Clarence Woo, executive director of Asian Clean Fuels Association (ACFA) in Singapore, re-

ferring to the most recent European Union (EU) emissions standards for new vehicles. Thus, China has gone from being long on MTBE supply in 2007-2008 to being short, even though China’s MTBE production capacity has almost doubled since 2007, reaching 6 million tons as of June, according to Yun Zhu, an analyst with C1. Still, said Woo: “We’d like to see more capacity coming on stream simply because we see a huge growing demand in China.” From 2007 to 2010, China MTBE output has risen along with the increase in refinery capacity. C1 predicts there will be about 1.4 million tons of newly added MTBE capacity by 18 refineries in 2010. MTBE’s comeback is fascinating. By 2002, global demand for MTBE demand was almost 22 million tons a year, and the U.S. was using about 65% of it. But in 2003, the state of California banned its use in gasoline after traces of MTBE were found in groundwater supplies, due to leaking underground gasoline storage tanks. Like dominos, other states followed California. MTBE use as a gasoline additive was halted in the U.S. in March 2006 as a result of the passage of the Energy Policy Act of 2005, which abolished the oxygenate requirement and instead established the Renewable Fuel Standard (RFS), mandating the use of 4 billion gallons of ethanol in the nation’s gasoline supply.

“Thus, China has gone from being long on MTBE supply in 2007-2008 to being short, even though China’s MTBE production capacity has almost doubled since 2007…” Refiners stopped blending MTBE in the U.S. due to liability concerns. However, the U.S. Congress declined to impose a federal ban, and there is still MTBE production in the U.S. for export markets in Mexico, Venezuela and Europe. In 2009, that was a little less than 2 million tons of MTBE produced in the U.S., most of which was exported to South America. Production in Europe has slowed down, but Middle Eastern companies based mostly in Saudi Arabia and the United Arab Emirates are producing and exporting a lot of MTBE—about 5.8 million tons—mostly to Asia and some to Europe, said Hetherington. In Europe, use of MTBE has declined in recent years. The EU has instead advocated the use of biofuels, such as ethanol. Some European MTBE producers have taken advantage of the EU tax credits by converting their plants to make another oxygenate called Ethyl Tertiary Butyl Ether (ETBE), which is derived from ethanol.

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FE AT U R E

Looming lubrication challenges by land and sea by Hank Hogan

For additive suppliers and their customers in the oil industry, two things are clear. First, economics and the environment are driving technology changes, some of which pose significant challenges. Second, nobody knows which technology is going to win. As a result, suppliers have to cover multiple bets. “It’s an exciting time,” said Mike Nelson, driveline segment manager for additive maker Infineum of Milton Hill, U. K. “But it is also a time of high R&D spend to keep up with the ever-increasing demands.” >> A LOOK REVEALS ISSUES ON LAND AND SEA. For the first, there’s a shift underway in transmissions, the devices that allow drivers to change gears. Today, about half of new vehicles worldwide have manual transmissions. The current incarnations of automated transmissions account for nearly as large a market share. Over the next decade, though, both are expected to decline in popularity. Of the two, manual transmissions are forecast to shrink the most. Projections are that in 10 years, the fraction of new cars with manual transmissions will drop by 40-50%. Several new transmission technologies will step into the gap, with dual-clutch transmissions (DCTs) expected to be the fastest growing. Some original equipment manufacturers (OEMs) are already implementing DCTs. American carmaker Ford Motor Co. of Dearborn, Mich., for instance, plans to put the technology

in its 2011 Fiesta and Focus. That is only the beginning, said Kim Pittel, the company’s director of transmission and driveline engineering. “Ford does plan to migrate the DCT technology into multiple vehicle applications in the near future,” she said. “Fuel economy, via transmission efficiency, was the major driver in the decision. Shift quality also played a significant role in the technology selection process.” In a dual clutch transmission, as the name implies, two clutches work in parallel. One controls the odd-numbered gears and the other the even-numbered. When the driver shifts gears, the two clutches trade off torque seamlessly. The scheme offers nearly the fuel performance of a manual transmission, with the driving comfort of an automatic transmission. Auburn Hills, Mich.-based powertrain maker BorgWarner

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Inc. is also in the DCT camp. The arrangement provides better performance than the alternatives, said Bob Blakely, BorgWarner’s marketing director for drivetrain systems. “Parallel shaft gearing is inherently more efficient,” he said. “DCT is a natural complement to engine stop-start strategies and mild hybrid electric vehicle concepts.” It also helps that the DCT is scalable, making it suitable for a wide range of vehicles. It already is used in high performance motorcycles and sports cars, said Blakely. The technology can also be adapted to a wide range of markets, a key advantage. According to Blakely, the thinking at BorgWarner is that DCT is well suited to China and other developing markets. In part, this is because local OEMs can leverage existing expertise and investment in parallel shaft gearbox production. The idea that DCT will see strong growth in China is shared by others. While the future direction of transmission technology might seem clear, it actually is a bit murky. There are two DCT varieties, wet- and dryclutch. There is a further differentiation in that wet-clutch DCTs can have a single sump for clutch and gearbox or a

POWER TRANSMISSIONS Market Picture 2007-2017

Source: Infineum

dedicated one for each. A wet-clutch DCT offers superior ability over a dry-clutch approach to dissipate heat, something that could be important in low- and hightorque applications. It is much less of an advantage in the middle-torque area.

Because of this, the forecast is that the market will fragment, with dryclutch DCT prevailing in certain speed and torque settings and wet-clutch DCT “Looming lubrication challenges...” cont. on page 39 >>

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FE AT U R E

by Kelly Thornton

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N AUGUST 25, ROYAL DUTCH SHELL PLC, the world’s largest distributor of biofuels, and Cosan, the world’s largest sugar and ethanol producer, signed a binding agreement that will create Brazil’s No. 3 fuel distributor, as well as explore international ethanol and sugar opportunities. The US$21 billion joint venture will become a global biofuels provider. As a result of that, Cosan and Shell are barred from competing with the new entity. Shell also produces and sells more than 4,000 types of lubricants. It processes 3.1 million barrels equivalent of oil and gas daily. Traditional sources of energy may be increasingly difficult to unearth—they are under very deep water, very deep ice or in very difficult parts of the world—but they aren’t on the way out anytime soon. At this point, biofuels make up just 1% of the world’s transport fuel mix. That could become 30% by mid-century, still far from replacing conventional, hydrocarbon-based fuels. Today, there is an on-going and spirited discussion on how the world must transition from the predominant use of fossil fuels to greener, more renewable sources of energy, and Shell is trying to successfully navigate today’s energy landscape while preparing for the transformation to come. The future will be a “hybrid one,” with a variety of fuels and energy sources developing over time, said Tan Chong-Meng, Shell’s executive vice president for global business to business and lubricants, in remarks he made at the Asia Energy Dialogue, which was held in conjunction with the inaugural Shell Eco-Marathon Asia in Kuala Lumpur in August. He emphasized Shell’s commitment to smarter products and their smarter use. “Even as that hybrid future takes shape, we’re working to squeeze efficiency out of every drop of fossil fuels. With smarter use of new additives, today’s petrol and diesel can yield big savings,” Tan said. The world’s population is expected to reach up to 10.5 billion by mid-century, and the need for energy will be twice of what it is today. The number of cars on the road is expected to more than double to two billion units by 2050, and the need to reduce harmful emissions and the collective carbon footprint becomes a significant issue. There is no single solution to achieve better fuel economy and to reduce CO2 emissions, no silver bullet to sweep aside the 900 million cars on the road today. In his remarks, Tan discussed the challenges of moving more people efficiently and with less impact on the environment on a global basis, using Shell’s three-pronged approach: smarter products, smarter use and smarter infrastructure. “Things like better fuel economy, more efficient use of fuels so customers can have the benefits of mobility, but with the best use of energy,” Tan said. “And, we are developing lubricants that provide more efficient use of fuel, more ability for customers to use less.” Tan acknowledged that it seems counterintuitive to spend a lot of money on research and development to come up with ways to use less of one’s product. “For us to do less business is a little illogical from the business point of view, but in the long run we believe it’s the responsible thing to do.” Shell’s approach to today’s energy challenges is to offer customers a range of efficient fuels and lubricants that can help improve driving performance and go further on less, he said. In terms of smarter use of products, Shell develops and continues to improve fuels and lubricants that maximize fuel economy and reduce harmful emissions. With more than 10 million customers coming to 44,000 Shell stations everyday worldwide—a Shell spokesman quipped that that number is “larger than McDonald’s”—the company is also

“Asian motorists are more interested in fuel efficiency than their counterparts in Europe, who mostly favored performance over fuel economy...” trying to promote smarter use of its products by educating drivers about ways to reduce fuel consumption. Shell recently held its “FuelSave Challenge” in 10 countries, training about 2,000 drivers to reduce fuel consumption. For example, Shell worked with fleet drivers from Guinness Anchor Berhad, a major producer of beer and stout in Malaysia; 40% of their drivers improved fuel savings by 5 to 20%, while the top 10 drivers saved an average of 24%. In collaboration with IBM, Shell has also launched a product, FuelSave Partner, which electronically tracks fuel use and recommends speeds, routes and driving styles to optimize fuel economy. It can connect to any vehicle’s fuel management system and can calculate fuel-related CO2 emissions, making it easier for motorists to manage and reduce their carbon footprint. In the future, Shell has forecasted that natural gas—the cleanest burning fossil fuel—will play a big role in meeting the world’s growing energy demand in a responsible way. “Natural gas is the quickest and cheapest way to cut global CO2 emissions from the power sector, and an important component of a sustainable global energy mix,” he said. Tan predicted that by 2012, “more than half our production will be natural gas.” By 2020 to 2030, “we believe renewables and biofuels will become larger,” making up 10% of transportation demand, he said. F U E L S & LU B E S I N T E R N AT I O N A L

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Primary sources of energy will change as well, he said. â&#x20AC;&#x153;We will probably see other sources such as hydro, solar, wind, all playing a part, including nuclear. â&#x20AC;&#x153;I think the energy mix will be... percentage wise a declining portion of oil-based. Coal-based will remain quite a significant proportion, gas-based and renewable-based will increase,â&#x20AC;? he said. Asia will be on the cutting edge of that natural gas trend, with Malaysia and Indonesia ranking as the second- and third-biggest exporters of natural gas after Qatar. And, there is huge growing demand for natural gas in the region, particularly in China, Korea and Japan, he said. â&#x20AC;&#x153;To meet the doubling in energy demand by 2050, we are going to need all the energy we can get.â&#x20AC;? As for the vehicles that hold such fascinationâ&#x20AC;&#x201D;plug-in hybrids, electric vehicles and hydrogen fuel cellsâ&#x20AC;&#x201D;Shell believes they are set to grow in coming decades, but currently face some big technical hurdles. Battery efficiency and life need to improve and infrastructure for recharging batteries must be developed. But the most serious issue is electricity to fuel the cars. â&#x20AC;&#x153;If it remains dependent on burning coal in power stations, and if nothing is done about CO2 emissions, then electric

mobility will not result in the environmental benefits that people hope for,â&#x20AC;? Tan said. According to a report by the Asian Clean Fuels Association (ACFA), excitement about alternative sources of energy has to be tempered by the reality that such fundamental change takes decades. Shellâ&#x20AC;&#x2122;s Tan calls it the 30-year rule. He said research and experience have shown that it takes an average of 30 years for new technology to capture just 1% of the market. He said the rule has been proven true in the development of biofuels and natural gas as well. â&#x20AC;&#x153;The reason for this is that scaling up involves learning by doing. It takes time to build sufficient human and industrial capacity to make new energy technologies widely available and also for them to be adopted against other legacy and existing [technologies],â&#x20AC;? Tan said. The rule is not natural, but societal, and can be overcome with help from policy makers, he said. The global energy mix will be constrained by several factors, including the economics of alternative energy and whether it can be brought into commercial viability fast enough. Itâ&#x20AC;&#x2122;s difficult to speed the process from innovation to practice, he said. Part of the

problem is that incentives are bestowed at the end of the process, upon people who apply the technology, not on those who created the technology in the first place, he said. The short-term solution for greener and greater fuels is for customers to increase energy efficiency. For example, commercial aircraft are far more efficient today than the aircraft of even 30 years ago. The type and weight of materials and the engineâ&#x20AC;&#x2122;s efficiency have enabled pilots to fly in such a way that they can control fuel consumption. â&#x20AC;&#x153;Airlines tell their pilots to arrive at a certain place using a certain amount of fuel. If they use too much, the pilots will be asked what happened. If they use too little, they will also be asked what happened,â&#x20AC;? he said. Asian motorists are more interested in fuel efficiency than their counterparts in Europe, who mostly favored performance over fuel economy, according to a recent survey by Shell of more than 3,000 drivers in 11 Asian and European countries. Said Cesar Romero, vice president of Shell retail, east: â&#x20AC;&#x153;If you look at economic growth and population growth across Asia...the significance and impact Asia can have on overall fuel savings is even higher than western European markets.â&#x20AC;?

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