In 2015, Group III base oil accounted for 12 percent of global supply, far in excess of demand, and the consultancy expects the share of Group III/III+ to rise to 16 percent by 2025, as more new capacity is added. At the global level, there is a surplus of Group II/II+ and Group III/III+ base stocks, which replace Group I in overlapping applications, Tarle said. Longer term, the trajectory in lubricants is toward lower volumes, higher quality and higher values, achieving more fuel economy with lower viscosity oils, and feeding the industrys thirst for synthetic products.

In his presentation, Tarle cited Klines recently published study, Global Lubricants Basestocks: Market Analysis and Opportunities, which uses 2015 as the base year. Kline noted that the global economy is expected to remain flat; therefore, finished lubricant demand will see little growth in the post-recession scenario.

The consultancy found that global finished lubricant demand reached 39.4 million tons in 2015, and expects a modest growth of about 1 percent by 2025. By regions, Asia-Pacific held the biggest share of demand in 2015, at 44 percent. It is followed by North America, with 25 percent share, and Europe, with 17 percent share. South America accounted for 7 percent of demand while Africa and the Middle East held 6 percent.

Europes Base Oils

In 2015, Europes base oil consumption reached 5.9 million tons. About one-half of this volume was Group I, about 25 percent was Group III/III+ and 20 percent was Group II/II+ and naphthenics. Russia, Germany, France, the United Kingdom, Turkey and Poland were the largest base oil consumers on the continent in 2015.

Kline found that Europe has a significant surplus of Group I base stock and a deficit of Group II and III. The Group I base stock supply-demand surplus amounts to almost 4 million tons, while Europe is experiencing a supply deficit of Group II and Group III base oils, Tarle said. But from 2015 through the mid-2020s, Group II and III supply will have compound annual growth rates of 13 percent and 6 percent, respectively.

Over the next ten years, Group II and III base oil supply additions could transform the continent from a net importer of premium base stocks to a net exporter. About one-third of new global base stock capacity will be built in Europe, and the continent is expected to add about 2.3 million tons of Group II, Group III and naphthenic capacity by 2025, according to Kline. As the region reaches surpluses of Group II and III between 2019 and 2020, lubricant quality demand would absorb most of the Group III produced, and Europe will increasingly source its own premium base stocks, Tarle said.

Kline found that while Europe is set to become self-sufficient in high-performance base stocks, now partially imported from the Middle East and Asia, Asian Group III base oils will still increase their markets within the region. Through 2025, the Middle Easts Group II and Group III base oil supply will have a compound annual growth rate of 5 and 7 percent, Tarle said. He confirmed that both regions Group I supply will experience negative growth of over 5 percent total.

Kline contends that Group II will replace Group I in many applications, especially those requiring mid to heavy neutrals such as 500 and 600 solvent neutral products. On the other hand, European refiners will continue to export excess Group I products to West and North Africa, and to South America, said Tarle.

The consultancy also found that the closure of Group I plants in Europe will open up markets for process oil and paraffin waxes. Both are lucrative markets, and European refiners are expanding capabilities to produce wax and process oil, Tarle revealed.

Kline estimates that less productive Group I base oil plants will shut down. Globally, about 5.7 to 6 million tons of Group I base oil capacity will have to shut down over 10 years to provide minimum sustainable global average operating rates. But given the cost position of European plant ownership, not all will close immediately, Tarle indicated. On the other hand, not all of the announced capacity increases will come online, either. Eventually, some of them may be shelved, according to Kline.

Finished Lubricants

The European Unions economy has shown signs of recovery that has kick-started new vehicle market growth. But Russias recession has had a negative impact on the regions overall economy, offsetting some of the growth patterns seen in the EU, Kline said.

Renewal of the passenger car fleet and legislation requiring stringent fuel economy and emission reduction targets will push the market toward higher quality, low-viscosity passenger car and heavy-duty engine and transmission oils, according to the consultancy. Europe has the highest synthetic and semisynthetic lubricant penetration rates, and sales of low-SAPS [sulfated ash, phosphorus, sulfur] SAE 10W-40 grades will increase faster than those of 5W grades in the heavy-duty segment. In the passenger car motor oil segment, 10W grades will be squeezed out by 5W and 0W grades by 2025, Tarle said.

At the moment, the penetration of synthetic and semisynthetic lubricants in such countries as the United Kingdom, France, Germany, Austria and Switzerland is around 40 percent, whereas in Russia it is around 20 percent, according to Kline. OEMs have adapted quickly, said Tarle, and the European Commission estimates that the average emissions level of a new car sold in 2014 was 123.4 grams of carbon dioxide per kilometer, below the 2015 target of 130 g/km.

European blenders are welcoming new blending options, but formulation changes could take time and increase costs, Tarle said. He added that independent blenders are just starting to experiment with Group II/II+ base stocks.

The consultancy also found that the share of synthetics in Europe might gradually drop due to the penetration of Group II/II+ formulations. Because European products are competitive in export markets, in the next few years, the continent will continue to export high-value finished lubricants made from European-sourced premium base stocks.”