Base oils are lubricant grade oils produced either through crude oil refining (mineral base oil) or chemical synthesis processes (synthetic base oil). Depending upon their chemical structure, base oils may be classified as either paraffinic or naphthenic. Base oils are generally obtained from secondary processing units of refineries. Currently, base oils are obtained using two processes: refining of crude oil and synthesis of relatively pure compounds. They are primarily utilized in the manufacture of lubricants. The base oils utilized for the formulation of lubricants are mineral, synthetic, or vegetable-based. The American Petroleum Institute (API) has developed a base oil classification system, which segments the base oils into five major groups (Group I, II, III, IV, and V). These groups are classified on the basis of the percentage of saturates, sulfur content, and viscosity index.
The automotive industry is one of the key end-users of lubricants. The automotive industry preferably uses naphthenic oils as lubricating oils, greases, or as cutting fluids during metalworking activities. Rapid growth of the automotive sector globally is expected to increase the demand for base oils and lubricants. Rapid population growth and urbanization are leading to the continuous rise in vehicle production volumes globally. The speedy rise in automobile demand is likely to increase the demand for finished lubricants and base oils during the forecast period. Furthermore, the shift towards stricter emission norms and better fuel economy would entail the use of better quality lubricants. However, dwindling supply of sweet crude, particularly in regions such as North America and Europe coupled with less impurity and lower prices of sour crude is forcing refiners to change their preference of crude oil to sour crude. This shift in preference from sweet crude to sour crude by refiners is expected to decrease the overall base oils yield from crude oil. This is likely to negatively impact the growth of the base oils market and the impact of this restraint is likely to alleviate during the forecast period.
Furthermore, the recent slump in crude oil prices has also negatively affected the base oil market. Base oil prices in most of the regions, particularly Asia Pacific, are expected to remain stable-to-soft in the first quarter of 2015. Group II is expected to register a steep decline in base oil prices in the near future. The spot prices of Group II would reflect a drop of about 15%-17% in 2015, globally. Rapid industrialization in emerging economies, especially Brazil, Russia, India, and China (BRIC) is likely to stimulate the demand for base oils in the near future. Moreover, technological advances such as Gas-To-Liquid (GTL) technology would be one of the key opportunity areas for registering growth in the market. The lubricant base stocks produced from the GTL refining process are commonly referred to as ISO Paraffin. These have currently emerged as viable alternatives for the conventional Group III and Group IV lubricants used for manufacturing high efficiency lubricants.
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The key base oil products considered are Group I, Group II, Group III, and others. Group I base oils accounted for a major market share in 2014 and are expected to remain dominant throughout the forecast period. It is estimated that Group I base oils would witness a downward trend in terms of their consumption in both North America and Europe. Substitution of Group I by higher quality Group II and Group III base oils is expected to be the primary reason for the reduction in demand for Group I base oils in the years to come. However, certain important grades of Group I such as Bright Stock are likely to retain their popularity in the market. This grade of base oils is likely to grow in regions such as Asia Pacific, the Middle East, and South America. Increasing preference for Group II and Group III base oils in both the automotive and industrial oil segments would drive growth of these segments in the near future.
Automotive oils accounted for the major application share in the global base oils market in 2014. This segment is anticipated to remain dominant throughout the forecast period. The global automotive lubricants sector has been witnessing a change in preference with respect to the base oils used in blending plants. The sector has been gradually migrating towards high performance base oils (Group II and Group III). Currently, Group III base oils are emerging as the most preferred base stock in the manufacture of finished lubricants for the automotive sector across the globe. With tightening emission standards, the demand for high quality lubricants is likely to grow by several times over during the forecast period. In order to cater to this increasing demand, there is likely to be a rise in the consumption of Group II and Group III base oils in the near future.
Key players in the market include Exxon Mobile Corporation, Royal Dutch Shell plc, SK Lubricants Co. Ltd., and Chevron Corporation. Other market players profiled in this research report include British Petroleum plc, Sinopec Group, GS Caltex Corporation, MOGoil GmbH, PetroChina Company Limited, Phillips 66 Company, and S-Oil Corporation.
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