U.S. lubes demand expected to decline

Technological advances and changing usage recommendations will act in concert to cause U.S. demand for lubricants to fall in coming years. This is the conclusion of a report by Kline & Co. Inc., Fairfield, N.J.

The most prominent change will be decreased demand for automotive engine lubes, due to extended oil-change intervals and increased use of automobiles powered by fuel cells.

"The second factor driving change is that original equipment manufacturers (automobile makers) are becoming more demanding about the performance they require from lubricants," said Kline & Co. Marketing Manager Thomas F. Glenn at the National Petroleum Refiners Association annual meeting earlier this year.

"The unprecedented rate of change in the lubricants industry will have a significant impact on such products as finished lubricants, basestocks, and lubricant additives," he said.

The approximate makeup of U.S. lubes demand is: 48% industrial, 31% consumer automotive, and 21% commercial automotive. But about 75% of the lubes additives sold in the U.S. is used in automotive applications.

"As a result," said Glenn, "additive manufacturers are more closely tied to the future of automotive lubricants than are lubricant suppliers in general."

Driving forces

Geeta Agashe, a project manager for Kline & Co., said, "Even though sales of branded consumer automotive lubricants have seen a nominal increase from 1996 to 1997, demand for consumer automotive lubricants is expected to be flat, or even decline, over the next 5 years." This will occur despite an increase in U.S. demand for industrial lubricants.

Combined with declining demand, changing specifications for automotive lubes are expected to cause a rationalization among lubes manufacturers. This is because producers will be forced to either update their operations to employ new technologies or shut down their plants altogether. The biggest factor in the expected decrease in lubes demand is an increase in the amount of time between oil changes. The push from automakers and consumers and the growing popularity of auto leasing are the main drivers of this trend toward extended drain intervals, says Kline & Co.

According to the firm, "A shift from the do-it-yourself to do-it-for-me channels of trade, the introduction and growing acceptance of synthetic blends and synthetics, stringent exhaust emission, and CAFE (corporate average fuel economy) regulations are all having an impact on the quality and/or quantity of consumer automotive lubricants consumed."

Another key trend, says Agashe, is the likely emergence and acceptance of fuel cells as a means of powering automobiles. These vehicles will have no need for engine oils, as their engines will have no moving parts and require no circulating oils for cooling. And engine oils account for almost 85% of passenger-car automotive lubricant use.

"(This) could translate into a significant negative impact on the demand for consumer automotive lubricants," said the firm. "Mercedes Benz, General Motors, Ford, and Nissan, among others, have already indicated a commitment to the new technology."

It is quite possible, says Glenn, that, as a result of increased fuel cell use brought on by rapidly advancing technology, the lubricants industry could, by 2015, see a signficant decline in demand. Eventually, this decline could reduce lubricants use as much as 30%.

Lubes processing

Impending changes in U.S. specifications for passenger-car and heavy-duty-vehicle motor oils will further increase the performance requirements for auto lubes. These changes are expected to favor the use of refining technologies such as hydrocracking, catalytic dewaxing, and wax isomerization.

New, state-of-the-art basestock plants, such as those of Excel Paralubes and Petro-Canada (OGJ, Sept. 1, 1997, p. 63), use this combination of processes to produce water-white basestocks. Two relatively new processes combine the catalytic dewaxing and isomerization steps in a single unit: Chevron Corp.'s Isodewaxing process and Mobil Corp.'s MSDW (Mobil selective dewaxing).

The newer processing techniques can make basestocks from a broader range of crudes, including crudes containing higher concentrations of sulfur.

"These technologies provide lubricant basestock manufacturers with a 'step change' in quality, as well as the flexibility to compete in the future," said Glenn. "But, for some, the end may not justify the means," he added.

Glenn predicts that, although the changes in the lubes industry may spell the beginning of the end for some, for others, "they will open wide the windows of opportunity."

Supply

In addition to specification and demand changes, says Glenn, the lubes business is complicated by oversupply. The additional volumes of basestocks produced at the new Excel Paralubes plant (owned jointly by Pennzoil-Quaker State and Conoco Inc.), combined with several debottlenecking projects, have created excess capacity of nearly 15% in the U.S.

"Although rationalization of suppliers has and will continue to occur until the market is in balance," said Kline & Co., "the current oversupply, together with depressed crude oil prices, has pushed down the price of lubricant basestocks in automotive applications to just over 80¢/gal. This is a significant decline from prices that topped $1.10/gal several years ago."

"It would be easy to interpret the current industry dynamics as doom and gloom," said Glenn, "and, for those unable or unwilling to adapt to change, this may be true. For others, however, the changes and challenges offer an opportunity to capture market share by offering products and services that provide measurable performance advantages."

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