LONDON – The global lubricants industry is facing new challenges from geopolitical and economic events, such as wars in Ukraine and the Middle East, supply route weaponization, climate change and China’s economic slowdown, a Chevron official said during an industry event here.
Alicia Logan, general manager of Chevron’s base oils business, expressed concerns about how such events are interconnected and might lead to unexpected disruptions, akin to a “perfect storm.”
She noted that 2024 is a significant elections year, with nearly half of the world’s population set to participate in elections in countries, such as India, Russia, the United States, Taiwan, Pakistan, and the United Kingdom.
Speaking at the Argus Global Base Oils conference Tuesday, she said the results of these elections, coupled with the rise of nationalism, could have far-reaching implications for the lubricants industry. The political uncertainty surrounding these elections could stir up many issues for the industry. The escalating geopolitical tensions in the Middle East and in Eastern Europe – areas key to global food and energy supply – caused trade fragmentation in the form of nearshoring and friend-shoring, and this is restricting the trade, according to Chevron.
“The conflict in the Middle East has led to the weaponization of supply routes, with around 20% of the world’s oil and gas passing through the Suez Canal to get to the market,” Logan said. “Escalating geopolitical tensions have caused traders and suppliers to seek alternative routes, leading to longer and more expensive supply chains.”
Another challenge is the economic slowdown in China, which recorded its lowest growth rate since 1990. China’s economy has a strong effect on the world economy, Logan said.
Moreover, the U.S. is now importing more goods from Mexico than in the past 20 years, highlighting shifts in trade patterns. Additionally, higher interest rates are increasing the cost of doing business.
Climate change is another significant concern, Logan said, emphasizing that lubricants will play a major role in the journey to lower-carbon energy solutions. She discussed the role of lubricants in reducing friction and improving engine efficiency, which can contribute to lower carbon emissions. She highlighted the importance of API Group III base oils in formulating modern, low-viscosity lubricants.
Logan also talked about the concept of net-zero carbon emissions in a circular economy, where rerefined base oils could play a big role. However, challenges remain in terms of rerefined base oil supply chain fragmentation and varying quality across regions.
“The world is consuming over a 100 billion tons of materials annually and only 7% of those materials have been recycled,” she said. “These are materials like steel and other metal, chemicals, plastics, textile, paper and carboard.” Regarding the electric vehicles, Logan mentioned varying adoption rates worldwide, with stronger adoption in the U.S., Europe and China than in developing regions like Africa, Southeast Asia, India and Central and South America.