Lubricant demand within the Gulf Cooperation Council is expected to grow at a moderate pace in the coming years, as member countries diversify their economic bases to lessen dependence on the oil and gas industry, an analysis of the region’s lubricant market found.
“The Middle East region was home to some of the fastest-growing economies in the world and is continuing to develop swiftly; however, its growth is heavily dependent on the petroleum sector,” explained David Tsui, project manager with Kline & Co.’s energy practice, during a webinar on Oct. 14 about its study, “Opportunities in Lubricants: Middle East Market Analysis.”
The study covered Bahrain, Oman, Saudi Arabia, Kuwait, Qatar, and the United Arab Emirates. Tsui noted that “low oil prices and political unrest have slowed down this growth; if it weren’t for those factors, the region would be growing much faster.”
Kline forecasts that finished lube demand in the union will grow at a compound annual rate of 1.3% between 2019 and 2024, and then slow to a CAGR of 1% between 2024 and 2029 as investments in infrastructure will decline, with many projects having broken ground and falling into a steady state.
The economies of council members are fueled by the oil and gas industry, which generates great wealth and allows a large portion of the population to enjoy a relatively high standard of living. However, the dramatic fluctuations in crude oil prices over recent years drove governments to steer away from so much oil dependence.
The region is making significant investments to promote industries other than oil and gas after an oil dip in 2015-2016. “They are trying to boost manufacturing in the region and set up additional free trade zones,” Tsui said. “It is already a huge trade hub as it is, so it makes sense to grow those segments.”
This year will be slightly different due to the coronavirus pandemic, with oil prices seeing a sharp drop, and Kline predicts that the region will likely experience a partial recovery after the lockdowns. Consumer lubricant demand will be 20% below 2019 levels, and this segment will bear the brunt of the decline because people are not allowed to go out and use their cars, Tsui said, while consumer confidence will also suffer.
Tsui pointed out that due to the high level of income in the Middle East, the average age of cars is only 5.1 years, compared to that of cars in the United States, which is about 12 years.
While most commercial applications are tied to the marine segment, the drive to establish and expand manufacturing, trading, production and mining will encourage use of higher-performance industrial lubricants as new equipment is installed, he said. Original equipment manufacturers in the industrial segment will continue to drive performance specifications through lubricant recommendations. Synthetic lubricant use is likely to grow with the import of high-performance equipment, helping propel commercial lubricant consumption growth between 2019 and 2024.
Commercial automotive lubricant demand totaled between 300,000 and 400,000 tons last year, while industrial lubricant demand reached about 200,000-300,000 tons and consumer automotive consumption about 100,000-200,000 tons, according to Kline’s assessments.
Automotive engine oils account for about 60% of the region’s lube demand, with heavy-duty motor oil the dominant type as it represents 42% and passenger car motor oil only about 20%.
Among industrial oils, process oils and hydraulic fluids are the two leading types, and the U.A.E. has a large marine segment, accounting for 70 percent of the region’s marine engine oil consumption.
Heavy-duty motor oil demand totaled 500,000 tons last year, with SAE 15W-40 the main viscosity grade consumed in the region, accounting for about 54% of the total. The 20W-50 category follows with 17%.
“Demand for monograde is quite high, but that’s going away quickly because of the Gulf Standardization Organization’s GSO 1785/2013 standard, which requires API CH-4 as the minimum service category to be used in Gulf Cooperation Council nations,” Tsui explained. “This essentially prohibits the sale of older API service categories, and monograde lubricants are not typically offered in these service categories. Most of the leading manufacturers have basically dropped monogrades from their product portfolios.” With the GSO eliminating obsolete engine oil categories, use of monograde engine oils declined from 45% to just over 2% of heavy-duty motor oil demand.
Within the passenger car motor oil segment, 20W-50 is seen as the preferred viscosity grade, accounting for 67% of total demand. Tsui explained that consumers in the region still believe that the hot, harsh environment and the dusty conditions require more frequent oil changes and a heavier-viscosity oil. Meanwhile, monogrades have pretty much disappeared within the passenger car segment, although they stayed around because of their viscosity and low price point.
Synthetic lube penetration in the region is only about 30 percent of the overall market, but it varies depending on the country and the segment. In the industrial and commercial segment, synthetics penetration is fairly low, but in the consumer segment, it appears to be higher due to the young car parc that follows the OEM recommendations.
Petromin, Saudi Arabia’s largest lubricants and automotive services company, is the region’s leading lubricant supplier, commanding 18% of the overall market due to its dominance within Saudi Arabia, as well as its presence in some oother GCC countries. The company has a large presence in the industrial and commercial segments.
Anglo-Dutch oil giant Shell follows holds the second position, ranking within the top five suppliers in each of the profiled countries. BP and ExxonMobil round out the top four multinational suppliers, with a leading position for BP in Kuwait and a strong presence in Oman.
Emirates National Oil Co. and Abu Dhabi National Oil Co. are state-owned oil companies of the U.A.E., and while these companies supply lubricants to many countries in the region, they collectively account for almost 36% of the market share in the U.A.E. Other suppliers active in the region include Cofran/Valvoline, Bahrain Petroleum Co., Idemitsu, SK, Caltex, Oscar and Armor Lubricants.