Base Oil Market

Market Overview

Base oils are lubrication oil produced by refining crude oil or through chemical synthesis. Base oil has four vital physical properties, namely viscosity limitations and viscosity index, pour point, volatility, and aniline point, that determine how they will perform in service. Motor oil contains approximately 75% of base oil. The base oil helps to protect the bearings, piston rings, and other engine parts that require continuous lubrication.

American Petroleum Institute (API) has classified base oils into five groups based on the ingredients and performance characteristics. Group I base oil contains more than 0.03 percent sulfur and less than 90 percent saturates. Its viscosity index ranges from 80 to 119.

Segmental Analysis

Group I — The Largest Shareholder 

Despite the fact that Group I holds the largest global base oil market share, its demand is on the downfall. The decline in demand is attributed to its excessive sulfur and aromatic content to be as stable as hydro processed oils. Its application ranges from making marine and industrial lubricants to producing engine oils for older engines.

90% of the lubricants in the World are Made from Group II Oils

Group II and III, made up of 99% of saturates, are hydro processed oils with comparable purity. The key difference between group III and group II is that group III has a viscosity index of 120 or higher. More than 90% of the lubricants in the world can be made from group II oils. Group II is extensively utilized in North America, and it dominates the base oil supply.

Group IV and Group V Enhances Existing Base Oil Properties

Group IV and Group V base oils are obtained through a process called synthesizing. Group IV is basically PolyAlphaOlephins (PAO) that can be used in extreme conditions, whereas group V includes all other base oils such as bio-lubricants, silicone, polyester, and polyalkylene glycol (PAG). These are generally used along with other base stocks to enhance existing base oil properties.

Base Oils Smoothening their Way into the Automobile Industry

Automobile and truck engines are the world’s significant consumers of lubricant oils, such as base oil in this case. Motors, engines, pistons, bolts, and other parts of vehicles require lubricants to work smoothly and it also prevents corrosion. Besides, there is a soaring demand for oil, grease, and lubricants, which is ultimately driving the base oil market growth. Various companies involved in lubricant manufacturing are targeting the automotive sector and developing products for them. In 2015, Nynas AB launched Naphthenic oil that will help vehicle engines to run smoothly. It helps in formulating greases for a wide temperature range.

Evolving Biofuel Industry — An Opportunity for the Global Base Oil Market

Governments of different nations, considering the alarming environmental concern, have levied stringent regulations pertaining to environmental pollutions on manufacturers of oil and gas. This has impacted the oil and gas industry drastically as the industry is a major reason behind most of the pollutions, such as air pollution. Toxic gases, greenhouse gases such as sulfur dioxide, nitrogen dioxide, are released through the burning of crude oils. Hence, research concerning an alternative of oil and gas has been in operation for a long time. Biofuel is one of the findings among these alternatives, which is environmentally friendly and is derived from plant-based products, also called biomass.

The booming biofuel industry is creating opportunities for base oil, as base oil is used in making lubricants and also in the manufacturing of bio-lubricants. For instance, on 13^th September 2016, RSC Bio Solution launched “FUTERRA,” an environmentally acceptable lubricant (EAL) made from a renewable base oil derived from plant-based matter. FUTERRA meets all current global environmental regulations, including the US EPA’s Vessel General Permit (VGP) and ensures compliance for years to come.  For the same reason, it is referred to as the Fluid of the Future.

Regional Analysis

Asia-Pacific’s Flourishing Industrial Sector

The base oil is consumed across the globe in automotive, industries, and construction applications. Consumption of base oil is expected to be high in the Asia-Pacific region on account of the flourishing industrial sector, rising demand for base oil from the automotive industry, and burgeoning regional construction activities. Countries such as India, China, South Korea, Malaysia, and Japan are the major contributors to the Asia-Pacific base oil market growth. The Middle Eastern countries are focusing on the Asia-Pacific market to establish their distribution network and sales in the region. For instance, on 24^th April 2019, Abu Dhabi National Oil Company (ADNOC) signed a sales agreement with Indian Oil Corporation (Indian Oil) for its high-quality base oil “Adbase.”

The supply of lighter group I is expected to face a crunch as the majority of refiners are shifting to group II and group III base oils. Taiwanese and South Korean refiners are striving to ramp up their base oil production while Japanese refiners have already hit a roadblock due to sluggish demand. Asian producers are facing stiff competition as the companies based out of the Middle East and the U.S. are after expanding their footprint in the Asian market. The coronavirus outbreak adversely affected the oil and gas industry — global crude oil prices are on the downward trajectory. This event is predicted to result in a long-term effect.

Base Oil’s High Solvency Property

The base oil is used across many applications where lubricants are required. These include industries, construction, automobile and agriculture, marine, and other applications. Base oils have high solvency power along with the ability to dissolve deposits and oxidation products during operation. Considering these properties, base oils are utilized in the production of a number of industrial oils such as hydraulic oils and gear oils.

The demand for base oils in the marine industry has significantly impacted the supply chain of base oils all over the world. A substantial share of base oils in the marine industry comes from automotive crankcase lubricants. On account of stringent regulations, the industry has shifted from group I to high-quality group II and group III base oils. Base oils from these groups have remarkable benefits in terms of better oxidation and viscosity control.

Recent Developments

On 7^th June 2019, Nynas AB launched a new base oil NYNAS® S 3B. This base oil is compliant with FDA regulations. Also, the new base oil is highly refined that meets FDA B requirements and can be utilized in the food packaging industry.

On 20^th November 2014, Royal Dutch Shell PLC, a global leading oil and gas manufacturer, launched its new range of (EAL) environmentally friendly lubricants, including Shell Naturelle S4 Stern Tube Fluid 100. Shell Naturelle S4 Stern Tube Fluid 100 is made from fully saturated ester base oil, as it offers the best resistance to hydrolysis and oxidation.

Saudi Aramco, in Dec 2019, acquired 17% of Hyundai Oilbank for approx. USD 1,200 million from Hyundai Heavy Industries Holdings. This allowed Saudi Aramco to establish its global presence.

Base Oil Market Segmentation

By Type

• Group I
• Group II
• Group III
• Group IV
• Group V

By Application

• Hydraulic Oil
• Grease
• Metalworking Fluids
• Industrial Oil
• Other

By End-User

• Industry
• Construction
• Automobile
• Agriculture
• Marine
• Other

By Region

North America

• U.S.
• Canada
• Mexico

Europe

• Germany
• France
• U.K.
• Italy
• Spain
• Russia
• Rest of Europe

Asia-Pacific

• Japan
• China
• India
• South Korea
• ASEAN
• Rest of Asia-Pacific

Central, South America, and the Caribbean

• Argentina
• Brazil
• Columbia
• Rest of Central, South America, and the Caribbean

Middle East

• Saudi Arabia
• UAE
• Oman
• Qatar
• Bahrain
• Rest of ME

Africa

• Nigeria
• Tanzania
• Ghana
• Rest of Africa