By Michael Herson

Natural gas is on a fast track to overtake coal as the worlds second-largest fuel, after oil, and nowhere is this truer than in Latin America. Against a backcloth of new gas field discoveries and a lack of viable energy alternatives, the region is purposefully turning to natural gas for its electrical power generation needs. According to ExxonMobils updated forecast, Outlook for Energy: A View to 2040, Latin America will more than double its natural gas output by 2040, with much of this new supply being unconventional types like shale gas, tight oil and tight gas.

As readers will quickly grasp, this scene presents challenges and opportunities for marketers of natural gas engine oils. Following its study last year into the market for natural gas engines and lubricants in Europe, London-based consultancy The Strategy Works has extended its research into Latin America. Some 30 interviews were conducted across six countries in the region, with a mix of original equipment and engine manufacturers, operation and maintenance companies, and gas engine lubricant suppliers.

How large is this market? In Brazil alone, The Strategy Works gauges the powergen outputs to be around 1,000 megaWatt, based on aggregated data from natural gas engine manufacturers. This equates broadly to a 2 gigaWatt market for Latin America in total, excluding other thermal power sources.

In engine hardware terms, the market is clearly defined between generators under 4 mW and over 4 mW. The less-than-4-mW sector is dominated by original equipment manufacturers Jenbacher and Waukesha (General Electric brands), Caterpillar and Cummins. In the over-4-mW segment, the key player is Wrtsil.

Based on a median oil consumption figure of 0.43 liters per mW hour, and discounting gas compression pipelines, The Strategy Works has sized the Latin America natural gas engine oil market – for powergen alone – at 5.1 million liters a year. Four countries account for 85 percent of the Latin American market for power generation: Brazil, with 51 percent; Argentina (19 percent); Venezuela (9 percent); and Colombia (5 percent).

Caterpillar estimates an annual growth of some 10 percent, and all those interviewed endorse market growth. As Luiz Carvalho, manager of energy business development at Wrtsil in Brazil, explains, In Brazil, Wrtsil develops its own projects and its currently working on two opportunities with a total of 570 mW for natural gas. There is a great demand for energy from natural gas and the growth perspective is very interesting.

OEM Challenges

In Europe it is well established that alternative gases such as landfill, biogas, etc., provide more challenging conditions for engines and their oils, but in Latin America it is also natural gas that can cause engine problems. Much of this is connected to the gas source, and these problems can be regional in nature, as noted by Estenban Flrez, technical specialist at Genser Power in Colombia. In the east part of the country the quality of this gas is really bad, he reveals. It has low levels of methane and high levels of propane.

Another cause of problems is the gass low calorific value, as confirmed by Wagner Silva, CEO of the Brazilian power plant operator Breitener Energetica. The gas has a low calorific power [which] means that it has a lower content of methane, which does not reach the desired levels established by the OEM.

Alexandre Lacerda, general technical manager at Stemac, which markets generator sets in Brazil, concurs: The main problem is related to the calorific value and resistance to detonation, which can lead to a lower capacity in terms of kW.

Engines maintenance manager Mariano Domnguez of Sullair Argentina, which markets and services Cummins Power Generation products, reports similar issues, saying, The most common problems are related with the nature of the gas. Since the gas that we use is well gas, it doesnt have much treatment so it can harm the equipment more easily.

When it comes to alternative gases, the two biggest headaches are sulfur contamination and siloxanes, particularly in Brazil, explains Marcelo Cupolo, Caterpillars territory sales manager there. Biogas, mainly from pig or chicken manure, is contaminated with sulfur (H2S) and the gas needs to be treated using a carbon activated filter or other new technologies, to evaluate the project, Cupolo said. For landfill gases the problem are the siloxanes, but we have a proven solution that allows customers to create efficient and reliable power.

Maintaining Power

Many power plant owners rely on contractors to oversee all aspects of their equipments operations and maintenance including its lubrication. These O&M contractors typically work under variable charging systems based on per-kW hour, on fixed payments, or on hours of maintenance performed.

Emerson Cabral, who is manager of energy unit product support at Sotreq in Brazil, explains they operate under different models for landfill projects versus cogeneration. For landfill gas we charge per energy produced, or for the price of the fixed structure. For the cogeneration projects there are also two models: a fixed price for the mobile team that gives referenced support, or the other based on the amount of maintenance done.

Wrtsils service model in Brazil is based on guarantees of performance during the life cycle of the plant, Luiz Carvalho explains. Wrtsil operation and maintenance agreements guarantee the performance of customers power plants, including fuel and lube oil consumption, and all other consumables needed to keep the equipment running and available during the its life cycle.

Contract length varies by supplier from five to up to 20 years, with the average term being 15 years. Contractors also say that remote monitoring is commonplace, with 79 percent of those surveyed adopting that as their preferred method to monitor performance of engines. In Colombia, Pegsa is one of these advocates. The aim is to predict possible failures in the equipment and so, in those cases, we use tools like videoscope inspections, analysis of oils, analysis of vibrations and ultrasounds, says Daniel Martinez, Pegsas service department manager.

Which Oil to Use?

When it comes to selecting a brand of natural gas engine oil to use, the most powerful influence is the OEM. Domnguez at Sullair Argentina succinctly captures the views of many in saying, The oils that we decide to test are oils that have been previously approved by the OEM.

Although many brands are listed on most equipment manufacturers websites, The Strategy Works research shows that three companies dominate this segment in the Latin America region: ExxonMobil, Chevron and Petrobras. Indeed, 64 percent of those interviewed believe that OEMs are not really incentivized to develop new suppliers. They say it is very much the role of the gas engine oil supplier to be proactive in marketing to its customers.

The research confirms that oil sampling and testing is widespread in the market and 42 percent of end users rely on their gas engine oil supplier for this service; the remainder either do their own testing or contract it to an independent lab. The purpose of the testing is to calculate oil change intervals and monitor engine components for potential wear.

Most Caterpillar dealers have their own lab, confirms Cupolo. Oil sample analysis is important to understand the state and level of wearing on main engine internal parts. And Silva at Breitener sees it as a way of reducing maintenance costs. Lube oil is an important variable and oil sample testing is mandatory to reduce maintenance and operation costs.

The Additive Effect

The performance benefits derived from lubricant additives are widely recognized by customers in Latin Americas powergen market. They see the most important attributes as protecting the gas engines against corrosive substances that form in the oil such as acids, and reducing wear and tear by improving the oil. In Brazil they regard additives as essential to prevent damage from siloxanes.

As was established in The Strategy Works earlier European study, there is no independent marketing of natural gas engine oil additives to end customers; they are always incorporated within the gas engine oil.

Bernardo Vianna, a product technical support specialist with Chevron Brazil who focuses on product life-cycle management, believes that additive packages play a particular role in landfill gas engine oil formulations. The types of gases formed at landfill sites are much more severe and corrosive than natural gas, he reports. These aggressive acids need to be neutralized by robust additive packages to avoid premature engine damage and/or [a need for] reduced drain intervals.

This view is endorsed by Alejandra Alcaide, technical assistant at the Spanish lubricant supplier Repsol: The acids produced by the combustion of gases, such as [sulfuric acid], are neutralized by the correct use of an additive pack.

Lubricant supplier YPF in Argentina also believes that lubricant additives have a key role to play. To avoid corrosion, the additive must have the ability to neutralize acids formed from sulfur content in the gas, comments Jose Luis Duran, director of YPFs technical department.

Reaching the Market

Natural gas engine oil suppliers tend to use their own sales teams, which in turn are part of their main lubricant business; little evidence is seen of separate sales teams for this specific end use. In this respect, the Petrobras model is the one most employed by suppliers, according to Paulo Esteves, the Brazilian majors director of technology and industrial lubricants development. The marketing of lubricants is made by the regional sales managers. As to distribution and logistics, we operate throughout the national territory with our own structure through direct sales from the factory in Rio de Janeiro. We dont have an exclusive sales team for the gas engines oil, as these oils represent a small commercial amount in terms of volume.

When it comes to marketing its product lines, Repsol differentiates its gas engine oils between low-ash and high-ash formulations, depending on whether the applications are for natural gas or for unconventional fuels.

Additive manufacturer Chevron Oronite also differentiates its products according to the type of fuel. We supply additives designed for all different quality levels of gas that engines use in this market, including engines operating in landfill, biomass, and digester gas operations. In these applications, the gas quality varies greatly and is typically low-methane, high-moisture, and corrosive, explains Stephen Best, Oronites Americas Region NGEO product line manager.

Close Relations

Given that nearly all gas engines are imported into Latin America, oil marketers naturally need to have international commercial relationships with OEMs, according to Alvaro Longo, technical support coordinator and director of lubricants marketing at Petrobas. Its a very important relationship with the OEMs, because they have great influence and they participate in the decisions of the selection of lubricants.

Some relationships are tied such as the longstanding one between Sullair Argentina and Cummins Power Generation. We are the representative of Cummins exclusively. Therefore, our relationship is quite fluid and easy to manage, remarks Mariano Domnguez.

Chevron, which has an international NGEO product line named HDAX and recognizes that global approvals are mandatory in this market, has developed relationships with all the major gas engines manufacturers. Indeed some of the HDAX products are already being manufactured at Chevron plants in Brazil and Colombia, confirms Vianna.

Generally however, equipment manufacturers are reluctant to recommend a single brand, usually leaving it to the end customer to choose from a specified list. So oil companies can differentiate themselves in the environmental, supply and performance areas. For more on that and insights into the markets future potential, see part two next month.

Michael Herson is an analyst with the London-based consultancy The Strategy Works, which specializes in original research on the lubricants sector and other business-to-business markets on a global basis. Reach him by phone at +44 208 868 0212, or e-mail mherson@thestrategyworks.com. Website: www.thestrategyworks.com