LONDON – The global center of gravity is moving east of Suez. Asia dominates economic activity and demand growth, and Asia and the Middle East dominate base oil capacity growth, according to Purvin & Gertz.
Blake Eskew, a vice president with consultancy Purvin & Gertz in Houston, told the ICIS World Base Oils & Lubricants Conference here on Feb. 18 that demographics and the transition to market economies are powering Asias growing appetite for energy, petroleum and lubricants. At the same time, cost advantages are powering investment in base oil capacity in the Middle East.
Global economic growth is recovering, said Eskew, and Asia is leading the way. Almost 60 percent of the worlds population lives east of Suez. China and India have two-thirds of that. But east-of-Suez only has 25 percent of the worlds GDP. What that means is a huge potential for economic growth.
Mature markets in North America and Europe are stagnant, with refined product growth concentrated east of Suez, Eskew continued, and lubricant demand shows an even stronger tilt towards east of Suez.
Expect total lubricant demand in the combined North American and European markets to decline from about 17 million tons per year in 2000 to about 13 million t/y by 2030. By comparison, demand will more than double east of Suez in the same period, from about 12 million t/y to more than 26 million t/y.
Base oil demand growth through 2030 is focused on China and India, and the quality of base oil is also changing, Eskew said. [API] Group I demand east of Suez will peak in 2020, then decline. Demand for higher quality base oils will surge throughout this timespan.
Purvin & Gertz expects base oil demand in the region to rise from 15 million t/y in 2010 to nearly 24 million t/y in 2030.
Over the next 10 years, about 8 million barrels per day of new crude capacity are likely globally, Eskew went on. That refining investment is following demand growth, with nearly 60 percent of announced crude capacity additions east of Suez.
Base oil capacity additions are also concentrated east of Suez, particularly in the Middle East. The Middle East enjoys a $100 to $300 per ton production cost advantage versus Europe and Asia, Eskew said.
While base oil capacity far exceeds demand in the near term, east of Suez, demand exceeds capacity long term, through 2020. Through 2020, Eskew predicted an additional 2 million t/y of base oil capacity beyond announced projects in China alone, with another 1 million t/y beyond announced projects in the rest of the east-of-Suez region. He projected only about 500,000 t/y additional in the rest of the world.
Globally, demand for Group I is falling. It has already peaked, Eskew said. By 2020, it will make up less than half of the global base oil market.
The Middle East will have a bigger role as a base oil exporter, and Europe will become a net importer, Eskew said. By 2020, the Middle East and North America will be the big exporters.
Eskew expects significant base oil plant rationalizations in Europe and North America. Many smaller and weaker plants, particularly in Europe, are vulnerable, and many will close, he said. At the same time, there is little need for Asian rationalization, he added, although there may be some in China, and all of Australias base oil plants will soon be gone.
Europe has a high volume of high-risk and moderate-risk Group I base oil producers, Eskew concluded. Two to 3 million t/y in Europe will shut down, and supply relationships will see big changes in the next few years.