With its population of 3.7 billion, Asia has 55 percent of the worlds population, Paisie told the conference, but it has less than 24 percent of world GDP. Economically diverse, it includes four OECD economies (Japan, Korea, Australia and New Zealand are among the Organization for Economic Cooperation and Developments 30 highly developed members) and two of the worlds fastest growing and industrializing countries, China and India.

In 2007, Asian markets accounted for 35 percent of global lubricant demand, up from 30 percent in 2002, said Paisie, who is based in PFCs Washington, D.C. office. Expect that trend to continue, he said. There is a shift in demand to the Asia/Pacific.

Looking at crude flows, Paisie noted that Asia is a major importer of crude oil, much from the Middle East. U.S. demand for oil may be slowing, similar to the early 1980s, but strong demand from Asia continues. As [Asian government] subsidies are ended, demand may moderate, but for now, refineries are struggling and margins are squeezed.

The era of cheap oil is over, and robust Asian economic growth, among other factors, will support bullishness in crude markets, said Paisie. Base oil prices will have to keep rising in order to maintain margins.

Turning to Asias base oil demand, Paisie said that Asia accounted for 34 percent of world base oil demand in 2007, and its share is projected to rise to 37 percent by 2012. That demand is primarily for API Group I. The increased regional supply of Groups II and III will support a longer term shift in their direction, to a projected 19 percent by 2012, up from about 11 percent today.

Asian refineries produced about 12 million tons of base oils in 2007, of which 38 percent were Groups II and III, Paisie continued. With new base oil refineries opening in Malaysia, Taiwan and Indonesia, Group II and III output will rise to 46 percent of total regional production by 2012. However, he emphasized, most Asian markets are experiencing net base oil deficits.

Looking at some the regions key countries, Paisie said Chinas base oil capacity now is 2.5 million tons per year, and its net base oil deficit is a hefty 1.7 million tons per year. Its 21 operational base oil plants produce mainly Group I. The outlook is for the countrys deficit to persist.

Indias base oil capacity is now 1.4 million tons per year, and its net base oil deficit is 700,000 tons per year. With four operational base oil plants, capacity is evenly divided between Group I and Groups II and III, but domestic technical demand is primarily Group I. Look for Indias base oil deficit to persist, said Paisie.

With about 250,000 tons per year of demand, Vietnam has no base oil capacity. Three crude refineries are planned but with no plans for base oil production, Paisie said, so the deficit will continue.

In Indonesia, base oil capacity was 420,000 tons per year, before the start-up of the 330,000 ton/year Group III SK-Pertamina joint venture, whose output is slated for export. While the country will move to a base oil surplus, it will continue to rely on Group I imports for local requirements.

With a capacity of 2.4 million tons per year, South Korea has a base oil surplus of 1.1 million tons at its three base oil plants. Production is primarily Groups II and III, targeted for export to North America and Europe. Expect Koreas surplus to continue, said Paisie. South Korea will remain a significant global exporter of high quality base oils.

Japans 10 base oil plants have combined capacity of 2.6 million tons per year, with a surplus of 500,000 tons per year, and this surplus will continue. The Philippines are entirely reliant on base oil imports since closure of the Pililla plant, and Australia has a net base oil deficit since closure of the Kwinana, Geelong and Adelaide plants.

Overall, Paisie concluded, Asia is projected to experience a shortage of base oils by 2012, while base oil demand increases by 12 percent. The regions large surplus of Groups II and III oils will remain export-oriented, and the deficit of Group I will persist. High inflation is a concern that could curb the optimistic base oil and lubricants growth scenario.