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Shell and Hyundai Oilbank Co. Ltd have started constructing a joint-venture base-oil manufacturing plant that will significantly boost the supply of lubricants to China and the rest of Asia Pacific.

Having an adequate base-oil supply is of vital importance to economic health.

Base oils are blended with additives to produce essential finished products for the operation of turbines, ower stations, ships and vehicles, among other things.

Many market observers are predicting modest demand growth for base oils throughout Asia Pacific in 2013 and continuing price volatility due to buoyant feedstock gas oil and fuel oil rices.

The new plant at Daesan, on the western side of the Korean peninsula in South Chungcheong Province and to the south west of Seoul, is part of the trend for expanding base-oils capacity within Asia.

The plant will have an initial design capacity of 650,000 tonnes per year.

This close-to-world-scale plant will mean a large and significant boost in base-oil production in the region and will benefit from its proximity to key lubricant markets and excellent links to existing infrastructure.

“Operations at the plant will draw on the experience and expertise that both partners can bring to the joint venture,” said Gurminder Singh, Downstream Licensing Sales Manager Asia Pacific, Shell Global Solutions.

“Based in Seoul, Hyundai Oilbank is an affiliate of Hyundai Heavy Industries and entered the oil refining market in 1993.

The company has extensive expertise in areas such as project management and the operation of world-class refinery facilities.

Shell Global Solutions has recognised strengths in base-oil production technology, and the Shell Group has a global leadership position in lubricants blending and marketing, including a network of 19 lubricant blending plants across Asia.

Shell Global Solutions will license the technology for the base oil manufacturing plant and the revamp of the vacuum distillation and hydrocracker units, and provide project and health, safety, security and environmental assurance. Hyundai Oilbank will lead on project execution.”

Construction work at the Daesan plant started in December 2012 and the new facility should commence operations in the second half of 2014.

Hyundai Oilbank will operate the plant and  old a 60% stake in the facility; Shell will own the remaining 40%. Daesan will be Shell’s fourth base-oil manufacturing plant in Asia and join its plants in Singapore, Taiwan and Japan.

It is expected that Shell will take some of the production from the Daesan plant for blending and will then market blended products across the region.

According to Dal-ho Kang, Chief Executive Officer of Hyundai and Shell Base Oil Company, “The new plant at Daesan will enable us to meet the growing demand for base oils in Asian markets and to compete with production facilities anywhere in the world.

Working with Shell on this project provides access to industry-leading catalysts, reactor internals and process technologies.

By drawing on our combined expertise in this way, I am confident that we will be able to improve the plant’s performance and efficiency.”

The decision to increase base-oil supply in the region reflects the surging growth in the developing economies, particularly China and India.

The strong trend towards urbanisation in China  has led to higher incomes and increased consumer spending by city residents, with most of the focus on housing, household appliances and motor vehicles.

This rapid increase in  consumption is expected to increase demand for industrial and vehicle lubricants.

Since the 1990s, there has been a sustained and dramatic increase in the number of motor vehicles on China’s roads, including a tenfold increase in the number of private cars: from just over 3 million in 1985 to more than 31 million in 2005.

This soaring growth has helped to make China the world’s fourth largest producer and third largest consumer of motor vehicles.

The ability of Chinese people to purchase cars will be a vital growth element for the automotive lubricant oil market throughout 2013.

China is currently playing a leading role in raising the demand for cars and, hence, lubricants.

For every million cars sold, automotive lubricant demand increases by about 91,000 tonnes.

“We are delighted to be working with Hyundai Oilbank on this project and see the development at Daesan as part of a wider strategy that includes Shell’s plans to build two more blending plants in China and Indonesia,” Singh concludes.

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