Higher VI Group III Base Oils in the Merchant Market www.korealc.co.kr Lubricants Symposium 2008 1st ~2nd October, KOLON Hotel, KyungJoo Higher VI Group III Base Oils in the Merchant Market Y.R. Cho, H.S. Song, S.A. Hwang, C.W. Park www.skenergy.com Asia’s Leading Energy and Petrochemical Company

Contents High Quality Base Oil and the Global Demand Market Forces and Key Drivers for Increased Use of High Quality Base Oils SK’s Base Oil Production No.3 LBO Plant and YUBASE plus Is YUBASE plus the Same Slate ? Summary High Quality Base Oil and the Global Demand 2

Group I Group II Group III Group IV Group V High Quality Base Oil and the Global Demand Group I 80 < VI < 120 % Sat < 90% % S > 0.03 Group II 80 < VI < 120 % Sat > 90% % S < 0.03 Group III VI > 120 % Sat > 90% % S < 0.03 Group IV PAOs PIOs Group V Esters etc. Iso-Paraffins 1& 2-R Aromatics Naphthenes Polar Compounds iso-/n-Paraffins Naphthenes Iso-/n-Paraffins High Quality Base Oils Low Volatility Excellent Thermal & Oxidation Stability Excellent Low Temperature Fluidity Good Friction Behavior and Wear Reduction 3

High Quality Base Oil and the Global Demand 10%~ 25,000 20,000 15,000 10,000 5,000 30,000 [KMT] 7~8% Group III Group II Group I 4% 2% 2000 2005 2010 2015 Source : SK Energy 4

Lubricant Manufacturers Market Forces and Key Drivers for Increased Use of HQBO Legislation Emissions Fuel Economy Environmentally Friendly Consumers Extended Oil Drain Intervals Fuel Economy Maintenance Global Economy Economy Growth Vehicle Changes Engine Durability/ Cleanliness Higher Operation Temp. New Specifications OEMs Formulation Product Differentiation Cost Lubricant Manufacturers 5 5

- Passenger Car Diesel - ILSAC : Phosphorus Content Limit Market Forces and Key Drivers for Increased Use of HQBO Euro 3 Euro 4 Euro 5 US Tier 2 bin 5 NOx (g/km) PM(g/km) Emissions Standards - Passenger Car Diesel - Legislation Set Emission Target Reduce PM/NOx/SAPS Increase Fuel Economy ILSAC : Phosphorus Content Limit GF-1: 0.12 max 1990 1995 2000 2005 P (wt%) 0.12 0.10 0.08 0.06 0.04 GF-2: 0.10 max GF-3: GF-4 0.08 max OEMs 6 6 6

Seq.VIB F/E improvement ILSAC : F/E Requirement Market Forces and Key Drivers for Increased Use of HQBO Seq.VI F/E improvement %(vs.20W30) Seq.VIB F/E improvement %(vs.5W-30) Legislation ILSAC : F/E Requirement 3 5 2 Set Emission Target Reduce PM/NOx/SAPS Increase Fuel Economy 4 1 GF-4 3 GF-3 GF-2 2 GF-1 5W-20 & 0W-20 5W-30 & 0W-30 10W-30 1 SG 1990 1995 2000 2005 Source: Lubrizol OEMs Newly Designed Engines Severer Operating Condition After-treatment Devices Lubricant Manufacturers 7 7

Longer Drain Intervals Market Forces and Key Drivers for Increased Use of HQBO Consumer Mono Grade 20W-XX Longer Drain Intervals Better Fuel Economy Price Efficiency 15W-XX Better FUEL ECONOMY 10W-XX 5W-XX Lubricant Manufacturers 0W-XX 8 8

High Quality Base Oils Lubricant Market Forces and Key Drivers for Increased Use of HQBO High Quality Base Oils Formulation Cost Efficiency ‘Synthetic’ Claims Product Differentiation Operational Conveniences Lubricant Manufacturers 9 9

Refining Technology Trends in Base Oil Production SK’s Base Oil Production Refining Technology Trends in Base Oil Production Chemical Type Structure VI Pour Oxidation Toxicity Very High ~175 Solid @50°C Excellent Low n-Paraffin (Wax) iso-Paraffins with Branched chains iso-Paraffins with highly branched chains (PAO's) cyclo-Paraffin-single ring with long chains Naphthenes, polycondensed Monoaromatics, long chains Polyaromatics High ~150 Good Excellent Low Good ~130 Good Excellent Low Good ~130 Good Good Low Poor ~60 Good Medium Low Poor ~60 Good Medium Medium Very Poor <0 Good Very Poor Very High 10 10 10

Production of High Quality Base Oils using Fuels Hydrocracker Residues SK’s Base Oil Production Production of High Quality Base Oils using Fuels Hydrocracker Residues The most cost effective option for producing high quality base oils Provide the best overall performance in lubricant products Classified as API Group III base oil Limited to getting higher VI Group III base oils at practical yield in existing Hydro-cracking routes 11 11

SK’s Base Oil Production 1st 2nd 3rd Production Capacity : 28.5K BD 1995 2001 2004 2006 2008 World Largest Group III Base Oil Manufacturer Hydro-Cracked / CDW / All Hydro Processing Route Total Production Capacity is about 1.35 MTPA 12

No.3 LBO Plant No.3 LBO Plant and YUBASE plus Dumai ▶ Ulsan JV with PT. PERTAMINA in Dumai of Sumatra Island, Indonesia Higher VI Group III base oils from fuels hydrocracker residues The First Higher VI Group III Base Oils in the Merchant Market Annual Production : ~ 350k Mton 2 Years Project - M/C : ~ 50 days earlier than schedule - C/O : ~ 2 months earlier than schedule 13 13

No.3 LBO Plant and YUBASE plus Physical - Chemical Properties of YUBASE plus (Commercial Product) YU-4 plus YU-4 YU-6 plus YU-6 Vis. @40℃, cSt 17.6 19.5 33.0 36.9 Vis. @100℃, cSt 4.07 4.22 6.34 6.48 Viscosity Index 134 122 145 130 Pour Point, ℃ -18 -15 -12 CCS @-25℃, cP - 2080 2920 CCS @-30℃, cP 1130 1590 3820 5200 Noack (A), wt% 14.0 15.2 5.8 7.5 14

Comparison of CCS and volatility, 4cSt No.3 LBO Plant and YUBASE plus Physical - Chemical Properties of YUBASE plus (Commercial Product) Comparison of CCS and volatility, 4cSt [CCS Vis. @-30℃, cP] 1000 1100 1200 1300 1400 1500 1600 1700 1800 [Noack Volatility (A method), wt%] 10 11 12 13 14 15 16 17 18 PAO GTL YUBASE plus Group Ⅲ d Group Ⅲ c Group Ⅲ b Group Ⅲ a

No.3 LBO Plant and YUBASE plus Blending Study w/YUBASE plus – SAE 0W-20, API SM/ILSAC GF-4 PCMO Formula [wt%] A B C D E YUBASE 4 YUBASE 4 plus 100N (Group II) PAO-4 YUBASE 6 VII Additives 82.75 - 7.00 balance 72.75 - 10.00 7.00 balance - 82.75 7.00 balance - 63.75 20.00 6.00 balance - 63.75 20.00 7.00 balance Properties Vis. @40℃, cSt Vis. @100℃, cSt Viscosity Index CCS @-35℃, cP Noack (A), wt% HTHS Viscosity, cP 43.5 8.41 173 6,250 14.4 - 43.0 8.33 174 5,760 13.2 2.63 40.9 8.21 181 4,560 12.3 - 43.5 8.38 173 5,830 11.5 2.69 43.4 8.40 173 5,390 14.6 2.68 < 6200 < 15.0 > 2.60 16

Highly Paraffinic Base Oils are Beneficial in Overall Performance ? No.3 LBO Plant and YUBASE plus Highly Paraffinic Base Oils are Beneficial in Overall Performance ? Low Temperature, Low Shear Performance Solubility and Seal Compatibility Fuel Economy in Multi-Grade Engine Oils 17

No.3 LBO Plant and YUBASE plus Low Temperature Low Shear Performance - MRV Results (Nase Oils with 0.3wt% PPD) [cP] 20,000 16,000 12,000 8,000 4,000 -25 -30 -35 -40 [℃] 18

YUBASE 4 plus based 5W-40 PCDO No.3 LBO Plant and YUBASE plus Seal Compatibility in 5W-40 PCDO YUBASE 4 plus based 5W-40 PCDO Seal Type Results Limits ■ NBR 34, Nitrile Butadiene - Hardness change, point -1 -8/+2 - Tensile strength, % -8.8 -20 max. - Elongation at break, % -33 -35 max. - Volume change, % 0.4 0/+10 ■ AK 6, Viton ± 5 -20 -50 max. -23 -55 max. 0.2 0/+5 ■ ACM E7503, Acrylate pass ■ EAM D8948-200, Vamac ■ CEC L-39-T-96, Silicone (RE3-04) 19

No.3 LBO Plant and YUBASE plus Friction Property, HFRR Charts in 5W-40 PCDO YU-4 Step1 Step2 Step3 Step4 Step5 Step6 Friction 0.123 0.126 0.128 0.148 0.155 0.158 Film, μ 77.7 50.6 28.3 17.3 19.1 18.5 Temp. 40 60 80 100 120 140 YU-4 + Step1 Step2 Step3 Step4 Step5 Step6 Friction 0.119 0.112 0.120 0.146 0.148 0.152 Film, μ 73.4 77.6 34.7 22.4 18.8 17.8 Temp. 40 60 80 100 120 140 In essence, both oils performed similarly, including the wear scar average YUBASE plus based oil sample shows marginally thicker oil film and lower friction coefficient 20

Is YUBASE plus the same slate ? Definition of Base Stock and Slate by API 1509 Appendix E E.1.2.1 A base stock is a lubricant component that is produced by a single manufacturer to the same specifications (independent of feed source or manufacturer’s location); that meets the same manufacturer’s specification; and that is identified by a unique formula, product identification number or both. …….. E.1.2.2 A base stock slate is a product line of base stocks that have different viscosities but are in the same base stock grouping and from the same manufacturer E.1.2.3 A base oil is the base stock or blend of base stocks used in an API-licensed oil 21

Is YUBASE plus the same slate ? Definition of Base Stock Slate by ATIEL CoP A base stock slate is a product line of base stocks that: are produced by the same manufacturer meet the ATIEL definition of base stock are in the same ATIEL Base Stock Group may have different specified viscosities and other properties have been demonstrated, in lubricants for which compliance with ACEA Oil Sequence is claimed, to be technically substitutable by other appropriate base stocks on the same slate A manufacturer may have more than one base stock slate 22

Is YUBASE plus the same slate ? YUBASE plus is the same slate SK’s base stock slate, Group III slate: - YUBASE 4 - YUBASE 4 plus - YUBASE 6 - YUBASE 6 plus - YUBASE 8 SK’s base stock slate, Group II slate: - YUBASE 2 - YUBASE 3 - YUBASE L3 YUBASE plus is the same slate, but DIFFERENT BASE STOCK ! 23

Is YUBASE plus the same slate ? Base Oil Interchange Guideline for API SM/ILSAC GF-4 From/To GP I GP II GP III GP IV ≤30%d, VIB >30% and ≤50%d All except IVAc, VG, VIII >50%d, All except IVAcj, VGj VIII ≤30%d, VIB >30% and ≤50%d All except IVAc, VG, VIII >50%d, All except IVAcj, VGj, VIII All except VIBh,i, IVAc, VIII IVAcj , VGj, VIIIj, VIBh,i,j,k ≤30%d, IVAc, VG, VIB >30%d, All BRT (O, all) IIIG (O, all) IVA (X,c) VG (X) VIB (O, k) VIII (X) c Test not required provided the new candidate oil’s base oil blend viscosity at 100°C is greater than or equal to the base oil viscosity of the original candidate oil, within the precision of the test. d Represents mass percentage of the PCMO formulation. h Test not required provided the CCS viscosity of the new candidate oil is less than or equal to the CCS viscosity of the original candidate oil, within the precision of the test. I Test not required provided the HTHS viscosity of the new candidate oil is less than or equal to the HTHS viscosity of the original candidate oil, within the precision of the test. j Data set used to establish the BOI guidelines is based on a b/o VI range up to 126 VI, within the precision of the test k VI of the base oil blend must be less than or equal to the VI of the base oil blend of the original candidate oil, within the precision of the test. 24

Is YUBASE plus the same slate ? Sequence IIIG Test Results in API SM/GF-4 Formula [wt%] A B C YUBASE 4 65.86 - YUBASE 4 plus 46.31 YUBASE 6 15.09 36.38 VII 9.25 7.50 Additives balance Physical Characteristics Viscosity @100℃, cSt 10.84 10.33 10.01 CCS @-30℃, cP 4820 3310 4090 CCS @-35℃, cP 9290 6050 8010 Seq. IIIG Results Viscosity Incr. @%40C 76.4 50.8 47.3 150 max Average Cam+Lifter wear 32.4 22.2 32.6 60 max Weight Piston Deposits 3.24 (*) 4.01 3.77 3.5 min Oil Consumption 3.21 2.91 2.81 4.65 max (*) Formulation A was passed in original program. But showed different result in this study due to different severity between testing laboratories and testing time, 25

Is YUBASE plus the same slate ? Sequence VIB Test Results in API SM/GF-4 Formula [wt%] A B C YUBASE4 65.86 - YUBASE 4 plus 60.65 YUBASE 6 14.51 20.21 VII 9.25 8.75 Additives Balance Physical Characteristics Viscosity @100℃, cSt 10.73 10.01 9.93 CCS @-30℃, cP 4750 3120 3410 CCS @-35℃, cP 9230 5810 6457 Seq.VIB Results FEI 1, % 1.7 (*) 2.0 1.8 min FEI 2, % 1.2 (*) 1.3 1.5 1.5 min (*) Formulation A was passed in original program. But showed different result in this study due to different severity between testing laboratories and testing time, 26

Is YUBASE plus the same slate ? Ball Rust Test Result in API SM/GF-4 Formula [wt%] A(5W-30) B (0W-30) C (5W-30) YUBASE4 65.86 - YUBASE 4 plus 60.65 YUBASE 6 14.51 20.21 VII 9.25 8.75 Additives Balance Physical Characteristics Viscosity @100℃, cSt 10.73 10.01 9.93 CCS @-30℃, cP 4750 3120 3410 CCS @-35℃, cP 9230 5810 6457 BRT Results Avg. Gray Value 131 126 137 100 min 27

Is YUBASE plus the same slate ? Demonstration Test Plan for ACEA Oil Sequence Test Items ACEA A3/B3/B4/C3 ACEA A5/B5 SAE 5W-30 SAE 5W-40 TU5JP Seq VG TU3MS M111SL DV4 (or XUD11) M111 FE OM646LA (or OM 602A) VW Tdi 28

Higher VI Group III Basestock, now available Summary Higher VI Group III Basestock, now available Base oil manufacturers continue to search for innovative ways to maximize iso-paraffins and small-ring naphthenes in base oils YUBASE plus is the first higher VI Group III base stock in the merchant market There are no advisable effects in low temperature low shear property, seal compatibility and fuel economy YUBASE plus is the same slate as SK’s Group III base stock, but different base stock In several API engine tests, YUBASE plus based oils showed better results, and ACEA engine tests are conducting to demonstrate Base Oil Read Across between existing YUBASE and YUBASE plus 29