One could think that over a 10-year time frame, nothing much happened, says Lutz Lindemann of Fuchs Petrolub AG, but in fact it did. Market sizes, quantity and quality, and specific regional consumption patterns are quite different now than in 2000 – and so are the raw material challenges for lubricant manufacturers.

Lindemann, a physical chemist, is responsible for the Mannheim, Germany, companys R&D and product management, and serves on its executive board. Time was that we took base oils and additives, mixed them up and could forget about it, he told the recent International Colloquium Tribology in Ostfildern, Germany. But technology demands and the specter of raw material shortages – which have jarred Europe every year since 2008 – are sources of unease for lubricant blenders.

In his Jan. 10 presentation, coauthored with Fuchs head of strategic intelligence and chief sustainability officer, Apu Gosalia, Lindemann highlighted some of the critical developments:

Mature markets like Western Europe and North America have moved firmly towards higher-quality lubricants, resulting in stricter technical requirements, extended oil change intervals and dwindling annual sales volumes.

The Asia-Pacific region now consumes more than half of the worlds finished lubricants (not less than 40 percent as it did in 2000).

Global base oil capacity is tilting in both regional and quality terms, with API Group II and III refineries springing up in Asia and the Middle East, and Europes longtime Group I refineries faltering. By 2015, Fuchs predicts, Group III will be almost 20 percent of global supply – triple its current share – and Group I will be just 45 percent.

Blenders more frequently are at the mercy of supply disruptions, since lubricant specifications increasingly require them to use certain high-quality components. If a key base oil or additive is unavailable due to weather, shipping or manufacturing troubles, the market seizes up rapidly..

Consolidation in the additives arena also continues, and makes it more difficult to manage risk by spreading it across several suppliers, Lindemann observed. For example, we have seen BASF merge with Ciba and then with Cognis. So from three suppliers we now have just one. Thats not so good from a supply point of view.

Better, Yet…

According to Fuchs preliminary estimates, the global lubricants market reached somewhere above 35 million metric tons in 2011, not including marine oils. Thats about 2 percent improved over 2010, but a far cry from the expansive years of 2006 and 2007, Lindemann told the January conference, which was organized by the Technische Akademie Esslingen.

In 2007, the peak year, the market reached 37 million tons without marine oils, he said. Then in 2009 starts the catastrophe, and demand fell to its lowest level in 40 years. On a worldwide basis, lubricants demand plunged to just around 32 million metric tons in 2009, but some regions – especially Europe – were hit much worse.

In 2010 we saw a slight recovery but its not quite back to the old level, Lindemann added. We believe 2011 may be up about 2 percent over that, so itll be back around the 2003 level of demand. In short, we will not see 2007s number again for some time.

Also, in 2010, he continued, we see that Asia-Pacific eats 51 percent, not only of the lubricants made but also the raw materials. So its very clear that Asia-Pacific is going to dominate not only lubricants demand but also raw materials demand.

Regional Rankings

In terms of lubricants consumption, the leading countries are the United States and China, neck-and-neck at roughly 6 million tons each, and followed by Japan, India, Russia and Brazil. Seventh-place Germany consumes around 1 million tons, and Korea, Iran and U.K. fill out the top 10.

China has close to the same total volume as the United States, but 1.3 billion people and so a per capita lubes consumption of 4 to 5 kilograms, Lindemann said. But China is unlikely to ever match the United States rich annual diet of 18 kg per person. Instead, China is an emerging market which is starting to transition to a mature market now, and a more probable model is Germanys appetite – around 10 to 11 kg/person/year. If we translate this to China, its total market someday will be 12 million tons, he said, adding, Of course, my professor always said, Do not extrapolate! but I should point out that India is theoretically the same market size.

China has the potential to become the largest market next year, Lindemann continued, and it will grow not only in quantity but in quality as well. Its amazing. For 100 or 80 years, nothing happened there. Now they are covering in 20 years, and maybe 10 years more, all that development at once.

While China in the past was largely price driven, that mindset is changing, too. We expect this will be a 10 million ton market in another 20 or 25 years.

Germany itself, he declared, has no potential for volume growth any more. Here the growth will be in quality, not quantity; the country is a technology driver. By contrast, Turkey (number 20 in the rankings now) has enormous potential, its the hidden giant of Europe. Turkey could reach the market size of Germany in a few years.

As emerging markets like Turkey, China, India and Brazil grow into mature lube consumers, he added, developments will be driven not by quantity but by quality – and that leads to the question of raw material supplies.

The Cracks in Supply

Automotive lubricants – such as engine oils, gear oils and transmission fluids – claim the lions share of the global lubricants market, and largely dictate what will be available (or not) for making other products, Lindemann said. He estimated that the worlds market was 56 percent automotive lubes in 2010 and only 26 percent industrial, with the rest comprising process oils, lubricating greases, metalworking fluids and corrosion preventives.

Ninety percent of automotive lubricants is base oil, and base oil dominates the raw material supply, Lindemann emphasized. Its a key element for our field, and we need secure supplies. People experienced a lot of shortages last year, and the year before, and the year before.

From 2005 to 2011, he said, the world lost 1.5 million tons of base oil name-plate capacity. This draw-down was not distributed evenly around the globe, and resulted in regional and quality imbalances that persist today.

Group II base oil, for example, is not available in Europe and needs to be imported. Asia-Pacific built 3.5 million tons of high-quality capacity in that period and became the worlds Group III spigot. North America increased its output of Group II and naphthenics barrels, and then sent them to markets abroad.

Meanwhile, Eastern and Western Europe saw a number of their Group I refineries mothballed. In the coming years, Group I will die out, Lindemann forecast. To keep up with the trend, a lot of Chinas Group I suppliers will need to either import Group II base oils or to upgrade their units.

Approximately 160 base oil refining units were operating in 2005 and also in 2011 – but these are not the same units. Some are new, some are gone. Due to new construction, we believe that in 2015 the world will have 55.8 million tons of base oil capacity. Europe will decline (as Asia-Pacific and the Middle East come on), and make base oils largely for its own captive markets. So we are going to see increasing imports to Europe.

As smaller Group I refineries close, the average volume per unit will increase significantly, which raises another concern: If there is a failure in one of these large units, such as Shells 1.4 million ton (28,000 barrel per day) gas-to-liquids plant in Qatar or Nestes about 400 kiloton (7,700 b/d) Group III plant in Bahrain, well have a big supply problem, he stressed. And if an OEM specification says you must use this material in all vehicles worldwide, it gives more supply chain risk in raw materials. This probably will not change in the next five years.

The more immediate question for many, he acknowledged, is Europes economic outlook for 2012. Will the continent be able this year to stabilize its debt and currency issues, or is greater volatility coming, a member of the TAE audience asked. How volatile will 2012 be? We expect a little volatility, but we hope perhaps not too severe, was Lindemanns reply.