Capitalising on the growing demand for base oil

With the industries sector booming, there has naturally been greater inclination towards higher import of efficient machineries to be used in the factories. Almost all of these machines as well as various vehicles in the transport and communications sector require lubricants, which come from base oil.

Base oil is produced by refining crude oil (mineral base oil) or synthetic base oil, which is basically used to produce lubricating oil. The boiling point of base oil ranges between 550 and 1,050 degrees Fahrenheit and consist of hydrocarbons with 18 to 40 carbon atoms. This oil can be either paraffinic or napthenic in nature depending on the chemical structure of the molecules.

Almost every lubricant used in machines today started off as just base oil. The American Petroleum Institute (API) has categorised base oils into five categories. The first three groups (Group I, II, III) are refined from petroleum crude oil. Group IV base oils are full synthetic (polyalphaolefin) oils and Group V base oils including silicone, phosphate ester, polyalkylene glycol (PAG), polyolester, biolubes etc.

In general, only 1.0 per cent to 2.0 per cent of a barrel of crude oil is suitable for refining into base oil. The majority of the barrel is used to produce gasoline and other hydrocarbons. It is crucial as base oils normally make up to 70-97 per cent of the formulation of a lubricant.

A global survey has concluded that Group II and Group III usage will rise by 41 per cent and 38 per cent while Group I usage is expected to fall by 28 per cent by 2030. Napthenic base oil usage will fall by 30 per cent and synthetic base oil usage will increase by 60 per cent by 2030. The survey by ExxonMobil found that 65 per cent of companies are already using Group I base stocks at lower levels than previous years. Among the reasons given for the shift were, Group II and III oils are more likely to help meet regulations; that they are used more frequently across industries (77 per cent) and they are likely to save costs (73 per cent).Additionally, the survey found that respondents expect Group III oils to become the most commonly used grade within 10 years.

Nearly three out of four respondents for the study believed that the decline of Group I will significantly impact the market. Companies are primarily making smaller changes as opposed to more drastic measures like closing plants or refineries (15 per cent), shutting down parts of their business (15 per cent), taking on less work (14 per cent) or laying-off workers (13 per cent), the study stated. The most cited smaller changes included changing work techniques (37 per cent), working with new base oil manufacturers (36 per cent), changing equipment (28 per cent) or relying heavily on other groups of base oils (27 per cent).

The survey observed that while the global industries sector is clearly anticipating a decline in demand for Group I, it also recognises that Group I base stocks will continue to be relevant and favoured for specific formulations well into 2030. Bright stock users may have more difficulty obtaining supply as the market shifts from Group I to Group II and Group III base oils.

It will take a decade for electric vehicles to fully capture the market, which is quite a long time. So, we have plenty of time to innovate new products as per the engine demand.

The global base oil market was valued at $35,430 million in 2016, and is expected to reach $38,031 million by 2023, registering a compound annual growth rate (CAGR) of one per cent from 2017 to 2023. From a geographical perspective, Asia Pacific is projected to lead the global base oil market with 41.4 per cent share in it due to growth in the global industrial and automotive sectors. The Asia-Pacific base oil market is estimated to register a CAGR of 3.5 per cent between 2015 and 2020 and the demand is estimated to reach 25,226.5 KT by 2020.

The demand for base oil is expected to witness a steady growth in the Asia-Pacific countries. The market size is expected to increase in Asia-Pacific, due to economic growth in nations such as South Korea, China, Bangladesh and India.

The demand for base oil is the highest from the automotive industry, which accounted for over 57 per cent of the total market in terms of recent volume. The growing motorisation rate in developing countries is driving the demand for lubricants in this segment which will in turn increase the demand for base oil.

The demand from the industrial machinery and equipment application also accounts for a major share of the total lubricants market and is driven by increasing number of investments in the end-user sectors such as power generation, manufacturing, logistics, automotive manufacturing and others in nations such as China, India, Japan, Bangladesh and South Korea.

As the ExxonMobil survey pointed out, there is significant potential for Bangladesh to capitalise on the growing demand for base oil.

Unfortunately, Bangladesh is going backwards. When global base oils market is shifting to high quality ones to meet the requirement of the modern machinery and protect the environment, around 60 per cent of Bangladesh’s lubricants market is occupied by low grade oils. These low grade oils are produced from recycled base oil or sometimes these are straight mineral base oil without additives. The latter form is strictly prohibited as engine oil. But these are being sold and distributed in the country damaging engines on which these are being applied.

The annual domestic demand of lubricating oils is also increasing significantly. At the moment, it's around 100 million litres, whereas base oil demand is around 140 million litres worth around $133 million. Standard government regulations and proper monitoring can control the increase of low grade oils in the local market. There is scope for strong regulations to change this prevailing situation and help the industries and also protect the environment in the process.

Engineer Md. Shahin Alom is a Deputy General Manager

at MJL Bangladesh Limited. [email protected]