Kline has projected that global lubricant demand, which sunk below 34 million tons per year in the recent recession, will return to 2007 levels of about 40 million t/y by 2013, but bad news from Europe could delay this recovery, Phadke said. Its the area of biggest uncertainty.

In North America, consumer spending has not picked up. Top-tier lubricant brands have fared worse than private label and unbranded, he continued. Lube markets in North America will stagnate or decline. Asia is the bright spot. Chinas and Indias stimulus packages have worked.

The recession has affected automotive production differently in different regions, Phadke noted, with production holding steady or rising in Asia, while it plummeted in Europe and the Americas. China became the worlds largest auto manufacturer in 2008 and is now bigger than the NAFTA region, he said, while North American OEMs were distressed before the recession and almost went under in 2009.

Group Is shift from mainstream to a niche product for metalworking fluids, process oils and bright stock applications has been accelerated by the recession, said Phadke. Most reduction in Group I supply will occur in Western Europe, but other regions will also see a reduction in supply. In contrast, Group II and II+ suppliers are trying to occupy the middle space by having the right balance of properties.

Group II base oils are widely produced today, with even more sources projected over the next decade. The Group II majors will include Chevron and its GS Caltex joint venture (with a projected combined 65,000 barrels per day of Group II capacity by 2019), Motiva (40,000 b/d), ExxonMobil (33,000 b/d), Excel Paralubes (22,000 b/d) and S-Oil (20,000 b/d). Fifteen other second-tier suppliers will have about 3,000 to 13,000 b/d of capacity each. This wide availability will spur substitution of Group I, Phadke said.

By 2019, A few large players will dominate the Group III market, accounting for over 85 percent of global Group III supply. These are Koreas SK Lubricants (with nearly 50,000 b/d of Group III capacity by 2019, together with its jv partners) and S-Oil (20,000 b/d), Shells Qatar gas-to-liquids plant (30,000 b/d), and Neste and its joint ventures (22,000 b/d). Availability of Group III in Asia suggests that it will be used there as the factory-fill product of choice, even if there is no technical demand.

Over the next decade Group III demand will almost double from todays 30,000-plus b/d to over 60,000 b/d based on the current rate of passenger car motor oils shifting to 5W grades, Phadke continued, and a faster transition to 5W grades is possible. Emerging markets have jumped a generation, from 15W to 5W grades.

But supply, as noted above, will far outpace demand, resulting in a significant Group III surplus if all the planned plants come on stream. Group III marketers have to focus on Asia for their growth, Phadke said.

These broad contours of the coming base stock market are widely accepted, Phadke concluded. But some big questions remain, including:

Where, and by how much, will Group I supply shrink?
Which industrial applications will be penetrated by Group II?
Will the passenger car motor oil shift to 5Ws accelerate? By how much? Will it be accepted in Asia?
Where will surplus Group III be placed?