PORTLAND
MARKET
REPORT
November update
It’s always diffi cult to gauge the temperature
of any particular industry at their annual
exhibition and conference. Let’s face it the
kind of companies that attend these events
have typically had a good year (how else can
you justify the time and cost of attending)
and most attendees are determined to enjoy
themselves at the lavish drinks and cocktail
receptions put on by suppliers.
Such was the mood at this month’s UEIL
(Union of the European Lubricants Industry)
Annual Congress held in Budapest for the
European Lubricant Industry. More technical
than other parts of the oil sector and certainly
less affected by the immediacy of price
volatility (lubricants tend to be sold on long-
term contracts rather than traded on the spot
market), the global lubes industry nonetheless
faces the same problems as the wider oil
sector, as it addresses declining consumption
in key markets and the onset of automotive
electrifi cation.
Oil based lubricants are unusual in that
they can be found at the top and bottom of
the “barrel” in the refi ning process. Synthetic
and higher quality lubricants (typically higher
spec but lower volumes) are made from the
light-ends that that boil early in the crude
manufacturing process and go through the
petro-chemical process before creating the
lubricant fi nal product. At the other end of
the scale, base oil lubricants (lower quality
but mass volume) sink to the bottom of the
refi ning tower and take much longer to boil
(higher boiling point) before being drawn off
as a bulky and viscous “syrup”. Whether used
for high-end, pressurised apparatus (synthetic)
or low-end bog-standard machinery (base oil),
lubricants are required wherever 2 (normally)
metal working parts come into contact with
each other. Every engine, piston, turbine, power
transmission system and mechanical lift in
the world use lubricants as well as all kinds of
auxiliary applications in medical equipment,
refrigeration, gas sealants, cooling equipment
and anti-corrosion agents. By using a lubricant,
the lifetime of any working part is preserved
almost infi nitesimally – which is why engineers
love lubricants and the industry itself can often
seem like a giant engineering geekfest.
A WHOPPING 65% OF ALL
LUBRICANTS CURRENTLY
SOLD GO INTO THE
INTERNAL COMBUSTION
ENGINE
Because lubes aren’t combusted for
energy release, volume consumption (and CO2
emissions) tends to be lower than with other
refi ned fuel products (petrol, diesel, jet fuel etc).
In turn, margins tend to be much, much better,
which is why the lubricants industry very much
remains big business. It is dominated by the
usual oil major suspects (ExxonMobil, Shell,
Chevron BP etc), who sell over 35m tonnes of
lubricant products every year – which means
that on the day you read this report, over
110m litres of lubricants will be consumed!
Unsurprisingly it is also a global business with
signifi cant sales in every country of the world
and whilst consumption has stabilised in
the West (due to engine and manufacturing
effi ciencies), lubricant demand in the rest of
the world continues to shoot upwards. This is
particularly the case in (you’ve guessed it) Asia,
where global market share of all lubricants
went up from 33% to 47% in the 10 years
between 2007 and 2017.
But for all the growth (and excitement)
around the lubrifi cation of Asia (and the rest
of the developing world), storm clouds are
now gathering above this industry. Perhaps
not on the existential scale facing the likes of
the diesel market, but nonetheless, headwinds
so strong that the industry will inevitably have
to change and even scale down to survive.
A whopping 65% of all lubricants currently
sold go into the internal combustion engine
(ICE), but if automotive electrifi cation is to
become a reality, then standard lubricant use
will drastically reduce. It is true that certain
uses for lubricants will increase in electric
cars, particularly those products that look
after the electric motor and the heat / power
transmission. So expect big demand (and
premiums) on coolants, gear oils and greases.
But bog-standard engine oil (designed to
preserve internal ICE mechanisms and wash
away the build-up of carbon matter) would be
made virtually redundant in electric vehicles,
where material deposits are non-existent and
the number of working parts much reduced.
Industry optimists understandably
highlight the technical heritage of the lubes
industry, which they say will allow the industry
to transition to electrifi cation by formulating
new and different products. Furthermore, they
point out that the industry has seen volume
downturns in the past and has effectively dealt
with them. The 1970s and 80s for example
saw heavy manufacturing disappear from large
parts of the developed world and the result was
a drastic reduction in demand for industrial
lubricants (at the time, the biggest lube sector).
In this case, the industry was quick to react by
shifting supply to new regions (the developing
world) and areas (passenger cars) of demand.
However, when we look into the Portland
crystal ball, it is diffi cult to see what new
regions or products will rescue the lubricants
industry post electrifi cation of the automotive
space. Short of even more people populating
the globe, the inevitable outcome of electric
vehicles, coupled with a general improvement
in industrial processes, fundamentally means
fewer lubricants being used. Of course, this
most technical of the oil industries will be
capable of adapting and has quite a few years
of life yet. But if electric automation does
become a reality, then it seems inevitable that
the scale of the lubes industry will be reduced,
and its nature will become considerably more
specialised.
For more pricing
information, see
page 22
Portland Fuel Price Protection
www.portland-fuel-price-protection.com
Fuel Oil News | November 2018 9