by Group III Base Oils

SK Energy Introduction

Backgrounds of Group III Base Oil

Trends of High Quality Lubricants

Summary

Energy

&

Chemicals

Telecom

Trading

&

Services

HoldingCompany

• SK Holdings

• SK Energy• SK E&S• SK Chemicals • SKC• SK Incheon Oil • Dopco• K-Power

• SK Telecom• SK C&C• SK Telink• SK Telesys• Helio

• SK Networks• SK Engineering & Construction • SK Shipping • Sheraton Walkerhill• SK Securities

• Sales : 73.7 billion USD

• Total Assets : 63.3 billion USD

• Employees : About 30,000

Sales Ratio

* Includes the sales from SK Networks

(Data in 2006)

History

Established in 1962 as Korea’s first domestic oil refining company.

Acquired by SK Group in 1982, and called YUKONG.

Name changed to SK Corporation in 1997.

Split into SK Holdings and SK Energy in July 1, 2007

Business Areas

Refining, Petrochemicals, Exploration & Production, Coal, Lubricants, etc.

Leading Energy & Petrochemical player in Korea

Largest refiner in Korea’s oil industry, holding over 1/3 of the market

share, and leading Petrochemical, Lubricant player in Korea.

Globalization

SK Energy is in a transitive phase, increasingly penetrating into

overseas markets with a view to becoming a major player in the Asia-

Pacific region.

SK Corporation(Former SK Energy) has been ranked as 98th in Fortune

Global 500 company list, 2007

1997- 2007

YUKONG

1982-1997

Korea Oil Company

1962-1982

Present

Ethylene: 830,000 Ton/Yr

Propylene: 540,000 Ton/Yr

BTX: 3,600,000 Ton/Yr

Engaged in 24 blocks

in 14 countries

Oil equivalent reserves

: 510 million Bbl

Production(E) : 25,000 B/D

Lubricant: 4,000 B/D

Base Oil: 20,000 B/D

Grease: 6,000 Ton/Yr

Domestic market share: 34%

CDU capacity: 1,115 m b/d

Gas station: 4,185

World Top 10 Base Oil Suppliers

• Capacity : 20,000 bbs/day

50% world M/S in Group III base oil market

Brand name is ‘YUBASE’

Has worldwide supply network for global customers

Found JV with PT. PERTAMINA for new 350,000MT/year capacity refinery in Dumai

Production Capacity

• Lubricants : 4,000 bbls/day

Grease : 6,000 tons/year

No.1 player in Korea since 1968 in the competition of worldwide majors

Premium brand name is ‘ZIC’

Has a 30% M/S in engine oil market (Total 16% market share in Korea)

Continuing to expand markets abroad

Launched co-branding product named ‘ZIPEX’ with PT. PERTAMINA in Pakistan

API Category Viscosity IndexSaturates

(%)Sulfur(%)

Group I 80-120 < 90 ＞0.03

Group II 80-120 ≥ 90 ≤ 0.03

Group III 120 + ≥ 90 ≤ 0.03

Group IV PAO

Group V All others

ItemASTM

MethodYUBASE 4 YUBASE 6 YUBASE 8

KV @ 40°C, cSt D445 19.6 36.9 47.0

KV @ 100°C, cSt D445 4.25 6.46 7.60

Viscosity Index D2270 123 130 128

NOACK Volatility, wt% D5800 14.7 7.1 5.0

Pour Point, °C D92 -15 -12 -12

Flash Point, °C D97 230 240 260

2000

Group III

Group II

Group I

2005

4%2%

2010

7~8%

2015

10~%

25,000

20,000

15,000

10,000

5,000

30,000

[KMT]

Source: Lubes n Grease, 2006

[BPD]

Chemical Type Structure VI Pour Oxidation Toxicity

Very High~175

High~150

Good~130

Good~130

Poor~60

Poor~60

Very Poor<0

Solid

@50°C

Good

Good

Good

Good

Good

Good

Excellent

Excellent

Excellent

Good

Medium

Medium

Very Poor

Low

Low

Low

Low

Low

Medium

Very High

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

YU

BASE High Isoparaffin Content

Some Naphthenic Compound

Small or Zero Aromatic

Gro

up I

Low Isoparaffin Content

Some Naphthenic Compound

High Aromatic

Low Temp. Performance: CCS Viscosity[cp] Oxidation Performance: RBOT[min] 1)

Oxidation Performance: PCT[mg] 2) Oil Consumption: Noack [wt%] 3)

1) ASTM D2270, + 0.3wt% Antioxidant2) 10.3% A3/B3 DI Additive + 10% VII3) 250'C, 1hr

Features

• Low Aromatics

• Low volatility

• Very High VI

• Low Aromatics

• High Saturates

• Good Additive Response

• Low Volatility

• Narrow Boiling Ranges

• Low Wax

• Very High VI

ReasonsFeatures

• Environmentally Friendliness

• Good Friction Behavior

• Wear Reduction

• Higher Thermal/OxidativeStability (Longer life)

• Low Oil Consumption

• Higher Flash Points

• Better Low Temp. Performance

• Low Aromatics

• Low volatility

• Very High VI

• Low Aromatics

• High Saturates

• Good Additive Response

• Low Volatility

• Narrow Boiling Ranges

• Low Wax

• Very High VI

Reduce Fuel Costs

Reduce Lubricant Costs

Reduce Emissions

Reduce Maintenance Costs

Reduce Personal and Social Costs

2004

ILSAC GF-4

2005 2006 2007 2008 2009

ILSAC GF-5

API CI-4+ API CJ-4

ACEA C3, C2MB 229.31

ACEA E6MB 228.51

ACEA ??MB 228.??

ACEA ??MB 229.??

GM Dexron IIIH GM Dexron VI

US

Japan

Europe

Gasoline

Diesel

ATF

Euro IV Euro V

Gasoline

Diesel

Legislation Consumers

OEMsLubricant

Manufacturers

Global Economy

Legislation

Source: Lubrizol

OEMs0

0.01

0.02

0.03

0.04

0.05

0.06

0 0.1 0.2 0.3 0.4 0.5 0.6

Euro 3

Euro 4

Euro 5

US Tier 2 bin 5

NOx (g/km)

PM(g/km) Emissions Standards

- Passenger Car Diesel -

• Set Emission Target

• Reduce PM/NOx/SAPS

• Increase Fuel Economy

Legislation

Source: Lubrizol

OEMs

ILSAC : Phosphorus Content Limit

GF-1:

0.12 max

1990 1995 2000 2005

P content

in oil

(wt%)

0.12

0.10

0.08

0.06

0.04

GF-2:

0.10 max

GF-3:

0.10 max

GF-4

0.08 max

• Set Emission Target

• Reduce PM/NOx/SAPS

• Increase Fuel Economy

Legislation

Source: Lubrizol

OEMs

ILSAC : Fuel Efficiency Requirement

Seq.VI F/E

improvement

%(vs.20W30)

SG

1990 1995 2000 2005

5

4

3

2

1

1

0

2

3

Seq.VIB F/E

improvement

%(vs.5W30)

GF-1

GF-2

GF-3

5W20 & 0W20

5W30 & 0W30

10W30

GF-4

• Set Emission Target

• Reduce PM/NOx/SAPS

• Increase Fuel Economy

• Newly Designed Engines

• Severer Operating Condition

• After-treatment Devices

Legislation

OEMs Lubricant Manufacturers

• Set Emission Target

• Reduce PM/NOx/SAPS

• Increase Fuel Economy

High

Low

Low High

Cranking, Startability Wear

Pumpability Oil Consumption

LTHS HTHS

LTLS HTLS

CCS, KV@40℃ HTHS, TBS

MRV, Brookfield NOACK, KV@100℃

FuelEconomy

MajorPerformance

Test Item

SAE 40

SAE 10W

Max. Viscosity

(Low Temp)

Min. Viscosity

(High Temp)

Low High

x

Lubricating Area

Good Startability

Better Bearing Lubrication

Reduced Oil Consumption

Better Fuel Economy

General Benefits of Multi-grade Lubricants

SAE 10W/40

x

High

Low

Low High

High Viscosity Index

Low Viscosity Index

High

Low

Low High

Solutions to IncreaseViscosity Index

Consideration Points

Viscosity Modifier

High Viscosity Index Base Oils

Formulation Economics

Toxicity

Impacts on Other Performance

ILSAC : Fuel Efficiency Requirement

Seq.VI F/E

improvement

%(vs.20W30)

SG

1990 1995 2000 2005

5

4

3

2

1

1

0

2

3

Seq.VIB F/E

improvement

%(vs.5W30)

GF-1

GF-2

GF-3

5W20 & 0W20

5W30 & 0W30

10W30

GF-4

Fleet Car Trial - Average Fuel Savings

High Sheer Viscosity

5W/30 10W/40

15W/4015W/50

20W/50R

ela

tive

Fu

el

Sa

vin

g

• Longer Drain Intervals

• Better Fuel Economy

• Price Efficiency

Consumer

Lubricant Manufacturers

Cost Efficiency

‘Synthetic’ Claims

Product Differentiation

Operational Conveniences Lubricant Manufacturers

• Very Low Sulfur (≤ 0.03 %)

• Very High Viscosity Index (120 + )

• Excellent Low Temperature Performance

• Low Volatility & High Flash Point

• Excellent Thermal and Oxidative stability

Can be marketed as ‘Synthetic’

Features

Group III Base Oils

1st

2nd

S-Oil PetronasNeste

+5.5KBD

+7.5KBD

GS Caltex

+3KBD

+7.7KBD

GTL?

Demand (Case 1 & 2)

2003 2006 2009 2012

75,000

50,000

25,000

[BPD]

2015

Supply

Supply by SK energy

Viscosity Index NOACK

80

90

100

110

120

130

140

Gr-Ⅰ100N

Gr-Ⅱ100N

Gr-Ⅲ4cSt

New YUBASE4

PAO4

10

12

14

16

18

20

Gr-Ⅰ100N

Gr-Ⅱ100N

Gr-Ⅲ4cSt

New YUBASE4

PAO4

Technical Needs

Drive Towards Lighter Viscosity Multigrades

With Tightened Approval Specifications in Lube Industry

Limitation of using Harmful Additives to meet Demanding Performance

Marketing Needs

Drive Cost effective, ‘Synthetic’ labeling High Quality Lubricants

Is Encouraged by availability of large volumes of Group III/GTL production

Reduce Personal and Social Costs

Branch Office Storage Tank Agent/Distributer

Houston Tokyo

Jakarta

London

Tianjin

SK Corp.