Electrification will also affect heavy-duty motor oils, the firm projects, causing demand for that product category to flatline at around 8.4 million metric tons annually in the coming years and to decline 3% by 2040, compared to 2019.

Electrification is just one of several trends making an increasing impact on global base oils and lubricants markets, Luzuriaga said.

“The industry is facing a number of emerging developments that are changing the supply-demand balance in a fundamental way,” he said during his Nov. 16 presentation. “These trends include urbanization, shared economy, digitalization, asset autonomy, electrification of the vehicle parc and omni-channel integration.”

However, the most important trend that is becoming a mega factor in many industry sectors is sustainability, Kline says, which is pushing the global economy to decarbonize.

In recent years, corporations and governments have rushed to declare tiimelines for reducing greenhouse gas emissions.

“As regulators push for zero emission targets and carbon neutrality with new environment, social and governance standards, companies will need to make full disclosure to investors and financial and credit agencies making carbon neutrality the centerpiece of their boardroom agendas going forward,” Luzuriaga said, adding that to achieve these goals several technologies are vying for the leadership position.

Kline believes that the technologies and road to net-zero will keep changing at the expense of the development of the internal combustion engine and that traditional processes for developing engine oil performance standards will be sidelined. 

For example, last year the European Union resolved to require all new cars sold to be electric by 2035. Since vehicles running solely on batteries do not use engine oil, this would significantly reduce demand for that category of lubes.

Global lubricant demand stood at around 40 million tons in 2021, 8% higher than 2020 and just short of the level for 2019. Global base oil demand reached 36.2 million tons last year, according to Kline.

The firm estimated that lubricant demand in Europe – including Russia, Ukraine and Belarus but not other former Soviet republics – reached around 6 million tons in 2021, a 2% increase from the pandemic restrictions-impacted 2020, but still 10% lower than 2019.

The macro trends of vehicle electrification and sustainability will cause a rapid decline in demand for low-performance base stocks that cannot be used in fuel economy engine oil formulations, Luzuriaga said. They will also lead to emergence of new product categories, such heat transfer fluids for immersion cooling in EVs and other applications, the closing of base oil plants or shelving of base oil investments due to reduced demand and unfavorable economics.”

Luzuriaga said that the global base oil market has an overall supply surplus that puts pressure on pricing, thereby creating a buyer’s market. For example, supply is long in every region of the world except South America and Oceania.

“In terms of product type the Group I market is more or less balanced, but we have a big surplus of Group II and II+ products, less surplus in Group III and III+ products and a slight shortage of supply in the naphthenic base oils,” he said

To date EVs have been purchased mostly in a relatively small number of developed countries, and Kline predicted they will account for more than half of vehicle parcs in some countries by 2040.

These countries include Norway, Japan, France and South Korea. In countries such as China or the United Kingdom, the EV penetration would be around 40% by 2040, while in Canada, Germany, United States or Australia EVs would account for around 30% of the total vehicle fleet.

“EV markets will be continuously driven by government policies and plans, with battery electric vehicles outperforming other EV technologies and growing at a compound annual growth rate of 20% in the forecasted period,” Luzuriaga said.