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FUELS & LUBES INTERNATIONAL
Quarter Three 2014
Although in the past, OEM
requirements could be met by Group I, II and III
base oils, “We believe that the industry has now
achieved the maximum quality achievable from a
petroleum-derived base oil,” said Eric Holthusen,
chief operation officer of Petronas Lubricants
International, whose parent company is Malaysia’s
state-owned PetroliamNasional Bhd. (Petronas).
“Future demands can only be met by non-pe-
troleum-derived base oils, the first major example
of which is the arrival of GTL base oils into the
market since 2012,” said Holthusen at F+LWeek
(FLW) in Singapore inMarch.
“Only non-petroleum-derived base oils, either
from natural gas, from petrochemical or yet-to-be-
determined bio matter, might be able to meet the
more severe standards of the future," he said.
During his presentation, Holthusen ac-
knowledged that he “has no crystal ball” but
offered his predictions on the global outlook for
the lubricants business.
Thedriver
Perhaps the most troubling trend noted by
Holthusen was what he called “de-motorization”
in developed markets—the propensity for youth to
trade cars for a bike or even a skateboard. Holthu-
sen recalled how excited he was to get his driver’s
license when he turned 18, but “young people today
are in no rush to get their driver’s licenses, let alone
a car.”
He attributed this trend to improved infra-
structure in cities, rising fuel costs, environmental
issues and everlasting traffic jams, conditions that
make cars a luxury item rather than a necessity
for youth. Also, expanded public transportation
and greater use of bikes means cars are no longer a
necessity for people to commute.
Youth “fall out of love with cars in contrast to
my generation where a passion for cars is very com-
mon,” he said.
Meanwhile, those who still like their cars like
them smaller.
The size of the typical car is shrinking, and so
is the engine. Giant SUVs are less in vogue, and
smaller engines with fewer cylinders are on the rise.
“V8 or more cylinders are becoming a breed on
the verge of extinction, and those who survive will
have advanced technologies such as cylinder de-
activation to make themmore socially acceptable,”
Holthusen said.
The trend within the North American market
of downsizing to fewer cylinders will continue with
growth in the three- and two-cylinder variations as
well as increased use of electric cars. Even luxury
German and Japanese cars are downsizing as well,
mainly from six to four cylinders.
While the internal combustion engine is vili-
fied as one of the main polluters, at the same time
it remains the single most effective power train
for mobile applications, and it has staying power,
Holthusen said.
Despite the appearance of alternative power
trains, the internal combustion engine will remain
king at least for the next 20 years.
“Alternatives to the internal combustion engine
will make their way into the markets, but at a closer
look we realize that versions of hybrids or electrical
vehicles with range extenders still remain custom-
ers to the lubricant business.”
Even a small share of pure-electric vehicles
will have only moderate impact on lubricant sales
volumes over the next decade, he said.
Population and income growth – particularly
If there’s one thing the lubricants industry can
count on, it’s that engine manufacturers—under
pressure from governments and consumers—will
have to keep pushing standards higher for greater
fuel economy and lower emissions.
in China and India – will continue to be the key
drivers behind growing demand for energy and
lubricants, Holthusen said.
Global population will surge about 27% by
2020 with the strongest gains projected to be in
African andMiddle Eastern countries, which will
see a 36% increase between 2000 and 2020.
Strong population growth in Asia-Pacific,
anchored by Indonesia, Malaysia andThailand, will
contribute heavily to the expanding vehicle markets
there, he said.
The lack of growth in Europe, the United States
and Japan will be more than offset by growth in
other parts of the world such as the Asia-Pacific
region, Africa, Russia and the Middle East.
“The emerging markets will further outpace the
developed markets in growth rates, and the Asia-
Pacific region will take the lead in absolute vehicle
park size,” Holthusen said. “All these trends are
positive for our business, provided we are present
in these growing markets. Building a mature supply
chain is the key to success,” he added.
Asia-Pacific will dominate global lubricants
growth. This will be fueled by population growth
and increased wealth in China and India, which
will boost car ownership while vehicle ownership in
the U.S. and Europe has stagnated.
The compounded annual growth rate for
China’s vehicle ownership is projected to be a
staggering 15% annually from 2000 to 2020 while
vehicle ownership in the U.S. nears saturation at
1.5% annual growth projections. The world’s annual
growth rate is projected to be just 3.8% during the
same period.
There’s a catch though. The capital available for
expansion in areas like Latin America, the Middle
East and Africa is limited and will require a “select
and focused approach,” Holthusen said. There are
risks of currency volatility in some of these areas
as well.
Higher-performance lubricants will take center
stage in coming years. The shift towards higher
quality lubricants is a result of emission regulations
and more sophisticated technology, he said. Reduc-
tion of harmful emissions will remain the main
technology driver.
The trend towards longer oil drain intervals
will continue as well and become global.
When it comes to base oils, here are three
certainties, according to Holthusen: Lubricant
quality standards will continue to rise, driven by
specifications and technology; there will be massive
building of new Group II and Group III refineries
through 2020, creating a supply glut; and there will
continue to be closures of Group I refineries.
The Group II and III base oil supply will exceed
demand, putting pressure on base oil market prices.
Environmental legislation will lead to changes
in engine, transmissions and after-treatment sys-
tems design, driving base oil quality higher.
It’s important to be aware of the changes and
challenges ahead, Holthusen said. “Understand-
ing these global trends means understanding the
impact on our business.”
Populationand income
growth – particularly
in Chinaand India –will
continuetobethe key
drivers behindgrow-
ingdemand for energy
and lubricants
