A Fast Track to Group III Base Oils

14 June 2011

ICIS Asian Base Oils and Lubricants Conference - Seoul, Republic of Korea

Harry KwonMarketing Manager

Contents

1. Engine Oil Future Trend

2. Base Oil Future Demand

3. SK’s Future Expansion Plans

4. Conclusion

1

2

Engine Oil Requirements

Long Drain

Interval

Fuel Economy

EmissionControl

Long Drain

Interval

FuelEconomy

Oil + FMStability

High Temp

Viscosity

High VI Base Oils

MaintainOptimumViscosity

Engine Oil Requirements

PerformanceDemands

DesirableProperties

3

EngineProtec-

tion

FuelEconomy

LowVolatility

LowerSAE

Viscosity

Low Temp

Viscosity

LowerFrictionEngines

Easier start-up/warm-up

Engine Oil Requirements

4

PerformanceDemands

DesirableProperties

5

Engine Oil Requirements

EmissionControl

LowMetal/P/S

Lower SAPS

※ SAPS = Sulfated Ash, Phosphorus and Sulfur

PerformanceDemands

DesirableProperties

Governments Lead Innovation – USA

Miles per gallon 2011 CAFE 2016 CAFE

Cars 27.5 42

Light duty trucks 24 26

Combined Fleet 27.3 35.5

53 %Increase

6

Gasoline engine CAFE requirements by 2016

35.5 mile per gallon (≒15.1 km/L).U.S. Government

19 May 2009

※ CAFE = Corporate Average Fuel Economy

7

Governments Lead Innovation – USA

※ EPA = Environmental Protection Agency ※ NHTSA = National Highway Traffic Safety Administration

EPA & NHTSA : 25 October 2010New HD Diesel Vehicles Program

Fuel efficient HD diesel engine oils

– Lower operating viscosities: 5W-40, 5W-30, 0W-30

8

2012130g

CO2/km202095g

CO2/km

Governments Lead Innovation – Europe

9

New Global Standard – ILSAC GF-5

First licensing date : 1 October 2010

Sequence VID : New fuel economy engine test- Aged oil low temperature viscosity limits- Stronger engine protection & stronger protection

of emission control systems

※ ILSAC = International Lubricant Standardization and Approval Committee

10Source: Motor Information Systems: 2009 and 2010 model years

OEM Movement to Lower Viscosity

OEM OW-20 5W-20 5W-30

Toyota 1.8L, 2.4L, 2.5L, 2.7L, 4.0L, 4.6L, 4.8L, 5.7L Main Grade

1.5L, 3.5L

Ford Cars, TrucksMain Grade

4.0L5.4L (5W-50)

GM, Chevrolet Cars & Trucks Main Grade

Honda Civic Hybrid: 1.3L, Insight Main Grade

Nissan AltimaHybrid 2.5L Main Grade

Hyundai Main Grade

ChryslerMain Grade

2.4L turbo (xW-40)

3.5L (10W-30)

11

Group III

Mid SAPS

OEM

C2

Value

5W-305W-40

Low SAPS

C4 +OEM

C1

Group III

5W-30

Performance

Top Tier

Market Structure – Western Europe

Source: The Lubrizol Corporation, 2010

Premium market tier

5W-30 “lower SAPS” engine oils

Group III Base Oil Only

HIGH HTHS (>3.5cP)

LOW HTHS (<3.5cP)

12

PCMO Demand Change by Viscosity Grade – Western Europe

Source: The Lubrizol Corporation, 2010

13

HDEO Lube Quality Upgrade – China

Source: Infineum Trends 2010

High Tier : API CG-4 and aboveLow Tier : API CF-4 and below

14

PCMO Lube Quality Upgrade – China

Source: Infineum Trends 2010

High Tier : API SL and aboveLow Tier : API SJ and below

Contents

1. Engine Oil Future Trend

2. Base Oil Future Demand

3. SK’s Future Expansion Plans

4. Conclusion

15

16

Global Demand for Base Oil

UNIT : KTPA

-

1,000

2,000

3,000

4,000

5,000

6,000

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2006 2009 2012 2015

Base Oil Total Global Group III Base Oil

Group III Demand

17

Base Oil Demand – North America

UNIT : KTPA

400

500

600

700

800

900

1,000

1,100

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2006 2009 2012 2015

Base Oil Total Group III Base Oil

Group III Demand

18

Base Oil Demand – Western Europe

UNIT : KTPA

100

200

300

400

500

600

700

800

900

1,000

1,100

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2006 2009 2012 2015

Base Oil Total Group III Base Oil

Group III Demand

19

Base Oil Demand – Asia Pacific

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2006 2009 2012 2015

Base Oil Total Group III Base Oil

UNIT : KTPA Group III Demand

20

Motor Vehicles/Lubricant Demand – China

UNIT : MILLION

Source: The Freedonia Group, Inc.

-

2,000

4,000

6,000

8,000

10,000

12,000

-

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

1997 2002 2007 2012 2017

Motor Vehicles in Use Lubricant Demand

UNIT : KTPA

Lubricant Demand

21

-

500

1,000

1,500

2,000

2,500

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

1997 2002 2007 2012 2017

Motor Vehicles in Use Lubricant Demand

Motor Vehicles/Lubricant Demand – India

UNIT : MILLIONUNIT : KTPA

Lubricant Demand

Source: The Freedonia Group, Inc.

22

5.0%

59.0%

36%

2006

Group III Base Oil

Group I Base Oil

Others

Group III Base Oil Share Increase

17.7%

37.0%

45.3%

2015

Group III Base Oil

Group I Base Oil

Others

Contents

1. Engine Oil Future Trend

2. Base Oil Future Demand

3. SK’s Future Expansion Plans

4. Conclusion

23

Current Status & Future Expansion

24

`14. 1Q

`12. 2H

SK is the largest Group III Supplier in the world

Future Capacity = Current Capacity X 2

Production Capacity

25

`95

Revamp

`01

Revamp

`04 `06 `08 `12.1H

Revamp

`12.2H `14 ~

#1

#2

#3

#4

#52,750K MT

1,360K MTAS-IS (2011)

TO-BE (2014)

+500K MT

+650K MT

+ 240K MT

YUBASE Global Network

26

Indonesia

Ulsan

Tokyo

Amsterdam

Houston

Jakarta

Seoul

Plants Branches Terminals Agents/Distributors

Contents

1. Base Oil Market Trend

2. Base Oil Future Demand

3. SK’s Future Expansion Plans

4. Conclusion

27

28

Conclusion

Long Drain

Interval

Fuel Economy

EmissionControl

Group III Base Oil

29

Conclusion

UNIT : KTPA

-

1,000

2,000

3,000

4,000

5,000

6,000

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2006 2009 2012 2015

Base Oil Total Global Group III Base Oil

Group III Demand

30

Conclusion

The capacity of SK Lubricants will be more than double ofcurrent capacity and SK Lubricants will give more stable

supply for customers.

Thank you for your attention

31