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Growth Sprouts in the Shadows of the Andes


While Brazil and Mexico often steal the show when it comes to Latin America-together they make up about half of the regional economy-there are opportunities to be found in other countries in the region, according to Mark McHugh of Brazil-based Entoro Group.

McHugh focused his presentation at the ICIS Pan American Base Oils Conference in November on Chile, Colombia, Ecuador, Peru and Venezuela, which he called the Andean region. These are markets that are not very well understood by many people, he said.

Those markets are bolstered by the fact that the larger region of Latin America-including Mexico and Central America-is enjoying economic advancement, growing population, better living standards, infrastructure development, industrialization and increased personal vehicle ownership. All of these factors are pushing lube demand forward, according to Mohamad El Assar of ExxonMobil, who also spoke at the conference in Jersey City, New Jersey.

In its Energy Outlook, ExxonMobil predicts a 44 percent jump in regional gross domestic product, 23 percent growth in energy demand and a 12 percent increase in base stock demand from 2015 to 2030.

API Group I will hold on to the major share of demand in the region over the next decade, but will steadily yield ground to Group II, El Assar predicted. Group II growth will primarily come from automakers push toward high quality engine oils, as well as regulatory incentives for reduced emissions.

Thirst for API Group III will continue creeping upward as demand for lighter-viscosity engine oils, especially SAE 5W-XX passenger car oils, continues to grow.

South America is the only region with a base oil supply deficit, which hit 2.2 million metric tons (about 443,500 barrels) in 2016, McHugh pointed out. Capacity in South America stands at 31,100 barrels per day of API Group I oils; 1,550 b/d of Group II from the Lwart rerefinery in Brazil; and 4,990 b/d of naphthenic oils, according to LubesnGreases 2018 Guide to Global Base Oil Refining. South American refineries are far from running at full capacity, though.

State-owned Petroleos de Venezuela SA can make 4,800 b/d of Group I at its Punta Cardon refinery and 1,250 b/d at Amuay. However, the lack of crude oil feedstock and imported dewaxing solvents, as well as a fire in October 2017 in the Cardon plants toluene unit, have stymied its base oil production, said McHugh.

PDVSA also operates the Refineria Isla in Curacao, which has capacity of 5,000 b/d of Group I and 3,700 b/d of naphthenic oils, but the refinery has been plagued by a slew of troubles in the lead-up to the expiration of PDVSAs lease at the end of this year and was not operating as this issue went to press.

Brazils Petrobras has capacity of 1,290 b/d of napththenic oils at its Lubnor facility in Fortaleza, 1,750 b/d of Group I at its Landulpho Alves refinery (RLAM) in Mataripe, and 11,200 b/d of Group I at the Reduc plant in Duque de Caxias. McHugh estimated that Brazils refineries were operating at just 66 percent utilization rate, except when a truckers strike in May last year impacted imports and spurred a brief uptick in production.

The Raizen refinery in Buenos Aires, Argentina, can produce 1,500 b/d of Group I, and the YPF refinery in La Plata can make 4,700 b/d. Colombias Ecopetrol in Barrancabermeja adds 900 b/d of Group I capacity.

More than 70 percent of South Americas Group II is imported from Motiva on the U.S. Gulf Coast and Chevron on the West Coast. The deficit in Group I oils is met mainly by imports from Northwest Europe, while the small amount of Group III needed comes from Asia.

ExxonMobil expects lubricant demand to grow in all areas in Latin America. Industrial oil sales will be supported by the mining sector in particular, said El Assar. OEM specifications for engine oils have a large impact on the market, as passenger car and heavy-duty motor oils account for about two-thirds of the regions demand-even more in Brazil and Mexico.

Andean countries consumed 603,000 cubic meters of lubricants (542,000 tons) last year, McHugh said. About half was sold through business-to-business trade, just over 40 percent was sold business-to-consumer, and just 7 percent came from retail shelves.

South America sustains a long-term market imbalance with about 7 percent of the worlds lubricant demand but only 3 percent of supply, according to McHugh. As a result, international oil companies have traditionally dominated sales with their imports to Andean countries and elsewhere.

However, these companies have realigned their global strategies over the past decade, McHugh pointed out. IOCs are more frequently aligning with macro distributors, or regional operators, which Shell has done. Compania de Petroleos de Chile took up ExxonMobils brand, while Copec subsidiary Terpel bought the oil majors lubricants division in Colombia in March last year.

Overall, IOCs have lost more than 20 percent of the market over the past decade, except in Venezuela, where PDVSA has always held the majority of sales. Other players like Puma and Petronas have been picking up the slack, said McHugh. In general, the region doesnt tend to like multi-brand distributors, he observed.


Chile has always been the star within the [Andean] markets, McHugh said. The country has the highest gross domestic product per capita at $15,100. Its GDP of $277 billion was expected to grow 5.3 percent last year. New international trade opportunities are on the table through the Alianza del Pacifico trade alliance between Mexico, Colombia, Peru and Chile.

Chile represents a quarter of the Andean regions lubricant demand at about 150,000 cubic meters, 71 percent of which is sold in the B2B segment. An advanced market, it prefers value offers along with long-term commitment, said McHugh.

The B2B segment is heavily influenced by the mining and metals sector, but has fragmented services. The country has a modern infrastructure, and half of its lubes demand is industrial. Mining and metals, power generation and vehicle fleets with continuous regeneration technology (CRT) emissions filters, used frequently in the mining industry, are the markets biggest growth drivers.

In the B2C segment, retail is the largest sales channel for oils for the countrys modern vehicle fleet. Copec has a strong market position through its retail fuel outlets. McHugh sees opportunities to develop product offerings through workshops and quick lube stations.


Colombia makes up a third of Andean lubricant demand, consuming 203,000 cubic meters split almost evenly between the B2B and B2C segments.

Colombia is a stable democracy with a free market economic model, but has struggled with an influx of Venezuelan refugees and challenges implementing peace agreements with the FARC rebel group.

Looking forward, I think there is real potential as you get more stability in the country that this will become an interesting market that will continue to grow quite strongly, McHugh ventured.

The country should see continued growth of the B2C segment at 3 to 4 percent per year, including significant growth in demand for motorcycle oils, said McHugh. It seems to be the most competitive market in the region with a lot of players.

Terpels buyout of ExxonMobils lubricants assets has accelerated market consolidation, he noted. Total, Repsol and Puma will enter the market this year. Other international newcomers include Germanys H&R and Wolver, Ukraines Yukoil, and Kingdom Lubricants from the United Arab Emirates.

McHugh also pointed out that the supply chain is shifting toward imports of finished products from Mexico, the U.S. and Peru.


Ecuador is always a smaller and probably one of the more difficult markets, McHugh noted. The country consumes about 54,000 cubic meters of lubricants per year, or 9 percent of the Andean regions demand. Sixty-three percent is sold in the B2C segment.

Quick lube stations and independent workshops conduct over 70 percent of B2C trade, which is seeing steady annual growth of 2 to 3 percent, according to McHugh. Franchise workshops have 20 percent of the market. Non-traditional channels are expanding, such as quick lubes and service centers at fuel retail sites.

The countrys B2B segments, driven by oil, infrastructure and power generation, are slowing, he said.

Growth in Ecuadors lubricants market stems from agriculture, food manufacturing and a focus on exports to offset low domestic demand.

Consolidation can be seen here, too, in the Copec and Terpel purchase of Exxon­Mobil assets. McHugh pointed to interest from other regional players such as Perus Primax and Colombia-based Biomax, which should be facilitated over the next couple of years through the relaxation of some import barriers.


Peru seems to be suffering from lots of political turmoil, observed McHugh, with three presidents in the past 2 years. Peru is just behind Colombia in the number of Venezuelan refugees it has absorbed, impacting security and unemployment.

However, if institutional reform implemented by the transitional government starts to catch on, McHugh anticipates quite a positive outlook in the next few years.

With 23 percent of Andean lubricants demand, just over half of Perus 140 cubic meters is sold in the B2B segment.

Quick lubes and independent workshops do about 80 percent of B2C business, which is enjoying steady 3 to 4 percent growth per year. McHugh noted that CRT vehicles here follow European specifications, and commercial service motorcycles are picking up steam.

Major B2B segments include mining and metals, infrastructure and fisheries, he said, and the mining, metals and oil & gas segments are the main sources of growth. New ports and terminals are being built for commodities trade, also bringing growth for lubricants.

McHugh believes that the countrys stable trade channels may open opportunities for innovation, and its competitive blending infrastructure may position Peru as a hub for Asia-Pacific entrants in South America.


Venezuelas troubles are no secret. Though it once had been similar in size to the Colombian lubricants market, the country now accounts for just 9 percent of Andean regional lubricant demand.

The dearth of base oil supply from PDVSAs Punta Cardon plant is causing major domestic lubricant shortages. Imports of base oils from the U.S. and Europe cant keep up with demand due to import restrictions, McHugh reported.

With 57,000 cubic meters of demand per year, Venezuela is the only market where retail sees a large chunk of sales (42 percent). However, it is almost impossible for consumers to find oil for their cars, he said. Unlabeled barrels and black market prices are the norm.

The lubricants distribution network has been dismantled, and franchise workshops have disappeared. The country has seen no investment in lubricants technology, blending facilities or services in the past 15 years, he said.

The one glimmer of hope for the Venezuelan lubricants market is the fact that market drivers seem to be aligned for a third opening of Venezuelas oil industry when political conditions return to normalcy, said McHugh. The most likely sectors to come back online quickly are food production and oil & gas.

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