It estimated 2010 global base oil demand at 35 million tons. Of that, 69 percent was API Group I, 16 percent was Group II, six percent was Group III, one percent was Group IV (polyalphaolefins) and eight percent was Group V (naphthenic oils, vegetable base oils and other types).

Economic growth east of Suez – a phrase Purvin & Gertz uses to designate the emerging markets of Middle East, India and China – will see a rapid growth in base oil demand.

However, the developing markets of Brazil, Commonwealth of Independent States and Africa, will see a slight growth of base oil demand as their economies grow slower, said Leavens, who is based at the consultancys London office, noting that base oil demand growth in these regions wouldnt be nearly as strong as that in the Middle East and Asia.

Emerging markets east of Suez will easily overtake the total base oil demand of the mature markets, according to Purvin & Gertz. Middle East and Asia will double its base oil demand by 2030 to almost 27 million tons, up from only around 13 million tons in 2000, said Leavens.

Announced base oil capacity additions should result in more Group II and Group III base oil supply in North America and Europe. Up to 1 million tons of Group II capacity additions are expected in the United States by 2013. More Group III capacities are also expected in Europe and in Asia-Pacific (China, South Korea and India), Leavens said.

Leavens said that Hindustan Petroleum has completed an upgrade project at its Mumbai refinery to make Group II and III base oils, and he expects that the plants remaining Group I capacity will be closed before the year is out. Prior to the upgrade, the plant had capacity to make about 330,000 tons per year of Group I.

SK Lubricants Group III project (a joint venture with Spains Repsol YPF) in Cartagena, Spain, and Shell-Qatar Petroleums Pearl gas-to-liquid plant in Qatar will add significant quantities of higher quality base stocks in Europe and Middle East.

Group I base oil is expected to stay a dominant base stock for lubricant blending until 2020, according to the consultancy. However, we forecast that by 2030, the combined demand for Group II and Group III base oils will exceed Group I demand, Leavens said. These demand increases will be primarily brought by engine performance and fuel economy requirements.

A combination of factors is driving these base oil quality changes, he said. First, government regulations are looking for lower exhaust emissions and better fuel economy. It puts pressure on OEMs for making advanced engine technologies, exhaust gas after-treatment systems and soot control. These developments put certain requirements on the lubricants used. This in turn triggers an interaction between lubricants and additives companies to manufacture additives packages for lower SAPS [sulphated ash, phosphorus, sulfur], viscosity and volatility. All these properties are driving markets toward higher utilization of Group II and Group III base oils and lower viscosity grades in most engine oil formulations, according to Leavens.

Engine oil formulations will continue to account for a major portion of Group II and Group III demand, Purvin & Gertz predicts. Passenger car motor oil and heavy duty diesel engine oil still make up over 40 percent of world base oil demand. The former will be primarily trending toward Group III, and the latter will utilize Group II formulations, Leavens noted, adding that Group II and Group III usage in other formulations is either for high performance applications or from oversupply.

Oversupply comes from the fact that manufacturing costs of efficient Group II and III plants are lower than Group I manufacturing costs. Hence, profit drive will lead many base oil producers and lubricants blenders to manufacture finished lubricants for applications where it is technically not necessary. Yet, they still have to sell their products, Leavens observed.

Group I is still the dominant base stock for formulating lubricants in developing countries. The developing markets of CIS, Africa and Brazil will still be trending toward heavy reliance on Group I base oils for most lubricants formulations, he said.

Asian base oil demand will be driven by the strong economic growth and vehicle fleet growth in China. Annual gross domestic product growth rate in China from 2005 to 2010 was 11 percent. From 2010 to 2030 we projected an annual [gross domestic product] growth rate of 8 percent, Leavens said.

There were approximately 67 million passenger cars and light commercial vehicles in China in 2010, or about 50 vehicles per 1,000 people. We projected that by 2030 Chinas passenger car and light commercial vehicle fleet would grow to around 320 million units, or about 220 vehicles per 1,000 people. That is a lot of cars and a lot of trucks. However, this result is around half less than the number of vehicles per 1,000 people in Europe or North America, he noted.

This will result in strong demand for refined products such as diesel, gasoline, jet fuel and kerosene. That translates into increased base oil demand, according to Leavens.

Group I demand growth in China will be driven by strong growth in industrial lubricants demand, as well as by the base stock demand for truck and automotive lubes, he said, adding that Group II and Group III demand growth will be driven by rapid rise in vehicle ownership, with increasing quality requirements for both imported and domestic produced cars.

China is expecting an increase in naphthenic demand as well. The countrys industrial growth, will drive the use of naphthenic oils in electrical transformers, and other manufacturing areas, Leavens concluded.

Chinas base oil demand in 2010 stood at an estimated 6 million tons. Purvin & Gertz expects the countrys total base oil demand to grow to 13 million tons by 2030.