According to Kalkman, that translates into a high demand upside as drivers in the region shift to high-performance, high-value products. This will be in keeping with greater consumer awareness of higher performance products along with a growing local supply of API Group III base oil.

Roland Berger also expects drain intervals to increase in line with new engine technology and better oils. However, lower consumption per vehicle is expected to be offset by an overall increase in demand, Kalk­man said. Branded products will also capture a larger share of the market thanks to wider reliance on express lube shops for oil changes.

Regional Trends

Key automotive trends observed in the Gulf Cooperation Council include a growing vehicle park, an expected strong growth in new car sales, set up of local automotive manufacturing and assembly opera­tions by international car companies, and increasing emissions and vehicle safety regulations mandated by governments. These trends will impact the lubricants sector on several fronts, Kalkman said. For example, we anticipate increased local demand for lubricants, a shift to high-performance, sophisticated products, longer drain intervals and improved distribution channels.

There is a growing vehicle park in Gulf countries thanks to strong eco­nomic conditions and easier access to consumer credit. Samir Nawar, CEO of Petromin Oils, said that per capita income is growing in Saudi Arabia in particular, from $20,700 in 2007 to $24,000 today and forecast at $33,500 by 2025.

SUVs are the fastest growing segment in the region, said Kalkman, and local low-cost manufacturing will increase their popularity. For example, an inexpensive SUV, the Ghazal 1, has been developed in Saudi Arabia. However, he added, while the popularity of SUVs remains strong, there is also more demand for compact cars from the increasing number of expatriates living in the region and the growing youth population. In addition, as in other regions of the world, engines are getting smaller and more power­ful across all segments, placing more stress on lubricants.

On the supply front, vehicle sales in the Gulf Cooperation Council con­sist entirely of imports with Asian OEMs dominating the market. The region has limited production capac­ity, consisting mainly of commercial vehicle assembly in Saudi Arabia and the UAE, Kalkman said. However, foreign automakers to set up local facilities. Companies such as Land Rover/Jaguar have expressed interest in opening plants.

In the regulatory arena, Kalkman noted that governments are enacting new standards on emissions and ve­hicle safety. Numerous decrees have been approved recently to control emissions and limit the import and registration of older vehicles.

For example, Saudi Arabia has mandated a switch to unleaded fuel for all vehicles, and annual vehicle emissions control inspections are required in Riyadh, Jeddah and Dammam. The Kingdom has also adopted Euro II norms for gasoline engines and Euro I norms for diesel engines and light commercial ve­hicles. The UAE has also introduced emissions standards and mandatory certification of imported vehicles.

Saudi Arabia now requires all vehicles to undergo safety tests every three years, and the countrys Specifi­cations and Standards Authority has issued nearly 80 regulations aimed at ensuring the safety of imported vehicles. Likewise, the UAE will not issue license registrations or renewals for vehicles over 20 years old and has imposed a ban on imports of vehicles over five years old.

Similar trends will impact lubricant sales in Iran. At the same conference, Mojtaba Arabi Anaraki, dewaxing expert at Irans Sepahan Oil Co., reported that Iran has become the largest vehicle producer in the Middle East, producing 46 percent of all cars in the region. He noted that Irans auto production increased 445 percent between 1998 and 2008. The increased car production is largely attributed to strong demand in the market because of population growth, especially younger drivers, urbanization and the increased pres­ence of women in the economy.

Anaraki said, Iran is the second largest economy in the Middle East and North Africa after Saudi Arabia in terms of GDP at U.S. $484 billion in 2012. Although Irans main industries are oil, petrochemicals, mining and metals, he noted that one of the main drivers of Irans finished lubricant market is that its auto sector is the second most active industry in the country, after the oil and gas industry.

Impact on Lubricants

Kalkman said that key develop­ments in the lubricants sector can be classified into four categories: How much? What kinds? How often? Where?

The first consideration is how much lubricant is being consumed. Kalkman noted that per capita lubricant consumption in the Middle East is lower than that in developed economies. Overall demand is ex­pected to increase in line with strong upside potential for the automotive market. Main drivers of increased demand, he added, are a rapid re­newal of the car park and increased local vehicle production.

To this end, the Saudi Ministry of Commerce and Industrys Industrial Clusters program is developing the countrys automotive capabilities and capacity and has targeted production of 600,000 units per year by 2025. These trends should help close the gap with global average consump­tion.

The second issue is what kinds of lubricants are being used. Trends show a shift to more sophisticated lubricants with the use of synthetics on the rise, Kalkman said. Driv­ing this demand are environmental considerations, automaker require­ments and increasing awareness and demand for better performing products.

Petromins Nawar said, Gulf Standardization Organization Qual­ity Regulations are API SJ for pas­senger cars and CH-4 for commercial vehicles. He noted that the overall market in the GCC is expected to grow 3 to 4 percent annually and that Petromin anticipates export opportu­nities for both base oils and blended lubricants. Finally, Nawar predicted a relatively high lubricant consump­tion per capita in Saudi Arabia as well as increasing competition.

Multigrades are becoming popular in both gasoline and diesel segments, Nawar said. Also, Saudi drivers typically observe shorter drain intervals because of the cli­mate. Finally, he sees a gradual shift in quality and viscometrics as well as growing demand for synthetics.

In addition, a number of Group III base oil plants are going on stream in the region, making consumers more aware of these products. As examples, Roland Bergers Kalkman cited Shells Pearl GTL facility in Ras Laffan, Qatar, which opened in 2011; Bahrain Petroleums plant that opened in 2011; Adnocs plant that opened in 2013; and Luberef s expansion at Yanbu that has a planned start up in 2015. The added Group III base oil supply is intended for export but will lower prices in the region and make synthetic products more accessible for the local mar­ket, he added.

The third consideration is how often drivers change lubricants. Kalk­man said, Continuously improving engine efficiencies have resulted in extended drain intervals and will impact average consumption per vehicle. Longer drain intervals go hand in hand with using higher quality lubricants. Roland Berger expects engine oil consumption per vehicle to continue falling over the next decade for both passenger cars and commercial vehicles. However, this will be offset by the growing number of cars in the region.

The final issue is where lubricants are sold. Kalkman noted that a growing number of quick lube shops are opening in the region as alterna­tives to so-called back-alley puncture shops, which sometimes use coun­terfeit and low-quality products. In addition, regulations have been passed to encourage the use of quick lubes; therefore, branded products should gain more market share.

In summary, all presenters expect lubricant demand in Persian Gulf countries to increase. Growing consumer awareness and govern­ment mandates should boost the number of newer vehicles on the regions roads, resulting in a shift to more synthetic and semi-synthetic products.