Finished Lubricants

At Sea, a Raft of Challenges


The global marine lubricants market is driven by increased consumption in Asia and freighted with significant challenges, such as fuel economy and reduced sulfur emissions. China remains a dominant consumer with many key ports, and Asia overall accounted for 40 percent of the global marine oil market in 2012.

[In 2012] the global marine lubes market size was estimated at almost 1.6 million metric tons with a high penetration of two-stroke engines that favor cylinder and system oil, Geeta Agashe of Kline & Co. told ACIs European Base Oils and Lubricants conference in the fall. Reviewing global marine lubricant consumption by product type, she noted that cylinder oil held the biggest share at 65 percent, followed by trunk piston engine oil (26 percent) and system oil (9 percent).

Agashe, the Parsippany, N.J.-based consultancys senior vice president for energy, said that container ships and bulk carriers consumed two-thirds of all cylinder oils, while passenger and general cargo ships consumed 30 percent of the trunk piston engine oil. In the decade ahead, Kline expects the global marine oils market will expand just 1.3 percent a year on average, to reach 1.8 million tons by 2022. This modest growth will result from improved engine and lubricants technologies and other fuel-saving practices such as slow steaming that reduce a ships appetite for lubricants.

Asia Dominates

After Asia, Europe is the worlds second-largest marine lubricants market, holding a 32 percent share in 2012. Europe is an interesting case. From the total lubricants standpoint, it accounts for just 17 percent of global consumption, Agashe remarked in September to the ACI European Base Oils and Lubricant conference in Budapest. But its marine oil consumption is much higher because of its geographic position. Europe stands in the middle of North American and Asian sea routes and has numerous ports, with stuff moving in and out, and it is an unavoidable stopping point for oil changes. Europe also has more marine oil service facilities than the Americas, and all the global lubricant brands are readily available there.

However, rising sea trade emanates not from Europe, but from Asia, with lots of goods originating from China, Japan, South Korea and Singapore – all of them major marine oil consumption zones. The notion of Asia as the biggest global marine oil market is explained by the trade routes, Agashe said. The top trade routes are heavily skewed toward Asia. There is a lot of movement of goods from Asia to North America, from Asia to North Europe or to the Mediterranean, and from Asia to the Middle East and South America, as well as from Australia to the Far East.

Another indicator of Asias heft as a marine oil consumer is that its ports have led the world rankings since 2011. Leading container ports are Shanghai, Singapore and Tianjin, followed by Rotterdam, Guangzhou, Qingdao, Ningbo, Qinhuangdao, Busan and Hong Kong, Agashe said. Among these top 10 ports, only three are not Chinese, and only one is not Asian.

Kline also found that about 50 percent of all global fleets are owned by four countries: Greece, Japan, Germany and China. These are the places where marine lubricant marketers should focus their strategies, Agashe urged.

Focus on Fuel Economy

Global marine oil consumption depends on the vessel population, and the marine oil industry could align its products to address each type of vessel and its age, according to Agashe. For example, general cargo ships, tugboats, oil and chemical tankers and bulk containers are all deep-draft vessels that comprise the vast majority of ships, compared to offshore vessels and passenger ships. Bulk carriers and container ships are expected to show the most robust growth in the next few years, and marine lubricant manufacturers need to position themselves now to be able capitalize on that growth, Agashe suggested.

Lubricant consumption generally increases with vessel age. Ships operate for a very long period of time, which is good for lube marketers, because older ships consume more lubricants than new ones with more-efficient engines, Agashe pointed out.

She also contended that shrewd marine oil formulators should target older vessels as much as new ones, and they also should focus more on understanding customer needs, which vary by vessel type. Further, she mused, they might follow the example of passenger car motor oil marketers who have introduced premium oils for high-mileage engines. Of the worlds merchant fleet, only about one-fifth has been at sea less than five years. In fact, older ships present a huge market, as 35 percent of the fleet is more than 25 years old, and another 19 percent has passed the 15-year mark.

Changes that are having a great deal of impact on marine oil demand include fuel consumption, ship operating conditions, fuel type and maintenance programs. As in the heavy-duty vehicles segment, fuel is a very big cost component in the marine segment. Ship operators biggest concern is how to reduce fuel costs, Agashe said, adding that reduced fuel consumption often leads to reduced lubricant demand.

Taking It Slow

To improve their cost effectiveness, fleet owners have begun to exercise more control over operating conditions. Some, led by Denmarks Maersk Lines, have embraced the practice of slow steaming. Although container ships main engines are designed for optimal loads of around 25 knots, theyve cut cruising speeds to 18 to 20 knots, or even slower. Slow steaming requires the use of cylinder oils with higher base number, to fight the increased risk of corrosion and wear, but the adherents say they see much better fuel economy. Feed rates for the cylinder oils may be eased as well.

Another operator solution has been to shift from burning heavy diesel oil to low-sulfur diesel; this also tends to trim lube demand. Also, powering the engines with liquefied natural gas is a new trend in the marine industry, leading to new formulations that meet reduced wear and corrosion conditions, Agashe said. All of these factors have a huge impact on marine fuel and oil demand.

Factors having less effect on demand (so far) are various programs such as improvements in on-board maintenance and more proactive engineering, new generation engine designs, and retrofitting or automation of oil feed rates, as well as the vessels age. Some of these factors are positive, some negative, and all of them to a certain degree increase or decrease lubricant consumption; hence, they impact the industry, Agashe said.

Low Sulfur, Low Growth

Kline believes that changes in emission regulations for ships will lead to some mid-range oils with total base numbers of 50 to 60 to become obsolete by 2015 to 2020. In the end, two oils will be dominant in the market. One that is used with high-sulfur fuel, with 70 or 100 base number oil, and another used with low-sulfur fuel, for which base number will drop to 10 to 20, Agashe indicated. Kline expects these changes in oil formulations will help meet the challenges of lower sulfur fuel and emissions regulations.

Currently, anticipated slowing of the shipping market and overcapacity are affecting the top-line growth of shipping companies, and by turn bunker fuel and lube suppliers, engine OEMs and service suppliers. Against this backdrop of significant competition and oversupply, and since fuel is 60 percent of operators operating expenses, Agashe asserted, it will be uneconomical for ship owners to switch to low-sulfur fuel.

However, she contended that companies that continue to use high-sulfur fuel should explore the installation of scrubbers, pollution control devices that use liquid, a dry reagent or slurry to filter pollutants from the exhaust system. The International Maritime Organization has designated sulfur emission control areas (ECAs) that cover the North Sea and Baltic Sea, within 24 miles of North American coasts and the United States Caribbean seacoast. Ships that spend significant amounts of time in these ECAs will make different choices than those that sail elsewhere.

Furthermore, Kline expects that it will not be cost-effective for refineries to produce low-sulfur fuel specifically for the marine industry. Significant refinery upgrades would be needed to produce these fuels, and companies that do upgrade would have to charge a premium for the fuels – a tough sell. We forecast that the proposed 2020 global sulfur limit of 0.5 percent will likely be moved to 2025, Agashe said. Meanwhile, on-highway or road speed diesel will find increasing application in the ECAs.

Other changes expected in the next 10 years include the introduction of more energy efficient engines and two models of oil formulation. Higher engine stress and wear will require more robust lubricants, while OEMs will recommend the use of distinct engine oils for high-sulfur and low-sulfur fuels.

Lubricant companies have polarized views on this last point, and how to best formulate lubricants for use with low-sulfur fuels. Shell, ExxonMobil and Total endorse a single-oil technology of 50 to 60 base number, while BP and Chevron support OEM recom­mendations and endorse a two-oil approach; that is 70 to 80 base number for high-sulfur fuel and 10 to 20 base number for low-sulfur fuel, Agashe concluded.