That was the assessment of Lutz Lindemann, Executive Board member of Fuchs Petrolub AG, in an address to the OilDoc conference here in January. Consolidation in the chemicals industry and chemicals regulations are restricting the availability of materials to the lubes industry, even as performance demands rise. The result, Lindemann said, is that formulators and producers will have less flexibility in selecting base stocks and additives, and they will be more vulnerable to disruptions in supply chains.

Product complexity across an industry is difficult to measure precisely, but Lindemann offered a number of indicators in arguing that lubricants have become more sophisticated and complicated. The past two decades, he said, have seen a dramatic rise in the number of products formulated for a specific application, as opposed to generic products. In 1990, only a quarter of greases and automotive lubes were formulated for particular applications, and just one third of metalworking fluids. By 2010, 85 percent of automotive lubes were application-specific, as were 95 percent of greases and 65 percent of metalworking fluids.

As a rough gauge of product complexity, Lindemann divided lubricants into three categories. Simple products are those consisting of one or two base stocks and up to four chemical additives. Products of medium complexity contain two or three base stocks and four to eight additives, he said, while complex products have three or four base stocks and up to 23 additives and often require a special manufacturing process. Based on these definitions, Lindemann said, 40 percent of lubricants are complex, and an equal percentage are of medium complexity.

The German lubricant market is certainly more sophisticated than many, but Lindemann contended that it reflects the direction that the global industry is headed. From 2000 to 2011, the percent of German lubricants formulated with conventional API Group I base stocks decreased from 53 percent to 32 percent. Meanwhile, the percent made with Group III doubled, rising from 6 percent to 12 percent.

The market also expanded its use of non-mineral oil, synthetic base stocks. Penetration of products made with polyalphaolefin, esters, polyglycols or polyolesters swelled from 8.5 percent to 17 percent.

Modern lubricants are high-end construction parts, said Lindemann, who is charged with overseeing technology, supply chain and business with original equipment manufacturers on Fuchs Executive Board. The company, which is headquartered in Mannheim, Germany, is the worlds largest independent lubricant producer.

While the number of base stocks and additives that blenders need is increasing, changes in the supplier base are making it harder to procure at least some of them.

There has been a significant amount of consolidation in the chemical and petrochemical industry, and this leads to a reduction of complexity on the supply side, Lindemann said. Fewer molecules are available, and more often we are left with a single supplier, whether direct or indirect.

As global base oil demand trends toward more highly refined stocks, numerous European plants that make conventional Group I oils have closed, and most industry analysts expect more will do so. Lindemann noted that this has meant greater scarcity of some specialty cuts – such as bright stock or very light grades – that are produced by Group I plants but not by Group II or III facilities.

Perhaps more importantly, Europe lacks facilities to meet its demand for the Group II and III stocks that are replacing Group I in many higher performing lube applications. The region has little Group II capacity and just one large Group III plant – Neste Oils 250,000 ton per year facility in Porvoo, Finland.

Imports are meeting current demand, and for the moment the region is benefitting from a global glut of Group III, created by the opening of new plants in the AsiaPacific region and the Middle East. In addition, SK Lubricants and Cepsa are building a Group III plant in Cartagena, Spain, scheduled to open next year, while several Russian refiners have plans to add Group II and III capacity.

Still, Lindemann warned that imports will be less available once demand for higher quality lubes rises in Asia-Pacific and the Middle East, creating more need closer to home for their Group II and III output. South America is in a similar position, he said, since its capacity is primarily Group I.

The shift from Group I to Group II and III leaves Europe and South America in a difficult situation logistically, he said.

Regulations such as the European Unions REACH (Registration, Evaluation, Authorization and Restriction of Chemicals) and GHS (the Global Harmonized System for the Classification and Labeling of Chemicals) are also hurting availability of chemicals that might assist the industry. Labeling, documentation and other administrative requirements raise costs enough that some suppliers – especially of relatively low-volume materials – consider exiting markets. Materials classified as hazardous – currently being done with compounds that contain boron – are subjected to additional restrictions.

Critics say its not just the impact on existing chemicals – that such regulations will also hurt the industrys ability to develop new chemistries. New molecules generate additional registration costs, Lindemann said. The impact of regulations appears likely to expand, he added. While much of the developed world has already adopted GHS, more countries, including the United States and Australia, plan to do so. Countries such as Turkey, Taiwan and Brazil are preparing regulations similar to REACH.

As described by Lindemann, these trends are making the lubricants business more precarious. Where in the past companies had the luxury of maintaining multiple formulas for certain products, rising costs for product approvals and for research and development will force them to choose one; or in some cases they will only have one option because of materials disappearing from the market or other reasons.

Whatever the cause, having single-formula products and/or single source supply of ingredients will leave companies in squeamish predicaments that they try to avoid – that of being without backup plans to continue making products should there be a break in the supply chain. Such situations will force them to devote more attention to trying to ensure that such breaks do not occur. One response will be to make supply chain a consideration during product development.

More and more, Lindemann said, international chemical inventories are defining the raw materials choices being made for products such as lubricants.

Lindemann concluded that raw material availability will add another layer to the challenges faced by lubricant companies. After his address, however, he acknowledged that Fuchs also sees opportunity, believing that companies which successfully meet the new challenge could have a significant advantage over competitors.

We certainly are looking at it that way, he said. And it is leading us to move toward doing more of our own formulation. Last year a Fuchs official discussing the implications of REACH said the company would consider acquiring operations to produce key ingredients if faced with the possibility of them disappearing from the market. Lindemann said Fuchs is positioning itself to rely less on additive packages purchased from lubricant additive companies, instead purchasing components that Fuchs itself mixes.