September 2018

Trends & Resources

Business Trends: Understanding the viewpoints that shape the ever-evolving base oil landscape

In April, ExxonMobil launched its 2018 Basestocks Industry Pulse Report.

Walko, T., ExxonMobil

In April, ExxonMobil launched its 2018 Basestocks Industry Pulse Report. Supported by survey responses from 300 base oil decision-makers around the world, the report reveals perspectives into the key market trends and industry drivers in the base oils business.

Base oil manufacturers face several challenges in today’s complicated industry environment. One of the most prominent obstacles is finding a way to meet the various needs of a lubricant market that must adhere to increasingly advanced specifications and regulations. As the landscape continues to shift, it is important to remember that while making significant investments and enhancing production capabilities are important, deep customer understanding, industry knowledge and long-term experience are what make a company truly successful.

However, in this constantly evolving enviroment, one can never stop studying and learning, no matter the level of knowledge attained. ExxonMobil periodically conducts rigorous research and analysis on the market to help drive investments and decision-making processes. In addition to reviewing quantitative research, it is equally important to listen and adjust based on what industry stakeholders are saying.

In this vein, ExxonMobil partnered with KRC Research to conduct a survey with more than 300 base oil decision-makers. The target research group included additive manufacturers, lubricant manufacturers, industry associations and equipment manufacturers based in the Americas, Asia-Pacific and Europe. Questions were designed to gather opinions on a number of important topics, including the current base oil grades, the future of electric cars and API standards.

As a business that is focused on the long-term success of the industry, it is an inherent responsibility to share the insights that may influence and change the future of the market. The following are key themes discovered within the survey report.

Group 2 is the heart of the market

With 72%, base oil decision-makers believe Group 2 represents the heart of the market. While it is common knowledge that the industry has seen an overall shift to Group 2 base oils, this penetration has varied by region. Initially, North America led the charge, while Europe was slower to adopt. It was not surprising that base oil decision-makers in Europe, the Middle East and Africa (EMEA) were found least likely to say that Group 2 base oils are the heart of the market (60%). However, more than half (52%) said they would likely transition away from Group 1 and/or Group 3 base oils if they had access to a Group 2 manufacturer.

The survey results are consistent with ExxonMobil’s view that Group 2 base oils will become the heart of the market in Europe. Therefore, we are confident that Group 2 will be well suited for the region once increased supply is made readily available (FIG. 1).

FIG. 1. ExxonMobil is expanding its hydrocracker unit at its Rotterdam, Netherlands refinery to upgrade heavier byproducts into cleaner,  high-value products.
FIG. 1. ExxonMobil is expanding its hydrocracker unit at its Rotterdam, Netherlands refinery to upgrade heavier byproducts into cleaner, high-value products.

Group 1 remains beneficial despite decline

Over the past several years, various Group 1 refineries have closed, which has generated a sense of uncertainty about its future. The survey report confirmed that this has brought challenges to the industry. Approximately 72% of the respondents believe the Group 1 base oil decline has had a significant impact on the industry, and half of the respondents admit it has been difficult to adapt.

Futhermore, 37% of respondents said their companies were forced to alter work techniques as a result of this shift. Others admitted that the decline resulted in work with new base oil manufacturers (36%), change in equipment (28%) and heavy reliance on other base oil groups (27%).

Despite these results, respondents identified that Group 1 has certain beneficial properties, such as a broad viscosity range and solvency (FIG. 2). A surprising result from the survey was how respondents generally underestimated their need for Group 1 base oils in the future. According to the report, only 10% of respondents said they will be using Group 1 over the next 10 yr, compared to 18% using Group 1 at present. This result would suggest a significant decline of 50%–60% based on the number of respondents. Internal analysis from ExxonMobil suggests that while Group 1 use will decline over this time period, it will do so at a slower pace, resulting in a 25%–30% decrease vs. current levels.

FIG. 2. The primary benefits of Group 1 base oils are viscosity (54%), solvency (49%) and affordability (46%). Source: ExxonMobil’s <i>2018 Basestocks Industry Pulse Report.</i>
FIG. 2. The primary benefits of Group 1 base oils are viscosity (54%), solvency (49%) and affordability (46%). Source: ExxonMobil’s 2018 Basestocks Industry Pulse Report.

According to the survey, the top three reasons that respondents said they would change their base oil usage in the next 10 yr are if other base oils enable better fuel efficiency (49%), are higher quality (48%) and/or are cleaner and/or more environmentally friendly (44%) (FIG. 3).

FIG. 3. Respondents would switch to a new base oil within 10 yr if they have better fuel efficiency, are higher quality and/or are cleaner and more environmentally friendly.
FIG. 3. Respondents would switch to a new base oil within 10 yr if they have better fuel efficiency, are higher quality and/or are cleaner and more environmentally friendly.

Most believe API standards are sufficient

While a good portion of the report studied the current sentiment and future needs for Group 1, Group 2 and Group 3 base oils, the survey also covered API standards, which provide structure to formulating and manufacturing engine oils.

More than 60% believe the API standards are sufficient. One respondent explained, “All the policies and regulations of API are covering each aspect that it should focus upon without compromising on any parameters.” Slightly more than one-quarter (27%) called for an adjustment, asserting their belief that the standards are “outdated” and a need exists to take more “environmental issues” into consideration.

Confidence in the base oil industry

Naturally, there is an expected concern for more changes in the industry, especially in the automotive sector. It was no surprise that a majority (77%) of respondents shared their concern over the increase of fuel economy regulations (FIG. 4). However, the industry is confident that base oils can keep up with the changes (80%).

FIG. 4. While 77% of respondents are concerned about increased regulations, 80% feel certain the base oil industry can keep up.
FIG. 4. While 77% of respondents are concerned about increased regulations, 80% feel certain the base oil industry can keep up.

While the industry continues to evolve, decision-makers have a positive outlook, which could be attributed to increased industry investments, the abundance of higher-quality products and consistent formulation guidelines that keep us honest. Looking ahead, the industry will shift and so will product formulation needs. The best partners to align with—whether your company is looking to work with a base oil supplier, blender or additive company—are those that put effort into addressing the needs of today and tomorrow. Companies with long-term commitments and outlooks will prevail in this challenging, but rewarding, industry. HP

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