May 16, 2018
Volume 1 Issue 20
Global Base Oil Market to Shift
A global survey commissioned by ExxonMobil concluded that the number of lubricant blenders using API Group II base stocks exceeds the numbers using Group I or Group III oils. Additionally, it found that respondents expect Group III oils will be the most commonly used grade in 10 years.
“Over the next 10 years, we anticipate there will be a number of changes requiring lubricant manufacturers – and base stock manufacturers—to adjust their formulations. This has a lot to do with emissions regulations that are tightening around the world,” Ted Walko, ExxonMobil’s global base stocks and specialties marketing manager, told Lube Report in an interview.
The 2018 Base Stocks Industry Pulse Report surveyed 306 industry participants described as “base oil decision makers” – at least 100 each in the Americas, Europe and Asia – with the aim of exploring industry trends, according to the press release. The survey did not estimate or attempt to measure base oil volumes or talk in terms of them.
“It’s important to note that while we are reporting the responses received, it does not mean they are always aligned with our views. That said, we see great value in sharing the views of the industry and facilitating a discussion about them,” emphasized Walko.
Forty-three percent of respondents reported that they use Group II base stocks, the highest number for the three main grades. Forty-four percent said they expect to use Group II by 2028. By comparison, 38 percent of respondents use Group III today, and 44 percent of respondents believed they will use it in 10 years.
In the Americas, Group III is already the grade used by the most respondents – 49 percent – and 50 percent anticipate using that grade over the next 10 years. Thirty-seven percent of Americas respondents use Group II today, and 41 percent expect to by 2028.
Respondents were asked to choose what they considered the most important reasons that base oil demands will evolve during the next decade. Those most frequently considered were the push for improved fuel efficiency (49 percent), demand for higher quality lubricants (48 percent) and demands for cleaner, more environmentally friendly lubes (44 percent).
As Group II and Group III usage rise, Group I usage is expected to fall. The survey found 65 percent of companies are already using Group I base stocks at lower levels than previous years. Among the reasons given for shift were that Group II and III oils are more likely to help meet regulations (cited by 84 percent or respondents), that they are used more frequently across the industry (77 percent) and cost savings (73 percent).
Nearly three in four respondents believe that the decline of Group I significantly impacts the market, but respondents were almost evenly split on whether or not the grade’s decline has been difficult to adapt to. In the Americas, 48 percent view the adjustment as difficult, while 52 percent do not.
“Companies are primarily having to make smaller changes as opposed to more drastic measures like closing plants or refineries (15 percent), shutting down parts of their business (15 percent), taking on less work (14 percent) or laying off workers (13 percent),” the study stated. The most cited smaller changes included changing work techniques (37 percent), working with new base oil manufacturers (36 percent), changing equipment (28 percent) or relying heavily on other groups of base oils (27 percent).
“While the industry is clearly anticipating a decline in demand for Group I, we recognize that Group I base stocks will continue to be relevant and favored for specific formulations well into 2030,” Walko asserted.
Closings of Group I plants has significantly reduced supply of bright stock since those heaviest of base stocks are produced mostly by Group I plants. However, 82 percent of bright stock users responding to the survey said their companies have adapted well to the challenge. Nevertheless, 43 percent said they are still struggling to find a supplier to meet their bright stock or wax needs. A majority of companies (88 percent) have either already switched suppliers or have not yet been impacted by Group I plant closures.
Bright stock users may have more difficulty obtaining supply as the market shifts from Group I to Group II and Group III base oils.
The lubricants industry also faces challenges because of ever-stricter fuel economy and emissions mandates for automobiles. Eighty percent of survey respondents believe, however, that the industry will be able to keep up with changes. Respondents currently see Group II as the base oil grade best equipped to handle these regulations (47 percent), but Group III base stocks follow closely behind with 45 percent.
Those surveyed were even more confident in the industry’s ability to adapt to electric cars, with 83 percent claiming the industry can adapt to the changes.
“It will take a decade for electric vehicles to fully capture the market, which is a long time. So, we have plenty of time to innovate new products as per the demand,” said one respondent.
However, respondents still cited concerns about electric and autonomous vehicles, including the likelihood that it will reduce demand volumes across all base oil groups (30 percent), job loss across the lubricants industry (28 percent) and lubricant plant closures (22 percent).
“Environmental protection and energy conservation is the trend; the base oil industry will certainly be able to accept and meet this fact,” said another respondent. Seventy-six percent of respondents cited the availability of cleaner, more environmentally friendly lubricants as a reason to shy away from using Group I.
ExxonMobil currently has six Group I plant locations with a combined production capacity of 72,600 barrels per day, according to Lubes’n’Greases 2017 Global Base Oil Refining wall chart. The company’s Group II production capacity reaches more than 49,000 b/d, but its Group III capacity sits at 2,000 b/d at two plants in Europe. ExxonMobil is constructing a 20,000 b/d Group II base oil plant in Rotterdam that is scheduled to start up in the fourth quarter of this year and plans to add 6,000 b/d Group II capacity to existing 31,000 b/d capacity at its plant in Singapore.
Demand for Group III oils is rising steadily, but ExxonMobil declined to say if it intends to increase its capacity to make Group III.
“At the moment, we see Group II as the industry’s workhorse for the foreseeable future. We are currently producing a small amount of Group III in Europe and are very familiar with the product and the technology to produce it,” said Walko.
The survey was conducted in partnership with KRC Research, a global opinion research and strategy firm headquarted in Washington, D.C. ExxonMobil acknowledged that the results may not reflect sentiments for the lubricant industry as a whole for a variety of reasons.
“It’s important to consider the audiences we surveyed and recognize that some of the variation may be attributed to the oil blender, their product mix and the customer base. For example, those who blend mainly automotive may have a very different perspective when compared to those who blend mainly industrial or those who blend across the spectrum,” Walko noted.