The China-Pakistan Economic Corridor (CPEC) is set to overhaul Pakistans infrastructure and strengthen its economy, which could increase its annual base oil demand by 143,000 metric tons and finished lubricants by 190,000 metric tons, according to an industry executive.
Speaking in Dubai at the 14th ICIS Middle Eastern Base Oils and Lubricants conference in October, Yasin Rizvi, chief operating officer of Pakistans Hascol Petroleum, said the scope of the project, which is part of Chinas One Belt One Road Initiative, is wide. It includes investment in energy, highway and railways construction, as well as development of the port of Gwadar and numerous other projects in the countrys industrial and mass transportation sectors.
The extent of the impact CPEC could have on Pakistans economy suggests the domestic market will not be able to meet the surge in base oil and lubricant demand, Rizvi said, noting that he expects regional suppliers in the Middle East Gulf and Iran to fill the void.
Pakistans sole base oil refiner, National Refinery Ltd., supplies around 73 percent of the countrys approximately 360,000 metric tons per year of base oil requirements. NRL has a capacity of 200,000 t/y of API Group I heavy viscosity and medium viscosity base oil grades. It also resells some locally sourced base oils and some imported Group I/II/III feedstock.
As CPEC progresses, the use of sophisticated construction machinery and automobiles will push the market to Group II and Group III base oils, Rizvi claims. The industrial sector will also undergo a major shift from conventional to better-performing products, he added. Examples include Group II/III turbine oils used in power plant applications, as well as high-efficiency hydraulic oils.
In contrast to many other lubricant markets - such as the United States and Europe, which are static or even declining - Pakistan looks to have plenty of upside potential, according to Rizvi.
By 2022, Rizvi believes base oil demand will reach 503,000 t/y, with imports accounting for 53 percent of that volume. The impact will be even more evident in the finished lubricants sector, he noted.
Exempt of the CPEC effect, the lubricant market is growing around 3 to 4 percent per year and is forecast to reach 490,000 t/y by 2022. But when expectations for CPEC are factored in, that figure could reach 559,000 t/y - a 40 percent increase from current volumes, Rizvi said.
That translates into big gains for multinationals, which could see sales grow more than 60 percent by 2022 amid similar gains for Pakistan State Oil Corp. The main segments will be passenger car and motorcycle motor oils and heavy-duty diesel oil, as consumption of lubricants and greases to the construction sector and power sectors will be significant. Heightened construction will also fuel a boom in cement production, lifting capacity in the next two to three years to 72 million t/y. That will increase the cement industrys lubricant demand from 2,500 t/y to 4,200 t/y.
Strong growth in the next five years will increase the likelihood of qualitative improvements in passenger car and motorcycle engine oils. Currently, API SF grade oils account for approximately 30 percent of the market, but that is set to decline to 10 percent by 2022. API SL, which currently hold a 15 percent share, will increase to 20 percent, and API SM/SN will rise from 15 percent to 30 percent in the same period. Still, it is not a complete transformation. API SG, which is around 40 percent of the market today, will retain a similar share by 2022. That is due to the expansion of the two- and three-wheeler market.
Truck sales in 2016 amounted to 219,000, but that figure is forecast to reach 320,000 by 2022, according to the Pakistan Automotive Manufacturers Association. In the same period, light commercial vehicle sales are forecast to almost double from 270,000 in 2016 to 530,000.
As with the passenger car and motorcycle market, the quality of oils used is also evolving. That is most evident in the projected increase in use of API CI-4, which currently accounts for around 10 percent of the market but is anticipated to command a share of 29 percent by 2022. The knock-on effect will dampen demand for other lower-grade oils with the exception of API CF/CF-4, which is predicted to increase from a 17 to 20 percent share. All of these changes in market dynamics will push additive companies to design packages specifically for the Pakistan market, Rizvi believes.
With the CPEC-inspired boom, it is no surprise Chinese original equipment manufacturers are flocking to the market. They are setting up and are active in the bus, trucks and jeeps sector - most of their products consume API CI-4 grades, Rizvi told delegates. That explains the predicted gravitation away from CH-4 in favor of CI-4. In general, the use higher-quality API grades will be due to demand from the mining and constructions sector - two major components of CPEC.