Process oils are the largest segment of Indias lubricant market, Banerjee said, accounting for approximately 30 percent of the nations overall lube demand of 2.4 million metric tons per year. BPCL pegs domestic production of white oils at approximately 350,000 t/y and transformer oils at around 140,000 t/y.

In many more temperate climates, naphthenics have long been the base stock of choice for transformer oils. Pale oils offer lower pour points than paraffinics and also have better solubility. But low-temperature performance is seldom an issue in India, Banerjee pointed out. In addition, Group II oil has been readily available, so 80 percent of the transformer oils made here are manufactured using paraffinic base stocks.

BPCL contends that the Indian market is trending toward naphthenics because transformer manufacturers are increasingly interested in complying with international specifications.

The public sector oil company predicts that in five years, 30 percent of transformer oils produced in India will be made from pales oils. It also forecasts that the portion of fluids made from Group III stocks will grow from 3 percent to 8 percent, largely due to Shells marketing of products made from gas-to-liquids base oils. Cargill has set a goal that its transformer oils made from esters will grab up to 7 percent of the market, and BPCL predicted the U.S.-based company will have at least 2 percent by 2020.

Transformer oils are used to insulate and prevent arcing in electrical transformers and to cool the transformer system. BPCL estimates the value of Indias transformer oil market at 14 billion to 15 billion rupees (U.S. $220 million to $236 million) – about two thirds of that amount from sales to transformer manufacturers and the rest from the replacement market.

Indias demand for transformer oils is projected to grow at a compound average growth rate of approximately 5 percent through 2020, Banerjee said, thanks to expectations that India will make the large investments that are needed in its electrical grid. Around 40 percent of transformer oil demand is from state electricity boards, which procure through public tenders, thus squeezing profit margins. The low quality standards of these boards creates opportunities for small players to compete on price, he added.

Unlike the overall lubricants market, Indian national oil companies do not hold a significant share of the transformer oils market. Apar Industries and Savita Chemicals are the two largest players, accounting for a combined market share of 70 percent to 75 percent. Other significant players include Raj Petro Specialities, GP Petroleums, Columbia Petrochemicals and Panama Petrochem.

White oils are another category that is showing significant growth potential in the next five years. The growing demand for cosmetics, pharmaceuticals and personal care products is driving the demand for liquid paraffins and white oils in the country. The fast-moving consumer goods sector in the country is projected to register a CAGR of 14.7percent between 2012 and 2020. Hair oils and baby oils are the major end applications of white mineral oils in India. Dabur, Marico, Emami, Hindustan Unilever, P&G, Paras, etc. are the major consumers of white oils in the country.

White oils and transformer oils have huge market potential in coming years, Banerjee said. However they are low-margin, high-volume products.