Demand for lubricants in the United States reached nearly 2.8 billion gallons in 2005. Thats a lot of juice. To put it in perspective, it would take 51 million drums to package it. Its nearly equivalent to the volume of water in North Carolinas massive Cane Creek Reservoir. And if we are talking about rail, imagine sitting at a railroad crossing while 110,000 tankcars filled with lubricants pass by. If they are moving at 20 mph, youre going to be waiting about 50 hours before seeing the tail on that 1,000 mile-long snake.
So where is all this lubricant going? To start, most of it is winding its way up from the Gulf Coast into the heartland of America. This is the region the U.S. government refers to as Petroleum Administration for Defense District 2 (PADD 2). PADD 2 accounts for an estimated 33 percent of the total lubricant consumed in the United States.
The second-leading region (and a growing one at that) is PADD 1-S, the Southeast, with close to 19 percent of demand. With the exception of PADD 4, lubricant demand in the other districts is relatively balanced at close to 15 percent each. Big sky country and the other sparsely populated states in PADD 4 account for the rest.
Industry First
Regardless of where it is consumed, the single largest portion of the lubricant gobbled up in the United States – some 49 percent of the total in 29005 – goes to industrial applications, according to research by Petroleum Trends International. Within this segment, which includes process oil, metalworking fluids, hydraulic fluids, turbine and compressor oils, gear oils, greases and other industrial lubricants, process oil is by far the largest product category. Process oil includes white oils, transformer oils, oils used in rubber processing and ink manufacturing, and a number of other paraffinic, paphthenic and aromatic oils used in a wide range of industrial processes.
Thirst for process oil reached close to 600 million gallons in 2005, or 45 percent of the industrial lubricant total. Keep in mind that most process oil is sold in bulk directly to end users by the major oil companies. As such, its a product segment with relatively low visibility among lubricant marketers and independent manufacturers. And dont be fooled. Although certainly ExxonMobil, Chevron, Shell, and ConocoPhillips make and sell process oils, they are not the big boys on the block. Here the action on the supply side comes from such specialists as Calumet, Chemturra, Citgo, Cross Oil, Ergon, Penneco, and Sunoco.
Metalworking fluids represent the second-largest segment in industrial lubricants and include such products as cutting, forming, treating and protecting fluids. When you include soluble nd synthetic formulations, metalworking fluids accounted for just under 200 million gallons of U.S. demand in 2005. And once again, with the exceptions of BP-Castrol and ExxonMobile, the majors are not out in front. Market leaders here include Quaker Chemical, D.A. Stuart, Henkel, Fuchs, Milacron, Acheson Colloids and a number of other independent companies.
PADD 2 leads in demand for industrial lubricants (see map, page 34). This region alone consumes close to 36 percent all the industrial lubricants in the United States. And when you think about the number of automobile manufacturers, machine shops, mills and other companies that drill, draw, form, treat, and otherwise shape metal in the Midwest, its not hard to understand why nearly 50 percent of the metalworking fluids consumed in the United States go into PADD 2.
So if you are looking for action in the industrial segment start by poking around in PADDs 2 and 1-5. Also, think about white oils and greases used in food processing; this is a growing high-value market. Knock on the doors of companies that use rubber oils and electrical oils. Trends in these industries suggest growth opportunities as well. And dont get synthetics. Demand in the industrial segment for specialty PAO, esters and other synthetics continues to climb.
Consumer Automotive
In terms of size, industrial lubricants are followed by the consumer automotive market segment. This segment comprises passenger car engine oil, transmission fluid, gear oil, grease, and shock absorber fluid. When taken together, the consumer automotive market segment accounted for close to 850 million gallons in 2005.
Passenger car engine oil represents nearly 85 percent of the segment total. This product is dominated by the major oil companies who command nearly 80 percent of PCEO volume. But take note: Independent lubricant manufacturers are putting some heat on the majors as they continue to jump on the private-label bandwagon. If you are looking for big action in the consumer automotive segment focus attention on private label and mid-tier space. Although the overall volume of consumer automotive lubricant is forecast to decline over the next five years, private label is growing rapidly, and the majors have done an excellent job shifting attention from volume to value by growing mid-tier space. This space includes engine oil designed for old cars, new cars, fast cars, big cars, and small, cars that do a lot of stop-and-go driving, and others.
Commercial: Up Next
Commercial automotive lubricants are the third and final market segment in the lubricant business. Demand for these lubricants reached an estimated 625 million gallons in 2006, with roughly 75 percent being heavy-duty engine oil.
Next months column will take a closer look at the action in this key segment.