In the few short years since 2011, the Middle East has gone from being an importer of base oils to a major export center, especially of API Group III products, points out Gerard Heaton, sales and marketing manager of Saudi Aramco Base Oil Co., Luberef.
The Middle East has quite a healthy appetite for finished lubricants, too, he added. The regions total annual demand is in the range of 2.7 million to 2.8 million metric tons of lubricants, and demand is expected to grow about 1 to 1.5 percent a year on average. Four of the regions countries – Iran, Saudi Arabia, Turkey and Egypt – rank among the worlds top 20 lubricant markets.
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Speaking to a recent industry conference, Heaton started by reminding listeners that the Middle East is an informal term, covering the area from Turkey to the north, south to the Arabian Sea, and from Iran in the east to the Mediterranean in the west; we also include Egypt in this.
Headwinds for the region include geopolitical disruptions, which have hindered the regions gross domestic product growth. GDP had been clipping along at 3 percent to 4 percent a year, but has come down and currently is around 2.3 percent, Heaton told the ICIS World Base Oils and Lubricants Conference in London, on Feb. 19. Although regional uncertainty persists, gradual recovery is expected and GDP growth could reach 3.5 percent again by 2017, according to International Monetary Fund forecasters.
With a total of 370 million people, the Middle East has an especially large youth segment – 45 percent of the population is below 25 years of age. They are looking for jobs, and they are looking for mobility, so were seeing growing vehicle pools right across the entire region, Heaton pointed out.
The market is also marked by relatively low oil drain intervals, he added. Typical is just 2,000 to 3,000 kilometers between oil changes. But some of this behavior is beginning to change towards longer drain intervals, especially with younger people who are actually reading their owners manuals.
Many of the key global drivers seen elsewhere – climate change, vehicle exhaust regulations, cost of commercial vehicle ownership – also apply in the Middle East and are putting pressure on lubricant performance. But some concerns rank lower among this regions consumers, Heaton said. Fuel economy is not much of a concern, since fuel is so cheap, and resource efficiency appears to be low on the overall list of needs.
Seventy percent of this market is automotive lubricants, and vehicles often see poor road conditions, like unpaved and dusty roads, said Heaton. There are also wide climatic variations. The image of the Middle East is hot, but its actually very cold in many spots, especially in the high mountain regions.
Luberef estimates that 70 percent of oil changes in the Middle East are performed in small workshops. There are plenty of older vehicles still in operation, and installers and buyers alike tend to be skeptical of lighter-weight engine oils, due to the harsh environment and concerns about engine protection.
Citing Luberefs own data plus research from Kline and Co., Heaton said heavy-duty engine oils are the leading product on the automotive side, with 54 percent of the volume, followed by passenger car engine oils (37 percent) and transmission fluids and gear oils (9 percent).
On the PCMO side, 44 percent of the market is 20W-XX multigrade oil. Monogrades are next, with 28 percent, and 15W-XX multigrade represents 12 percent of the market. The lightweight PCMOs favored in North America, such as 10W- and 5W- multigrades, account for only 16 percent of PCMO sales in the Middle East.
On the heavy-duty side, 60 percent of the market is satisfied by monogrades. SAE 15W-40 now has 37 percent and is growing. A quality upgrade is occurring, too, noted Heaton, with many countries moving to mandate API CH-4 as the minimum category allowed. This is a massive shift, and will eradicate much of that monograde heavy-duty volume.
Eyeing base oil output and plans, Heaton said Middle East capacity is now 4.8 million metric tons per year, with 40 percent being API Group III quality.
This Group III capacity was effectively built for export, he observed, and the Middle East is a sensible place for it. It has good logistics to reach global buyers.
On the other hand, the regions own blenders are suffering a slight deficit in Group I, which is largely what the internal markets demand for their lower specification products, heavier viscosity profile and older vehicles.
What will the Middle East market look like in 2017? Heaton said that base oil capacity in the region will rise to 5.4 million t/y, which includes 500,000 tons of Group II capacity coming at Luberefs own base oil refinery in Yanbu al Bahr, Saudi Arabia. This expansion, to be completed in 2016, will make Luberef the regions top Group II producer.
Yanbu currently has capacity to make 280,000 t/y of Group I, including bright stock and heavy neutrals. Although the heavy neutrals are going away, another speaker at the London ICIS meeting pointed out that Luberef plans not only to preserve Yanbus bright stock output, but to boost it.
Often, converting a refinery from Group I to Group II production spells the end of Group I operations. That wont be the case at Yanbu, said H. Ernest Henderson of K&E Petroleum Consulting, based in Oklahoma City, Okla.
At Yanbu, Henderson told the London meeting, Luberef will debottleneck the Group I plant and go on to use it to produce only bright stock. With a gain in bright stock production of approximately 110 percent, Yanbu will provide additional barrels to a region that is still highly dependent on bright stock, especially for making monograde automotive and marine oils.