Government-owned Pemex has six refineries, but only the Salamanca plant produces base oils. Its old, from 1958, and never upgraded, Vargas noted, with many maintenance and quality problems. Its average base oil production for the last five years, all API Group I, has been around 5,000 barrels per day.

The most significant problems with Mexicos only domestic base oil plant include low oxidation stability, poor low temperature performance and frequent quality variations. Despite all this, said Vargas, there is no communicated plan to improve production and quality … and none is expected in the next three years.

At the same time, automaker requirements are driving the lubricants market to Group II and higher quality base oils. The lower quality Group I from Pemex is one of the bigger challenges to formulating higher quality engine oils in Mexico, said Vargas.

Vargas estimated that total Mexican base oil demand was 688,000 metric tons in 2008, with 41 percent supplied by Pemex. The United States supplies 51 percent, Curacao 4 percent, and Russia, Brazil, Canada and others the remaining 4 percent.

Vargas offered some basic 2008 figures for the Mexican lubes market:
406,000 tons of base oils were imported;
Pemex produced 282,000 tons of base oil domestically;
Process oils accounted for 120,000 tons;
75,000 tons of finished lubricants were imported;
4,500 tons of grease were imported; and
30,000 tons of additives were consumed to manufacture lubricants.

Mexicos finished lubricant demand in 2008 was 502,000 tons. Quaker State Mexico has the leading market share, at 20 percent, followed by ExxonMobil (17 percent), Mexicana de Lubricantes (15 percent), Chevron (9 percent), Roshfrans and Bardahl (8 percent each), Raloy (6 percent), Total (5 percent), Shell (4 percent) and BP (3 percent). More than 150 companies, most making low quality oils, share the remaining 5-plus percent of the market.

Passenger car and heavy duty motor oils each made up about a third of the total lubricant market in 2008, Vargas continued. In 2003, passenger car motor oils held 38 percent of the market, vs. just 24 percent for heavy duty diesel engine oils, but the heavy duty oil sector has grown steadily. Vargas predicted that it will account for 35 percent of the market in 2009, surpassing passenger car oils for the first time.

Obsolete oils are still an important part of the market, Vargas said. Nearly 30 percent of passenger car motor oils are API SF quality or below; only 6 percent meet the latest SM standard. On the heavy duty side, 46 percent of diesel engine oils are CF quality or below. A barely measurable 0.4 percent meet the latest CJ-4 quality level.

Monogrades make up more than half the passenger car engine oils and over 70 percent of heavy duty oils sold. People believe multigrades arent needed because of the climate, he said, and truck drivers fear multigrades wont lubricate their engines.

Mexicos domestic lubricants industry faces a number of challenges. Bright stock and heavy base oils are in tight supply worldwide, and very difficult to obtain in Mexico, said Vargas. Pemex Group I base oils are no longer an option for new lubricant technologies, although this creates big opportunities for Group II imports.

Global companies are increasing their imports of finished fluids, so there is a lot of available production capacity in Mexico right now. Due to cultural issues, Mexicans see rerefined oil as low quality. There are no serious rerefining efforts in Mexico now, Vargas said.

The influence of the U.S. lubricants market is pushing Mexico to upgrade quality levels, and European original equipment manufacturers are more active in Mexico, and this too will improve lubricant standards. But lube sales are very cost driven, Vargas concluded. The results are low quality oils.