LONDON — With 32 million people and a large, modern vehicle fleet, the oil-rich Arab Gulf countries of Saudi Arabia, Kuwait, United Arab Emirates, Oman, Bahrain and Qatar form a somewhat secluded lubricants market, largely served by a group of government-owned oil companies and multinationals. A rare glimpse inside the region’s lubricants market was provided recently by Samir Nawar, manager of production at Saudi Arabian Lubricating Oil Co. (Petromin Oils).
Speaking at last month’s ICIS-LOR World Base Oils Conference, Nawar explained that the six countries form an open market, with no customs duty on lubricants. Lubricant prices are very low and the market extremely price-sensitive and competitive. Blending capacity in the region far exceeds demand, as does base oil production. An enduring problem is the considerable waste of oils both new and used, with too-frequent change-out of the former and minimal collection and reuse of the latter.
Nawar pegged the total lubricant consumption for the region at 477,000 metric tons per year, with 68 percent of that — 325,000 tons — consumed in Saudi Arabia. Second- and third-largest markets are the UAE (11 percent of the total) and Kuwait (9 percent). The largest producer of lubricants, however, is not Saudi Arabia but the UAE. “Their actual production is higher than Saudi Arabia’s,” pointed out Nawar, “with most of it exported.”
The region is home to two base oil refineries, both in Saudi Arabia and both operated by Saudi Aramco-Luberef, a Saudi Aramco-ExxonMobil joint venture. The Luberef I refinery can produce 270,000 metric tons per year of solvent refined paraffinic base oil; the slightly larger Luberef II makes Group I paraffinic base oils which are also catalytically dewaxed.
Four recycling plants also exist in the region, but two are shut down and the others — Unilube and Al Manar, both in Saudi Arabia — struggle with consumer distaste for recycled oils, said Nawar. “Most recovered oil is just exported and used as fuel elsewhere,” he said.
The majority (55 percent) of the region’s additives come from local plants operated by Lubrizol and Infineum, but they are woefully under-utilized, Nawar said, because suppliers outside the region compete with low-priced imports. He estimated that the Infineum plant operates at only 60 percent of capacity, while Lubrizol’s runs at 30 percent. Total additive consumption for the region is only 55,000 metric tons per year, valued at $82.5 million, with UAE and Saudi Arabia taking the overwhelming share.
As you’d deduce from that, those two countries also hold most of the region’s 35 blending plants and capacity. UAE has 19 blending plants, Saudi Arabia 10, and Kuwait has three.
Top government brands, with a combined 30 percent market share, are Petrolube in Saudi Arabia; the UAE’s Adnoc Fod, Emirates and Enoc marks; Kuwait National Petroleum or “Q8” in Kuwait; and Qalco in Qatar. The remaining 70 percent of the region’s lube market is dominated by multinational lube giants Shell, Mobil, BP and Castrol, Caltex, ExxonMobil, Fuchs and TotalFinaElf.
Turning his focus to Saudi Arabia’s current scene and outlook, Nawar said, “The market has been stagnant at 325,000 metric tons for several years. The leading brands are Petromin, Fuchs, Shell, and Mobil, with a combined 79 percent of the market.” Other players include Gulf Oil, Valvoline, Total and Castrol.
About 65 percent of the country’s vehicle population is Japanese-badged, 20 percent are from General Motors, 5 percent from Ford, and the rest from other European makers. Despite the increasing quality of these vehicles, Nawar said, one of the country’s holdovers from years past is that consumers tend to change their engine oil with abandon. More than three-quarters of drivers have their oil changed every 1,000 to 3,000 kilometers (620 to 1,860 miles). Since most vehicles clock in 10,000 to 15,000 km annually, this means consumers are changing their oil six to 10 times a year.
“This is very short,” Nawar stressed, “and it’s due to consumer habits, resistance to change, belief that it’s needed due to our climate and dust, city driving, and because of low oil prices.” Today, multigrade oils are increasing in share, and most oils in the marketplace meet API SH for passenger cars and CH-4 for diesel engines.
As younger, better educated drivers take to the road and learn more about their vehicle’s actual requirements, this wastefulness is abating. “The oil drain period is gradually increasing,” he added, “yet lubricant demand overall is stagnant. We anticipate that any increase in vehicle population will be offset by moves to longer drain intervals, so demand will stay flat.”
Quick lubes and do-it-yourself are nearly unheard of phenomena in the market, Luberef’s manager of corporate planning, Sulaiman A. Bilaus, later told Lube Report. Oil changes for many years meant a costly trip back to the auto dealer. Today, more consumers are reading and following the recommendations in their owners’ manuals, he said, and perhaps 80 percent now have their oil changed at one of Saudi Arabia’s “bunsher” shops, which sell and service tires and do other simple maintenance tasks.
In the face of flat demand, Saudi Arabia’s base oil and lube marketers are emphasizing quality and service, while seeking export opportunities. Partnerships and mergers with major oil companies will be pursued, Nawar believes, in hopes of gaining market share. And companies are investing heavily in consumer marketing, advertising and promotions, spending $5.8 million annually to market lubricants in a wide array of media.
“Advertising and promotions are becoming more and more aggressive,” Nawar concluded, “and increasingly price reduction is the main competitive tool.”