On 1 October, at the Energy Saving Research Institute of the SK Innovation Environmental Science & Technology Institute in Yuseong-gu, Daejeon. At the pilot plant (test production plant), which serves as the core base for SK Innovation’s research and development (R&D), 10 reaction and separation facilities were operating without a break, producing test samples of base oil for lubricants. This facility, a scaled-down version of SK’s global base oil production bases in Ulsan, Spain and Indonesia, operates around the clock 365 days a year. Park Sung-beom, head of SK Innovation’s Energy Saving Research Institute (Executive Vice President), said, “The pilot plant is always running at full capacity, to the point where (customer companies wanting to test new materials) have to take a number and wait,” adding, “We are enhancing efficiency, including by advancing simulation, to test as many products as possible.”

Recently, SK Enmove, SK Innovation’s base oil business division, drew attention by posting operating profit of KRW 691.9 billion in the second quarter (April–June), up 374.3% from a year earlier. This was due to supply disruptions intensifying after production facilities in major producing countries such as Qatar were damaged in attacks in the wake of the war in Iran earlier this year, compounded by transport constraints caused by the blockade of the Strait of Hormuz. Base oil for lubricants has effectively become a scarce commodity “priced as called.” The transaction price of Group III base oil has surged 235%, from USD 3.4 per gallon in January to USD 11.4 per gallon as of July.

Base oil for lubricants is a key raw material that accounts for more than 90% of the composition of automotive and industrial lubricants such as engine oil. It reduces mechanical friction and dissipates heat. SK Enmove is the leading company in the premium Group III product segment. According to the refining industry, SK Enmove’s market share in this segment is about 40%. Unlike Group I and II base oils, which are used for industrial and marine applications, Group III base oil is mainly used in high-end automobiles. It contains fewer impurities and delivers stable performance even under rapid temperature changes.?

SK Innovation stresses that the reason its base oil business can lead the premium market lies in its overwhelming R&D capabilities accumulated over decades. SK Enmove developed Group III base oil manufacturing technology in 1992 and began commercial production in 1995. Its accumulated base oil formulation portfolio now exceeds 400 types. Each customer requires different properties in the base oil, meaning, in short, the company possesses a diverse set of “recipes.”?Noh Kyung-seok, head of the Base Oil Technology Team at SK Enmove, said, “The core is an extensive formulation portfolio at the industry’s highest level, accumulated over some 30 years, and a database that has been continuously validated.”?

The high-end base oil market also has high barriers to entry.?Strict quality standards must be met and certifications from each finished vehicle manufacturer must be obtained, making it difficult for new entrants to replace incumbent suppliers in a short time. This is why competitors cannot readily enter the high-end base oil market even though prices are soaring due to supply shortages.

SK Enmove plans to aggressively expand its high-end base oil business into electric vehicles and artificial intelligence (AI) data centers to foster new revenue sources. Demand for base oil is growing in the electrical and electronic equipment market because of its characteristics of minimizing machine wear while dissipating heat. It prevents oxidation and corrosion of metal components and helps keep servers from overheating. Last month, SK Enmove also signed a memorandum of understanding (MOU) with LG Electronics for joint development of next-generation technologies such as immersion cooling to lower server temperatures.?

Executive Vice President Park said, “The application scope of base oil is expanding beyond internal combustion engines to new industrial sectors such as electric vehicles and data centers,” adding, “We will expand our customer base by strengthening synergies between SK Innovation’s R&D capabilities and collaboration organizations in marketing and production.”

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