Yet, industry opinion is changing amid the rapid growth in substandard and used oils that are being used to blend cheap finished lubricants. It is in Saudi Arabia, the Gulfs largest lubricant market, where a light is being shone into the murky market as the scale of the problem is realized. About 450,000 metric tons of lubricants are sold annually in Saudi Arabia, so the stakes are high. And what happens in Saudi Arabia is likely to be prevalent in other Gulf markets, notably the United Arab Emirates, which is a re-export hub to emerging economies in Africa and elsewhere.

How Big Is the Problem?

Lube oil manufacturers in Saudi Arabia became concerned enough that they recently commissioned a study to assess the scale of the threat from counterfeit products. According to one participant, a number of complex issues have created a burgeoning market in counterfeit oils.

Samir Nawar, CEO of Petromin Corp., a producer of finished lubricants and greases headquartered in Jeddah, said the root cause of growth in inferior oils is the easy availability of used (but not rerefined) oils, which enables less scrupulous blenders to produce low-quality finished lubricants. However, Nawar claimed, Saudi Arabias regulation banning the export of used oils is exacerbating the problem. The regulation is stoking domestic consumption of these oils.

Nawar said it is also easy for illicit operations to source additive packages, and the lack of trademark protection compounds the problem for major lubricant manufacturers. The end-user market is fragmented, but the main beneficiaries of selling substandard oils are punctureshops/retailers and small manufacturers that are both unorganized and scattered throughout the country. That means enforcement is difficult in a market with almost no monitoring of retail outlets. Saudi consumer awareness of the advantages of using higher grade products is also low compared to its Gulf peers.

The study was conducted in three phases to first identify the scale of the problem and second to check quality and analyze counterfeit products. Lastly, the study synthesized the findings to recommend solutions.

Nearly 1,100 questionnaires were fielded across several regions in Saudi Arabia. A total of 56 fake lubricants were discovered and 15 illicit operations nationwide. Seventy percent of the samples tested failed to meet the specification shown on the label.

The growth in substandard oils is perhaps not surprising in a country that has in excess of 10,500 auto service centers, locally known as puncture shops. There is scant information on the economics or margins involved in selling these oils, but the increase in the market suggests it is lucrative enough for suppliers and blenders alike.

The situation is ringing alarm bells with lubricant manufactures in Saudi Arabia. Aside from lost business, there is an obvious environmental impact as used engine oils have high levels of organic impurities, heavy metals and carcinogenic compounds. Any variation in viscosity and ingestion of contaminants like sand can disrupt the oil film, increase friction and wear and ultimately cause severe damage, analysts said.

Elsewhere in the Gulf, opinion is divided over the level of the threat from counterfeiting. Ali Farah, marketing manager of Emirates Lube Oil Co., a manufacturer and marketer of lubricants in the U.A.E., said it is not particularly prevalent. Counterfeit products are not a big problem in this region as standards are executed across the Gulf Cooperation Council. However, he added, These products affect our export markets, especially some African markets.

Mehrdad Vajedi, a U.A.E.-based consultant formerly of Nynas, said the reality is that there is a demand for counterfeit products, particularly from Africa where price is a major constraint. He said some small producers operating in the U.A.E. are using unconventional methods in a bid to reduce price. There are tricks like selling a lower quantity than mentioned on the package, blending recycled base oil and rubber process oil, which is aromatic and gives a greenish tint to oil. Another problem Vajedi cited is the lack of a systematic approach to collect waste oil in the region, and that large volumes of waste engine oils are used for fuel oil blending or diesel blending.

According to Vajedi, the U.A.E. is home to a number of companies around the emirates of Ajman and Sharjah that produce recycled base oil and ship large quantities to Africa. For the most part, they use outdated technology.

Nigeria has become infamous for the extensive use of fake and adulterated lubricants, so much so that it has been cited as a threat to the economy. (See the article on Page 44.) Yet, despite the best efforts of prominent U.A.E. lubricant companies like Emirates National Oil Co., industry observers say it is striking that authorities have not been able to stamp out rogue producers.

According the Petromins Nawar, results from the study require immediate action, not only to improve consumer awareness but also to lobby policymakers to tighten intellectual property regulations and police the sector more effectively. He said government departments such as the Ministry of Trade need to enforce legislation, and lubricant manufacturers in Saudi Arabia can support the ministry by hiring additional staff.

Nawar believes a commission created to combat commercial fraud would send the right signal to the private sector. Countries like the U.A.E. have taken steps to clamp down on copyright infringement in recent years, and Nawar said Saudi Arabia should do the same.

Finally, lubricant companies need to take it upon themselves to roll out an awareness campaign of the engine damage caused by using counterfeit products. But the signs indicate that there is a steep hill to climb to overcome consumer apathy toward the subject and enduring sensitivity to prices.

Rerefined Market to Grow

There is no suggestion that, properly controlled, rerefining will have any negative impact on the market. But rerefiners have a hard time differentiating themselves. Even so, some lubricant blenders in the Gulf are already using rerefined products, said Emirates Lube Oil Co.s Farah. Valvoline lubricants are made from 50 percent rerefined base oils, he said. Some rerefined base oils can compete with virgin base oils, but they are not available in this region as far as I know.

Petromins Nawar said the market remains unorganized, but there are serious issues that need to be resolved to minimize environmental impact and conserve resources.

Saudi Arabia has a rerefining capacity of about 150,000 tons by Nawars estimates and a total used oil collection of 200,000 tons. Saudis generate used oil at a higher rate due to shorter drain intervals and a rise in the automotive market. Nawar said part of the problem is a lack of regulation governing the use of rerefined oils, but that can be overcome with laws that require the declaration of the type of base oil used, whether virgin or rerefined. Nevertheless, at this point, none of the major blenders in Saudi Arabia use rerefined oils, he said.

Regulators have a tough challenge to eradicate rogue base oils because of the large informal collection network and frequent comingling of waste fluids. Nawar added that poor-quality rerefined products threaten not only the customer but also the broader economy. Offsetting the increasing sale of used lubricants as new products necessitates pan-GCC regulation, but competing national interests make that a remote possibility.

The Emirates Authority for Standardization and Metrology (ESMA) in the U.A.E. has required lubricant manufactures and traders to register with the authority and comply with U.A.E. standards since 2007. The code was revised substantially in 2012.

According to Vajedi, the authority has had limited impact in the market due to the nature of U.A.E.s economy. It is not a manufacturing economy; as most of the economy is generated through trade, there is not a strong will at the top to impose restrictions on exported material. The U.A.E. has evolved into a major re-export hub, said Vajedi, and he expects concerns about the quality of exported base oils to increase, ultimately forcing ESMA to become more proactive in policymaking.

Role of Regional Economics

Saudi Arabia is the Gulfs largest economy by far, and recent signs of weakness in the market could make consumers more price conscious than at any time in the last decade, according to a recent report by London-based Capital Economics. That will have implications for the automotive sector with the dual impact of a smaller market and price sensitivity likely to benefit rogue and counterfeit producers in the medium term. The incentive is clearly with lubricant manufacturers in the Kingdom to contain and, where possible, stamp out counterfeit oils as well as normalize the image of the rerefining industry.

Better market regulation and improving intellectual property laws will curtail the activities of wayward producers. But getting consumers to understand the importance of using branded – and more expensive products – is an ongoing challenge. Lubricant producers have an opportunity, though; the Middle East is one of the fastest growing areas in the use of social media, which is a useful promotional platform beyond conventional marketing and public relations campaigns.

Timing is also a factor, but the ease with which rogue producers can shift to alternative locations in the Gulf presents a dilemma for governments. At the moment, there is a cluster of illicit plants in the U.A.E., and Saudi Arabias de facto ban on the export of recycled oils adds momentum to the industry. This is likely to remain the case until the GCC can garner sufficient consensus to limit an industry that poses such a major threat to all in the region.