In recent years, however, a number of these companies have begun to raise their sites, looking abroad for opportunities to increase lubes sales and often fuels and other products. At a recent industry conference, one analyst predicted that they could have a growing impact on the global market.

In the future, expect increased competition and customer base to come from NOCs [national oil companies] and independent oil companies, Geeta Agashe, vice president for energy at Kline and Co. consultants, said in June at the Base Oils and Lubricants Middle East Conference organized in Bahrain by the Petrosil and the Conference Connection.

Oil for the State

Most national oil companies were created as a way for governments to control the tapping of crude oil and natural gas resources within their borders. Exploration and production are their first concerns. But many also became involved in refining and thence in the production and marketing of petroleum products. This brought them into the lubricants business.

Backed by the state, many of these companies have held large, sometimes dominant shares of their local markets, particularly in fuels, but also in lubricants. As a rule, though, they have stayed at or near home, making little effort to build much sales volume outside their home market.

Though they have minor market shares on a global basis, NOCs are very strong on their home ground, Agashe said.

A number of national oil companies have begun turning their focus outward, and Agashe cited several reasons. Many of these national oil companies, along with some regional independents, benefitted from the commodity-driven economic boom in Eastern Europe, Latin America, China and South East Asia. Lube marketers such as Chinas Sinopec, Indonesias Pertamina and Petrobras in Brazil, gained strength because they are located in emerging economies where growth lately has outpaced Europe and North America.

At the same time, Agashe said, those local markets are now subject to increasing competition, encourag­ing them to make a defensive move to geographically diversify. Buoyed by their recent success, these compa­nies are becoming more aggressive.

Shifting Focus

Agashe spotlighted several companies to illustrate her trend, beginning in China. State-owned Sinopec and PetroChina are the two leading finished lube suppliers in that country. Until recently, Sinopec focused its attention on domestic consumption, but now it is looking to expand across all of Asia. It already accounts for 4 percent of global demand and its ambitions may be bigger than Kline predicts.

Troy Liu, of Sinopecs Dubai office, hints at a wider intent. I am sure we are not only concentrating on China, [perhaps] even the global [market]. Later this year, Sinopec plans to open a 100,000 t/y blending plant in Singapore to service international demand. Strong recent profits underline the fact it possesses the financial clout to fund major expansion.

Petrobras, usually associated with the Brazilian market, now wants to be number one in Latin America. To help achieve this goal, it is trying to upgrade its base oil capacity, announcing this year plans to build an API Group II plant in Rio de Janeiro. Similarly, IndianOil Corp. is looking to become the number one in South Asia, while Indonesias Pertamina aims to expand across Asia. All of these companies are owned wholly or partly by their home governments.

Moscow-based Lukoil is a public company but otherwise fits Agashes thesis. It is Russias second-largest oil producer and has held a dominant share of the countrys lubricant market. Now its lubricant business, LLK-International, is expanding abroad. Marina Kondrina, head of marketing at LLK International, says the strategy is driven partly by the oil groups own substantial resources and its existing presence in other overseas markets. In recent years the company bought blending plants in Romania and Turkey to go along with existing facilities in Finland and in Perm, Volgograd and Nizhniy Novgorod, Russia.

Kondrina also points to the success of their strategy in the additives business with its LLK-Naftan joint venture created to develop additive packages. (These) have become part of the formulations used in Lukoils flagship lubricants (and are) quality compatible to foreign counterparts.

This year, the joint venture was ranked fifth in the club of four companies which manufacture additives according to Kondrina. Lukoil already has sales in thirty countries globally and a fast growing marine business. Lukoil has become one of the top 6 global players in the marine oil market, and to date the company has captured 3 per cent of the world market, says Kondrina. According to Kline, Lukoils ambition is to become number one in Eastern Europe and plans to enter Western Europe and North America. The Russian behemoth already has around a two percent share of the global market Kline estimates.

All five of the companies mentioned have expanded their sales operations into new countries in recent years. Klines Agashe says specific strategies will vary from company to company depending on business model. Some of them are hoping to grow lube market share through acquisitions, organic growth by entering foreign markets or a combination thereof. They are also buying assets from competitors looking for an exit strategy.

Success, she added, will be contingent on improving OEM relationships both on the automotive and industrial front as well as focusing on promotion and advertising. Other regions will gain importance and Kline forecasts that the Middle East and North Africa will overtake Asia due to increases in its abundant natural resources.

Obstacles to Overcome

Agashe does see challenges and possible pitfalls along the way. Some national oil companies have their eyes on markets that generally consume higher quality lubes. To compete there, they will need to develop products with more advanced performance than is typically demanded in their home countries. In terms of raw materials, such efforts will be somewhat eased by the large amount of Group II and III base oil capacity coming onto the market.

Companies from some emerging markets could also run into financial difficulties should those economies falter. For example, as Kline points out, India is currently battling inflation, and the weakening rupee is stoking a rise in fuel prices. Since India remains its largest market, such developments are bound to have a significant impact on IndianOil. On the other hand, problems on the home front also make the idea of expanding abroad even more compelling.

Globally, Kline estimates that Shell continues to lead in the branded lubes sector that together with ExxonMobil and BP constitutes approximately 32 percent of the total market of 37.4 million tons in 2010. A second tier of companies – regional majors such as Chevron, Total, Fuchs, Idemitsu, ConocoPhillips, Valvoline, Suncor Energy and Petronas – claim 21 percent of the market. That leaves 47 percent for national oil companies and all other suppliers.

Kline forecasts global lubricant demand to rise to 38.1 million tons in 2011, a 2 percent growth over 2010 and estimates demand will reach 43.1 million tons by 2015. The additional volume of five million tons in 4 years will be the backdrop to continued robust economic performance in emerging markets primarily in Asia and South America but it may not all be plain sailing. The gravest economic crisis for decades continues to grip Europe and a US economic recovery is far from being a certainty.

So, could the convergence of these events be enough to derail the ambitions of NOCs and independents? To some degree says Kline. It predicts Asian economies may falter this year but expects growth to resume in 2013 as the fundamental drivers remain in place. South America continues to rely on commodity exports to Asia and to some extent on ethanol exports to the United States but there is no doubt any further downturn in the massive North American market could dampen lubricant demand.

There is little doubt the dynamics of the global economy have changed beyond recognition, and the realignment of wealth is no more clearly illustrated than in the oil sector. Indeed the rise to prominence of national oil companies like Petrobras and Petronas together with Saudi Aramco, Gazprom, CNPC, NIOC and Venezuelas PDVSA has been dubbed the new seven sisters such is their impact on oil production.

Their influence on the lubricants business is likely to be tested in the short rather than the medium term given several are state owned enterprises. That could lead to an increase in political sensitivity as these companies reach out beyond their domestic borders and the role of the state in international markets comes under scrutiny.