By 2020, almost half of the global lubricant demand will come from Asia-Pacific, while markets of the Middle East are expected to grow, albeit at a lesser rate than previously forecasted, Shyam explained.

One positive factor is the Middle Easts expanding population of 350 million, which is projected to grow at 2.5 to 3 percent annually, presenting substantial growth potential for the regions refiners, Shyam said. However, an obstacle to growth is regional conflict, such as the civil wars in Yemen and Syria, and the ongoing fight against the Islamic State in Iraq, a major oil producer.

Hit the Base Line

The Middle Easts base oil production capacity in 2017 was almost 5 million tons per year, excluding Egypt, according to data compiled by LubesnGreases. Of that, there were almost equal shares of API Group I and Group III base oil capacity, at 37.3 percent and 40.2 percent, respectively, while Group II accounted for the remaining 22.5 percent. The region is a large Group III net base oil exporter.

Qatar, Iran, U.A.E. and Saudi Arabia are currently the largest base oil producers in the Middle East region. At the end of 2017, they controlled roughly 84 percent of the regions overall capacity, said Shyam, adding that Qatar is leading thanks to Shell and Qatar Petroleums Pearl joint venture plant, which produces a combined 1.37 million t/y of Group II and Group III base oils. According to some industry insiders, the gas-to-liquids facility exports around 400,000 t/y of Group III base oils to the United States alone.

In Saudi Arabia, Saudi Aramco-Luberefs refinery is already operational, and this plant will produce a sizable quantity of Group II base oils, with capacity of 708,000 t/y, he said. The joint venture announced in February that it had completed the upgrade of its Group II base oil plant in Yanbu and that material was finally being shipped to customers in India. Luberef first announced the expansion in 2012 and originally aimed to complete it by 2015. The project suffered several delays until the second half of last year, when officials said the expansion would be completed in December.

Gulf Petrochem found that Iran dominates the regions Group I scene with more than 450,000 t/y of exports, while beleaguered Iraqs operational capacity is reported to be around 45,000 t/y, or less than 20 percent of its installed capacity, according to Gulf Petrochem. Around 50 percent of Iranian Group I material is exported, mostly to the U.A.E. and India, creating a regional deficit. The U.A.E. then exports large volumes of finished lubricants to Africa.

Flow Imbalance

Generally, what defines the global base oil trade flows are the imbalances in terms of the base stocks quality, Shyam said. Group I base oils coming from Europe and Russia are supplied in North and West Africa, the Middle East India and America. Middle Eastern Group I base oils also reach the whole African continent, from North and West to the East and South Africa and off course, the Indian Subcontinent and Southeast Asia.

Other Group I trade routes include from refineries on the United States Gulf coast for shipment to Latin America, West Africa and India, while Brazil base oils are shipped to North America and West Africa. Southeast Asian Group I refiners is exported to India and the Middle East

For Group II base oil, Middle East exports are mostly directed to Europe and the U.S., while the largest Group II base oil producers in the U.S. export to Europe, India, the Middle East and South Africa. From North and Southeast Asia Group II base oils flow to Europe, India, Middle East and Africa.

Regarding Group III base oil trade flow, the Middle East is a large exporter to Europe, U.S. South America, South and East Africa and to India. Other Group III producing regions are Europe, which exports to the Middle East and America, India and South and East Africa. North and Southeast Asia export Group III to India, Europe, the U.S., the Middle East and South and East Africa.

Gulf Petrochem found that the Middle East could be looking at a glut of more than 2.2 million tons of Group II and III base oils that it must shed. Thats why the region has started catering the demand of not only India but also Western Europe and North America, Shyam said, adding that Korean Group II suppliers are getting tough competition from Adnocs Ruwais refinery in Abu Dhabi and the Luberef plant in Saudi Arabia.

Other than the Luberef Group II plant, one more large project is the Neste-Bapco 45/55 joint venture comprising a 400,000 t/y Group III base oil plant located in Sitra, Bahrain. It is still questionable if Pakistans National Refinery Ltd. 230,000 t/y Group II base oil plant in Korangi could come on stream in 2018, Shyam said.

Finished Lubricants

The Middle Easts current finished lubricant demand is 2.8 million t/y and is expected to increase, along with its population and GDP, at 1.2 to 1.5 percent annually by 2021, according to Gulf Petrochem. More than 70 percent of the market is automotive driven. While SAE 20W-50 grade still dominates the region due to the ambient conditions, a shift towards lower viscosity grades is gaining momentum, Shyam said.

Saudi Arabia is expected to upgrade its passenger car motor oil fuel and diesel oil specifications in 2018, which will drive to more domestic demand for Group II and Group III base oils, according to Gulf Petrochem figures.

Engine oil drain intervals are expected to increase while Group I base oil will still continue to be used in the regions lubricant formulations, Shyam observed.

This also confirms the regions ideal geographical position as a hub for base oil and finished lubricant production and exports to Africa, a region expected to see steep upward economic growth in the years to come. Conveniently positioned, the Middle East is also an export hub to Europe, Indian subcontinent and Africa.