Oil & Lube Sectors

According to the Energy Regulatory Commission (ERC), Kenyas regulatory agency for the petroleum sector, the industry was liberalized in 1994, creating opportunities for both local and international concerns to participate in the sector. According to ERCs website, The Kenyan petroleum sector boasts more than 30 oil importing and marketing companies comprised of five major companies – Shell, Total, Kenol/Kobil, Oil Libya and Chevron – as well as other emerging oil companies, including government-owned National Oil Corporation of Kenya (Nock).

Liberalization of the petroleum sector also led to oil exploration in Kenya. In early 2012, Tullow Oil, an oil prospecting company, discovered Kenyas first major oil deposit in Turkana County. There have been other verified oil finds in Kenya, the most recent by Pancontinental Oil and Gas NL, an Australian firm prospecting in the Lamu Basin. These discoveries have resulted in a buoyant lubricant sector.

Kenyas lubricant market includes both major oil companies and local blenders. According to the Petroleum Institute of East Africas website, total sales in Kenyas lubricant market hover around 40 million liters per year. Jonathan Njine, CEO of Lubesol, a Kenyan lubricant company, estimates total sales capacity of the countrys lubricant market at 45 million l/y, while James Mutisya, petroleum manager for Kenol Kobil, puts it at about 40 million l/y. Four suppliers account for the majority of the Kenyan lubricant market: Total Kenya with 45 percent, Vivo Energy at 28 percent, Libya Oil with 15 percent and Kenol Kobil at 8 percent.

Njine told LubesnGreases in an interview in July that the majority of Kenyas lubricant market is engine oils, including both automotive and marine engine oils. According to Njine, Shell and Total are the dominant brands in this segment. Richard Mugambi, lubricant sales manager for Gulf Energy, agreed that automotive oils dominate the Kenyan market and comprise more 70 percent of sales.

Trends

James Mutisya, petroleum manager for Kenol Kobil, said API Group I base oil dominates the market. However, he said some Group II oils have entered the market for use in some special applications like automatic transmission fluid. All blenders in the Kenyan lubricant market still blend Group I, said Mutesya.

Njine agreed, saying, There are no local blenders of Group II and Group III lubricating oils. Mugambi added that Group I still dominates because the lubricant market is price-driven. However, he noted that the market is beginning to see some owners of high-end automobiles looking to use synthetics.

We feel we can grow the use of synthetics for both diesel and gasoline engines. It may not be huge, but it is going to emerge, Mugambi said. We have heard that drivers will now ask for synthetics at service stations because they are starting to realize that they can save by using high-performance lubricants.

Mutisya concurred that the synthetics market in Kenya is growing fast, especially for imported SUVs. Njine added that users of synthetics are a small group of owners who desire high performance.

Mugambi said one driving force for the emerging demand for synthetics may have to do with the recent construction of good roads in the country. Car owners are now able to drive long distances. Three or four years ago, it would be very difficult to drive to Kisumu [a city on Lake Victoria, 350 kilometers from Nairobi], but now you can do it in four hours, he said.

Challenges

There is consensus among players in the lubricants sector that the major challenges facing the market are counterfeiting of popular brands and substandard lubes. Joseph Ndugu of Lubes Africa said in an interview in July, Popular brands are counterfeited and sold to unsuspecting motorists. And substandard oils are thriving because the general public lacks knowledge about lubricant quality. Motorists are being exploited by unscrupulous traders and mechanics, he said.

Mutisya concurred that the problems stem from the availability of cheap, poor quality imports; poor customer knowledge, leading to buying solely on price; price sensitivity of customers; and a poorly organized and regulated garage sector. Counterfeiting of major brands using substandard supplies is a major challenge to the lubricant market in Kenya, he said.

Mugambi said that the Kenyan lubricant market has a myriad of challenges but noted that the most visible is the importation of cheap finished lubes from everywhere, especially Asia, that claim to be high-performing lubricants. But when you look at the product closely, you will find that it is a fake, he said.

Mugambi agreed that counterfeiting of popular brands is prevalent in Kenya. You find people collect used lubricant containers, buy used oil and clean it up a little, refill the containers and market it as fresh oil. He emphasized that while counterfeiters may not fake his companys particular lubricant brand, his company is still affected in the long run. If, for example, Shell/Total lubricants are counterfeited, we are affected because customers who buy on price will prefer the counterfeit oil, which may be cheaper than our products.

Mugambi said that another challenge in the Kenya market is meeting original equipment manufacturer certifications. We cannot approach some customers because we cannot supply them without OEM certificates. He said that local blenders are trying to address some of these issues but noted they cannot be solved overnight.

LubesnGreases visited the Kenya Bureau of Standards (KEBS) in Nairobi in July to get firsthand information on how it is tackling the problem of counterfeiting. Grace Onyago, head of marketing and communication, said that the agency tries to ensure that importers of both base oils and finished lubes meet requisite standards. These products undergo a preshipment verification of conformity to standards before they are cleared by the bureau and given a Certificate of Clearance.

She said such imports are further screened by KEBS before being given the International Standard Mark, which certifies their products are suitable for consumption. KEBS officials also visit local blending plants for rigorous screening and inspection before they are given Standards Marks.

Reforms Still on Hold

On 10 May 2013, the Kenya Energy Regulatory Commission called for public comment on a proposed law for the lubricants market in Kenya. The law was met with widespread approval by the industry, which anticipated it would usher in a new era of transparency in the lubricant sector. However, one year after the reforms were proposed, they remain dormant.

During a visit to the ERC office, Laura Wanyika, head of media, was unable to explain the delay in implementation. However, the ERCs Edward Kinyua said in an email, The lubricants regulations have not yet been [published officially]. The Office of the Attorney General is still working on them. We believe that this process will end soon. While Mutesya and others lauded the proposed reform, he said that the slow implementation has made its impact impossible to gauge.