DUBAI, United Arab Emirates – The Middle East is being buffeted by economic, market and supply changes that promise to alter the way the its lubricants market does business, an industry insider said last week.
Luberef Sales and Marketing Manager Gerard Heaton, speaking here at the ICIS Middle East Base Oils & Lubricants Conference, said that the regions economy is set to grow at a slower pace this year due to geopolitical disruptions in the area, the phasing out of fuel subsidies in some countries and volatility in crude oil prices.
Several changes are taking place on the regulatory front. For example, Heaton said that the Kingdom of Saudi Arabia has implemented a plan to upgrade heavy-duty diesel engine oils to API CH-4. Monograde oils represent about 100,000 tons per year or slightly less than 50 percent of the heavy-duty engine oil market in Saudi Arabia, he said. And real market inertia exists to upgrade from CF because of all the older equipment still in service.
In addition, he cautioned, Setting a standard is one thing. Implementing it is another. He suggested that regulators and the industry would benefit from having an agency that represents the market to provide a platform for engagement and consultation. This would help create a better understanding of the impact of regulatory decisions in order to plan effective implementation.
Besides the difficulty of monitoring and enforcing the upgrade, Heaton said that the increased cost of CH-4 formulations would also pose a challenge. Despite the reluctance of the market to change, however, he suggested that a shift to lower viscosity multigrade oils is inevitable because the vehicle pool is being upgraded, and governments in the region are mandating a move to cleaner fuels.
Heaton went on to describe the effect of changing supply dynamics on the region. The increase in total industry capacity significantly exceeds base oil demand and likely demand growth, he said. Declining monograde usage will reduce bright stock demand, but demand for a heavy-viscosity fluid for industrial and marine oils remains.
He noted that Luberefs expansion of its Yanbu al Bahr plant will offset some of the supply side declines. In collaboration with additive companies, we are developing a range of approved formulations to support the market transition, Heaton said. The primary focus is on automotive products, covering passenger car and heavy-duty products from SAE 5W-20 to 20W-50 in performance levels API SN to SL, CH-4 and CI-4, supported by a range of OEM claims.
The work was undertaken with the four main additive companies, he said. Formulation testing work is nearing full completion, and OEM approvals are underway. Future developments will include formulations for driveline and industrial oils.
Heaton concluded with an overview of the Middle Easts supply and demand situation. Middle East regional lubricants demand is about 2.8 million metric tons per year, which is about 7.5 percent of global demand. The four largest markets – Iran, Saudi Arabia, Turkey and Egypt – account for 70 percent of demand in the region.
Heaton forecast future regional growth at 1 to 1.2 percent per year. Base oil investments have changed the region to a net exporter, primarily Group III, he said. The region is also currently a net importer of Group I and II to meet both in-region and out-of-region export lubricant demand.