May 15, 2012: Cameron Watson, Global Tech Manager Lubricants - OEM & Direct Sector, Shell

Shell estimates that the number of cars and trucks will double by 2030, but that the supply of liquid fuels will grow by a maximum of 20 percent in this period. What kind of energy supply scenario do you see evolving, and what challenges will the automobile industry face?
There is, of course, going to be a massive increase in energy demand. But in the same period there will be great strides made, I’m sure, in fuel economy and energy efficiency, reducing some of the need for fuels. Obviously we expect there to be a significant increase in liquid fuels available — 20 percent is realistic, based on ever-more-difficult-to-extract conventional sources of crude. But the age of easy oil is past; now the resources you have to look at are either in very hostile geological environments, or in countries that are not necessarily the easiest to operate in.As a consequence there’s going to be a big gap between demand and the available conventional supplies, and hence a need for more energy sources. We don’t see a single silver-bullet solution that can be applied all over the world. What we do see is a mosaic of different energy sources appropriate for different countries based on geography, economics, local politics and legislation, and the local environment. Most of them are fairly obvious. Biofuels are being mandated in many markets, particularly in Europe and North America. In Brazil the use of ethanol is already quite ubiquitous, and we see that spreading quite substantially in the auto and commercial vehicle sectors, across the world.And of course we see other technologies, such as electric, part-electric, and hybrid, being used more and more. Hydrogen is a technology that’s always a few years away, but certainly fuel cell technology is advancing, though challenges remain around the infrastructure and the supply of energy to actually create the hydrogen.But gas actually has the brightest prospects, particularly for commercial transportation. With the wide availability of natural gas currently, and the prospects of even more gas being available with the advances in extraction from shale sources and sedimentary rock, I believe we’ve got a real potential glut of gas coming up. And this will be a very convenient way in some markets to meet the energy challenge.

Shell recently opened its Pearl gas-to-liquids (GTL) project in Qatar that produces a high-quality synthetic diesel from natural gas. Do you envisage GTL fuels becoming mainstream?
The beauty of the GTL process is that you convert methane into a range of finely tuned hydrocarbons. Ours is the first major plant in world scale producing fuels and lubricants, but at the moment the fuel stream is playing a relatively niche role, because on a world scale it’s quite low-volume. I think about 2 percent of the world volume of diesel will come from that plant. We see it being used as a blending stream for top-tier high-performance fuels.

You don’t sell a 100 percent synthetic fuel?
No, it’s mostly blends. In some megacities maybe, or some large fleets, it may be possible to provide in principle straight synthetic diesel, but that’s not what we are doing at the moment. It’s conceivable. Having said that, there have been a lot of public statements about GTL and it wouldn’t surprise me if other investments took place in different parts of the world where there are large resources of gas.

Do you really see liquid fuels synthesised from natural gas growing in importance versus petroleum-derived, refined fuels?
On a world scale at the moment, GTL fuels are a long way off from making a material difference in volumes. But that could happen. Because crude oil is becoming increasingly difficult to get — but gas, on the other hand, is abundant. We have 250 years of proven gas reserves based on current usage, and possibly more when shale gas reserves are exploited. I wouldn’t want to predict this will happen, but it’s technically possible.

What proportion of the Pearl project’s production is fuels?
About 60 percent. Lubricant base oils are 15-plus percent, and the rest is various solvents and chemicals, ethane, propane, and other gases. Pearl is actually going to be the biggest source of high-quality Group III synthetic base oil — when it’s finished ramping up at the end of this year it will produce slightly less than 1 million tonnes of base oil per year, 30 percent of the synthetic base oil demand worldwide. All the specifications, customer behaviours, and OEM demands are driving towards higher-performance lubricants, and these can only be met by synthetic and high-quality base oils. In fact, Group III base oils are perfect for 0W (the traditional winter grade) and lower viscosity grades — with very low volatility, very high oxidation stability, good low-density properties, and very, very low friction.

Is Shell really the first to do this from gas?
Yes. We had a small-scale GTL plant in Malaysia for the last 15 years that made Shell XHVI (extra-high-viscosity-index) base oils. Pearl uses the same process, but on a much bigger scale. And the quality is better.

An example of how a synthetic lubricant can add value to the transport sector?
We recently launched in India one of our flagship products, Rimula R6 LME. This is a synthetic engine oil designed to be compatible with aftertreatment devices. We developed this with Daimler over the last couple of years. With this product we’ve actually introduced a bespoke proprietary formulation — I should say Shell retains the ability to formulate products from first principles, and doesn’t have to rely on additive companies to do that.With this oil we’ve been able to demonstrate excellent wear protection, and good fuel economy benefits. Daimler only finished testing it in South Africa six weeks ago, running it for the equivalent of 1.5 million kilometres in fuel economy trials, and I was amazed to see the condition of the engine, and of the oil, at the end of the test.The actual trials covered 500,000 km, but took place in such severe conditions with steep gradients and very high loads that Daimler says it’s three times more severe than a normal road test. It’s the most severe test we’ve ever done, and the most severe oil test Daimler has ever done. And at the moment this is the only oil that has survived this test.We didn’t actually have any data to suggest that this would work, so it was a complete jump into the dark. And the other challenge we set was, we doubled the oil drain interval to 75,000 km. So we tripled the severity of the test and doubled the duration.

With a synthetic oil you can achieve higher performance and severe-service capability than with mineral-base oils. And trucks in India are all typically in “severe” service, if you account for overload practices plus the variable fuel quality and dust and other contaminants. There is a clear value proposition in synthetic lubricants in India, but the price remains an inhibitor. Do you see a case for fleets using synthetic oils and getting a payback in a reasonable time?
Interestingly, so much is about cost of ownership, as you know. And all over the world we are seeing increasing awareness about the cost of ownership. And how sustainable really is the Indian fuel market in terms of prices? If we see a movement on the cost of fuel, which is possible, the value of these high-performance lubricants will increase dramatically. Saving a few percent on fuel now has some value; saving a few percent on fuel at market rates becomes very substantial.

Shell has pioneered the supply of liquefied natural gas (LNG) for transport with its Green Corridor project in Canada. Do you see any prospects for LNG as a commercial fuel in India?
Definitely the OEMs are interested. If it’s well managed and handled, LNG can be a great contributor to greenhouse gas reduction because it’s hydrogen-rich. The tailpipe emissions will be very low, and that’s a big positive in terms of CO2 emissions. Plus the vehicle’s range is significantly increased, because you can store more gas in liquid form than compressed. So it becomes a much more attractive fuel for on-highway and long-distance transport.

But the bulk of the transport and delivery of natural gas in India is still, well, in gas form.
At the moment.

What are the challenges to setting up a cryogenic LNG delivery infrastructure in India?
For India – for most countries at the moment – it’s actually building the network so there is a reliable supply on the routes you want to cover, and of course you must have something that’s robust and sustainable in terms of safety, so there has to be education. But most critically, you have to make sure the vehicles are available in the market. So the people that are going to buy and use the trucks, people are going to make the trucks, and people who are going to supply the fuel in the network, all have to work together very closely. Otherwise it won’t take off.

Some of our OEMs have made noises about hydrogen and hythane, which are also cryogenically stored. But they all know how natural gas works. Would you say LNG is really a more practical, real-world solution?
We already have the technology available to use it. We’ve got a lot of experience in CNG, and increasingly there’s LNG technology. In moving from conventional hydrocarbons, engine technology both spark-ignition and compression-ignition is not very different. But what you need to do for hydrogen fuel cells is a million miles away.

But even for hydrogen combustion engines, the storage is still cryogenic…
Without predicting the future, I think LNG is far, far more likely to be taken up because the gas is available naturally. Hydrogen, on the other hand, you need to manufacture. And that requires energy.

How can Shell in particular help the ecosystem develop in the direction of LNG?
At least two OEMs in India have declared that they are looking at gas as a proposition for trucks. A number of them are rocking on gas technologies. Some of them I’ve spoken to have just woken up to the fact that the world is very long on gas, and that they’ve got to change their paradigms. So I think the industry will actually be demanding Shell as a partner rather than us having to push.

What is it that you provide uniquely here?
The last I knew, Shell had 40 percent of the LNG market worldwide. We are a huge provider of gas, and we have the expertise in shipping gas around the world. We are the most experienced company in developing gas distribution networks. We had a big part in developing the power generation industry for LNG, and we’d like to do the same for the transport industry.

Does Shell provide everything from the supply to the storage to the delivery and storage of LNG on the vehicle? Are you able to offer that as a complete package, even if you don’t make all of it yourself?
Of course, that’s all something that needs to be developed. Even for us this is a very new industry. We’ve only had our very first partnership and the very first commercial trial is the one you mentioned in Canada. So this is a business that we are developing. But it might be something very similar to our retail network ultimately, which plays such a big part in the transport industry. I imagine an LNG distribution network could be developed through the normal retail network ultimately. But these things are all to be decided. And there’s many different ways this can be done in partnership with other suppliers and other shippers, all up for discussion.

You passionately denounce outdated industry specifications as being an impediment to high-performance lubricant design — suppliers still have to design their lubricants to be compatible, for example, with seals that don’t exist anymore. Do you see OEMs being able to break free of this legacy?
Paradoxically, on the other side, I have a very interesting case study in which I showed some conceptual data [for an ultra-low-viscosity oil design] to an OEM in Europe, telling them it could deliver excellent fuel economy and very good wear performance. ‘Very interesting data’, I told them, ‘but you won’t like this because the volatility won’t meet any of your specifications.’ Because it was such a thin oil, its volatility was quite high. But the data were so strong that the OEM said to us, ‘Well, actually, maybe we need to look at this again, maybe we need to worry about the volatility question because the value in terms of CO2 credits is so much, maybe it’s well for us to think of redesigning how we handle the oil or manage the oil temperature.’So I do see the energy challenge and the value of CO2, particularly in Europe with the fines that are coming up, start to change people’s minds about looking more aggressively at these specifications. But I very much advocate that the specifications should be based on need, and not just on history. We’re looking backwards all the time, and this is restricting us from innovating.

Do you have an example of what fuel economy benefit can be achieved with a ULV oil?
We are working with Gordon Murray, who has translated his approach to motorsport to small cars, looking to optimise every single component. We took the existing engine platform of his T.25 city car, modelled it and the lubricant, and gave him an absolutely optimised lube for what his engine parameters were, and feedback on what further improvements he could make to the design. Now based on the fuel economy of the 5W–30 we invented an oil beyond specification, which would not fit in any specification today, but because we were unleashed from specification we gave a benefit in the urban cycle of 6.7 percent, on a car that already had high fuel economy. I’m not saying these benefits are directly translatable to heavy duty engines, but I think the lesson’s clear — by taking risks together, there’s a lot of unreleased potential we can tap into.

What services does Shell have for fleets?
The most ubiquitous one is LubeMatch, an online lubricant recommendation tool. It’s available in most countries, and it’s linked to all manufactured models, so whatever vehicle you use, it will recommend a product that is suitable. What it will also do is link that to what is available in your country. And in Germany and the UK we’re already trialling vehicle registration lookup, so if you don’t know the part of your engine or transmission, you can type in your vehicle registration number and it finds out the make and model of your vehicle and recommends the right oil.We also do some OEM partnerships based on their products and technologies. So Tata, for example, actually recommends you use Shell Rimula T2 or T3 for service fill in all heavy duty applications.And then our LubeAnalyst service could particularly be useful for large fleets — and OEMs. We provide sample bottles with instructions, customers take oil samples from machines industrial or automotive and send them to us, and we do an automated analysis and make the results available to that customer for his fleet. So you can build up a huge database for the fleet over time.

What are the data you get out of it?
About the condition of the oil. The condition of the oil tells you the condition of the machine. So on the most basic level we check, is the oil still fit for purpose? Then you need to change it. That’s the most obvious thing. But also, you can track what contaminants are in there. Are you getting wear metals? Corrosion metals? Are you getting water? Are you getting dirt? That way we can tell you what problems you’ve got with your operation — you may be operating too severely, maybe you got the wrong oil in the product, maybe you’re getting contamination from sand or salt or water, things like that.And we do all this analysis automatically. The performance of all the products is linked to basic diagnostic parameters. If you’ve got contamination, it comes up red. Wear metals? Red. Do something about it. Or something’s a bit off? It’s probably okay, but keep an eye on this machine! Basic information, but if it needs follow-up you can have our people come over and talk about it.

Do your customers need to provide you samples at any fixed frequency?
Any frequency they want. We recommend between service intervals so we can track the performance. In a sense, this is a predictive maintenance tool. And the OEM can get data on his machines all over the world, how they are performing in different markets. It’s like doing blood tests. We have OEMs in India that use it, but not Indian-parented ones.

Any services related directly to fuel-saving?
We have a service called FuelSave Partner aimed at medium- to small-sized fleets. Basically it’s an onboard diagnostic tool that analyses the driving styles of all the drivers, then you have data that you can share with the fleet manager, pointing out some of the good performers so you can reward them. And you can look at the ones lower down and identify some of the issues, maybe with heavy braking or gearchanging at the wrong timing, give them coaching in that. Under our Shell FuelSave Driver programme we have trained some 200,000 people worldwide, either directly, face-to-face, or by online simulator training.

Is this something you see value in doing in India?
Actually this is something that we are discussing with two of our OEM partners here — how we can share our knowledge and experience in driver training programmes. A number of OEMs have declared that driver training and smart usage of technology is imperative in trying to change society in the use of vehicles. That’s something we are actively trying to share, are discussing with Indian OEMs right now. What that will look like in terms of driver training programmes remains to be seen.But we are also wanting to conduct our own training with their driver users and small fleets. The status of a truck driver in India seems to be very low. In many other countries, the status of a truck driver is actually quite high — it’s a skilled job. So what we’d like to do is contribute to Indian society, improving skill levels and awareness, but also self-perception in terms of certificate programmes and qualification, so that to be a truck driver actually means something positive, a badge of honour and respect — as well as contributing to better usage of resources.