Asia lubricant demand to post modest growth: ExxonMobil

Interview articly by Andrew Toh and Nurluqman Suratman

SINGAPORE (ICIS)–Lubricant demand in Asia is expected to grow modestly in the coming years, with a shift towards higher quality base oils, as the pace of economic growth in the region slows down, an ExxonMobil official said.

“While Asia Pacific continues to be the growth market of the world, the pace of growth has slowed, especially in China,” ExxonMobil global base-stocks and specialties planning manager XB Cox told ICIS.

“So our expectation is that lubricant demand will grow modestly in the coming years, but with a shift towards higher performing lubricants,” he said.

China, which is the world’s second biggest economy, posted a first-quarter GDP growth of 7.0% – the slowest pace recorded in six years.

As ExxonMobil expects demand for higher-quality Group II base oils in Asia to gain traction, it has been expanding production capacity of the base stock, Cox said.

“The markets seem to be trending toward the higher performance, current-quality lubricants. As a result, ExxonMobil’s global base stock operation is expanding at a rapid pace and is shifting focus to Group II from Group I,” said Cox.

Group II base oils are typically preferred to Group I base oils due to their lower sulphur content and improved performance, though they cost more to produce.

ExxonMobil started offering larger volumes of Group II base stocks to the Asia-Pacific market in January 2015 after it completed expansion works at its Singapore lubricant base stock refinery.

The expansion boosted Group II base oils capacity at the plant by 400,000 tonnes to 1.6m tonnes/year, according to industry sources.

Meanwhile, ExxonMobil is on track to produce Group II base oils at its Rotterdam refinery in the Netherlands in 2018, subject to regulatory and final funding approval, Cox said.

“Rotterdam will be an entirely new base stock production location for ExxonMobil and will be a significant capacity addition for the industry,” the ExxonMobil official said.

The shift in demand from Group I to Group II base oils, however, is expected to take place gradually, weighed down by “long vehicle turnover times, limitations in fuel qualities, and buying behaviours among consumers who may still value cost over performance, among other factors”, Cox said, adding that Asia has demand for heavier base oil grades.

“So while the direction is towards alignment [of Group I and II base oil demand], we think the pace of change will continue to be slow,” Cox said.

Global production capacity for Group II and III base oils is expected to increase by 6.7m tonnes over the next five years, according to project manager Anuj Kumar from consulting firm Kline & Co.

About 25% of new global base oil capacity will come on stream in the Asia-Pacific region in the next few years, and these capacity additions “will further exacerbate the Group II/III surplus in the region”, Kumar said.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections