The Asia-Pacific region leads the world in finished lubricant demand, accounting for nearly a third. By 2010, its share will increase at the expense of Western Europe and North America.

Faure highlighted the following trends in finished lubricant demand:

*Demand in million metric tons
**Includes Mexico

In Western Europe, said Faure, lubricant demand will decline about 1.3 percent per year, and the North American market will be virtually flat, growing at perhaps 0.3 percent annually. On the other hand, the Asia-Pacific region will see 3 percent annual growth from 2005 to 2010.

Turning to base oils, Faure described the following trends in worldwide demand:

*Demand in million metric tons
**Includes Mexico

Key factors affecting base oil supply include plant capacity (plant down time, debottlenecking, capacity creep, and new capacities); supplier strategies (in-house use, homologation, interchangeability, slate); plant economics (competition for feed stocks, competition with fuels, crude oil selection); and logistics. There is a problem of logistics, Faure said. Everyone wants inventory as low as possible.

World base oil capacity today totals nearly 46 million tons from 143 refineries, Faure said. Group I capacity totals nearly 28 million tons, Group II totals just over 10 million, Group III is nearly 3 million, and naphthenic is just under 4 million tons.

Eleven announced projects for new base oil plants scheduled to come on stream from 2007 to 2013 will bring the marketplace another 6.45 million tons of high quality base oils, Faure said. All of the projects are in the Asia-Pacific region; all will rely on catalytic dewaxing (or gas-to-liquids); and all will produce Group II and/or Group III stocks. [Even excluding the now-discontinued Exxon Mobil/Qatar GTL project that was projected for 2011-2013, more than 5 million tons per year of high-end base stocks remain on the drawing board.]

Looking at global base oil balances, Faure predicted that todays excess supply of dewaxed base oils will decline over the next five years from more than three million tons today to less than two million by 2012. At the same time the words Group I deficit will also contract, from more than two million tons today to just one million by 2012. Overall, two million tons of excess is possible by 2012, Faure said.

Zooming in to focus just on Northwestern Europe, the picture reverses. The regions Group I excess will rise slowly from about one million tons today to nearly two million by 2012, while its deficit of dewaxed base oils grows from less than a million to nearly two million tons in 2012.

What impact will base oil manufacturing costs have on supply? Group II is cheaper to produce than Group I, Faure said. And Isodewaxed Group III is cheaper to produce than solvent dewaxed Group III. Using an index where the cost to produce a Group I base oil is 100, the cost to produce GTL is about 125, and the cost to produce PAO is more than 250, so GTL will replace PAO [polyalphaolefins], Faure predicted. There will be no new investment to build solvent dewaxing units, he noted, and catalytic dewaxing units cannot produce heavy grades, from 500 to bright stocks.

Summarizing the global outlook for base oils, Faure said Northwestern Europe remains long on Group I, but that excess is balanced by exports to Africa. Groups III and PAOs are short. Plant closures may happen. Group II could become a substitute for Group I in automotive applications. But, he said, Russian base oils may change the balance of the area.

In Asia, the base oil market will remain short for heavy grades; demand will grow and there will be a chronic Group I deficit. Group III could become a substitute for Group I and II base oils.

Finally, in North America, Faure said, the Group II surplus will move to Europe and further east, while demand from Latin America will be strong.