Economic Outlook

Besides Asia and the Middle East, Africa was the only other region that continued to grow during the recession. Akram, who is based in Durban, South Africa, reported, The World Bank and Frost & Sullivan estimate that African nations are scheduled to spend U.S. $810 billion over the next five years to upgrade, rehabilitate and expand the continents infrastructure. These organizations noted that current spending on infrastructure development in sub-Saharan Africa alone amounts to U.S. $410 billion, with 56 percent being spent on transportation infrastructure.

These projects will require a lot of new equipment that will consume a great deal of lubricants, said Akram. In addition, improved infrastructure means increased economic expansion and increased reliance on more and improved lubricants.

Other major projects will focus on improving the continents power generation grid. This is a critical need because of 55 countries in Africa, 30 experience regular power outages.

Other factors contributing to economic growth in Africa are steady growth in GDP and increasing foreign direct investment. The ratio of foreign debt to GDP has been declining over the past few years. The countries expected to enjoy the highest growth and investment potential over the next two years are Ghana, Nigeria, Gabon, Sudan, Ethiopia, Zambia and South Africa.

Akram reported that according to BPs Energy Outlook 2035, Africa will have 21 percent (1.8 billion) of the worlds population by 2035, compared to 15 percent today. As a result, energy demand is expected to grow by 93 percent between now and 2035, compared to the global average growth of 41 percent. Ongoing urbanization and electrification means energy demand in the power generation sector will grow the fastest, expanding by 124 percent.

The report also noted that Africa presently exports 51 percent of its energy production, which will fall to 36 percent by 2035 as domestic demand grows. Africa will account for 10 percent of global oil resources and 9 percent of natural gas production by 2035.

Africas Lubricant Demand

According to a Kline & Co. study, Africas lubricant consumption stood at about 1.6 million tons in 2013, or about 4 percent of global demand. South Africa, Egypt and Nigeria accounted for over 60 percent of the total volume of finished lubricants used in Africa, and heavy-duty diesel engine oil was the largest segment.

In a presentation at the ICIS African Base Oils & Lubricants Conference last November, Klines Industry Manager George Morvey reported that most markets in the region are low-quality markets with limited tiering of lubricants based on performance. The penetration of synthetics and semisynthetics is low compared to other parts of the world, he said, only about 3 percent.

In general, Morvey continued, the region uses engine oils meeting older API service categories. In the commercial segment, API CI-4 is the predominant category, while in the consumer segment, API SE and SF monogrades and SJ and SL multigrades are used.

In addition, the region has relatively short oil drain intervals, especially in hot, dusty areas. Oil drain interval for passenger cars in Egypt is 4,000 to 8,000 kilometers while that in South Africa is 10,000 to 20,000 km, Morvey said. Given the lower penetration of modern engines in the region, the use of lower viscosity grades is very limited. However, the share of monogrades will decline as older vehicles are scrapped.

Africas industrial sector is estimated to consume approximately 460,000 tons in 2014, according to Kline. This usage is expected to grow to 500,000 tons in 2019 and 580,000 tons in 2024.

For passenger car motor oils, the region as a whole will see a transition from monogrades to 20W, 15W and 10W multigrades. In heavy-duty diesel engine oils, the share of monogrades will decline and be offset by growth in 15W grades; however monogrades will still be the largest consumed viscosity grade for many years to come, Akram said.

API Group I base stock supply in the region will remain largely unchanged due to the regional demand. However, it is anticipated that Group II and III base stocks will expand significantly due to a number of new plants in the region

Whats Up, Up North?

Akram said, Within the North African region that includes Egypt, Libya, Algeria, Morocco, Sudan and Tunisia, Egypt accounts for approximately 50 percent of total lubricant demand. However, while Egypt is the top lubricant market in Africa with an estimated 25 percent share or 460,000 tons per year, the current political unrest in the country makes predictions for the future difficult.

Algerias finished lubricant demand is estimated at 165,000 t/y, about 11 percent of the African market, Akram said. However, there are several obstacles to doing business in Algeria, including a complicated import process that assesses a 17 percent customs duty and foreign exchange restrictions that make money transfers subject to clearance delays.

Moroccos finished lubricant demand is about 90,000 t/y (6 percent of the African market). Business issues include customs duties that can reach 50 percent, except when products originate from Arab states, Akram noted.

Sudan is the fastest growing market in Africa, consuming 90,000 t/y or 4 percent of the continents market. The country has a car population of 1.5 million; however, political instability continues to be a barrier to doing business, said Akram.

Growth in the East

Akram then reviewed the markets of East Africa, which include Kenya, Tanzania, Uganda, Rwanda, Burundi and South Sudan.

Kenyas demand for finished lubricants is estimated at 45,000 t/y, and four suppliers account for the majority of the market: Total Kenya with 45 percent, Vivo Energy at 28 percent, Libya Oil with 15 percent and KenolKobil at 8 percent. Akram explained, Manufacturing, construction and mining make up 87 percent of the total demand for lubricants, while the industrial sector accounted for 16,000 tons in 2012. Kenyas commercial automotive lubricant sector reached 18,000 tons in 2012, and its passenger car sector reached 6,000 tons, he added.

Akram estimated Tanzanias demand for finished lubricants at 30,000 t/y. Three suppliers account for 60 percent of the market – Oryx Adax, Total and BP, he said. (For more on Tanzanias market, see the article on Page 58.)

He summed up the other smaller markets in the region by noting that Ugandas finished lubricant demand is about 20,000 t/y, and Shell and Total account for 40 percent of sales. Rwanda and Burundis finished lubricant demand is estimated at 5,000 t/y and South Sudans at 3,500 t/y.

Big Markets in RSA & Nigeria

Klines Morvey estimated South Africas lubricant demand at 357,500 tons in 2014. Industrial lubricants account for about 45 percent of the total, commercial automotive lubricants 30 percent and passenger car motor oils 25 percent, he said.

Overall growth is expected to be 4 percent between 2014 and 2022, said Akram, with the industrial lubricants market estimated to grow to 170,000 tons by 2018. He added that according to a Frost & Sullivan study, hydraulic fluids, gear oils and greases comprise 80 percent of the industrial lubricant volume, and five tier one petrochemical companies hold 80 to 90 percent of this market. Expansion of the food and beverage industry will provide future opportunities for food grade lubricants, the study predicted.

Akram cited a Frost & Sullivan study that set Nigerias finished lubricant market at 275,000 t/y in 2012 with expected growth to 805,300 t/y by 2022. The engine oil segment alone is expected to grow by 11.1 percent per year over that time frame due to rapid growth in the vehicle population, he said.

The proportion of multigrade engine oils is expected to reverse relative to monograde engine oils by 2022, from about 68 percent vs. 31 percent to about 34 percent vs. 66 percent. Consumption of synthetic engine oils is set to grow but from a very low base, Akram added.

According to Frost & Sullivans study, he said, the percentage split between the automotive and industrial lubricants markets in Nigeria is roughly 70:30. Also, six tier one suppliers hold 70 percent of the lubricants market in Nigeria. Total Nigeria Plc is the largest supplier, followed by Conoil Plc. (For more on Nigeria, see the September 2014 issue of LubesnGreases.)

Base Stock Demand

Klines Morvey said, The overall finished lubricant demand of 1.6 million tons translated into base
stock demand of 28,800 barrels per day in 2012. API Group I is the dominant base stock used to formulate automotive and industrial lubricants. Also, the region still uses large quantities of obsolete specification passenger car and heavy-duty products that are blended using Group I base stocks.

Monogrades like SAE 40/50 account for a significant portion of the heavy-duty motor oil market. API CI-4 is the biggest user of Group I in the larger markets like South Africa, Egypt and Nigeria, Morvey noted. He added that the penetration of mid-tier passenger car motor oil is still very low, resulting in low demand for Group II base stocks.

The market predominantly follows Euro II/III standards, Morvey said. There will be a very slow shift toward Group II and III base stocks as the market moves toward Euro IV norms.

In addition, emissions standards lag those in other parts of the world and are not strictly enforced. Therefore, the consumption of Group III is limited to top-tier engine oil grades like 5Ws and some driveline products, Morvey said. Almost no Group III is used in heavy-duty engine oils.

Kline estimates that the region produced around 14,100 b/d of base stocks in 2012, an operating rate of 67 percent. The low operating rate is due to production uncertainty arising due to the political situations in some countries, Morvey said. In the absence of an adequate production base, Africa is a net importer of lubricant base stocks. Group I is imported mainly from Europe and the Middle East, Group II from North America and Group III from Asia Pacific.