The Middle East has a healthy appetite for finished lubricants, he added. The regions total annual lubricant demand is 2.7 million to 2.8 million metric tons and is expected to grow 1.0 to 1.5 percent per year on average. Four of the regions countries – Iran, Saudi Arabia, Turkey and Egypt – rank among the worlds top 20 lubricant markets.

Headwinds for the region include geopolitical disruptions that have hindered the regions GDP growth. GDP had been clipping along at 3 to 4 percent per year, but has come down and currently is around 2.3 percent, Heaton told the ICIS World Base Oils and Lubricants Conference in London in February. Although regional uncertainty persists, gradual recovery is expected, and GDP growth could reach 3.5 percent again by 2017, according to International Monetary Fund forecasts.

With 370 million people, the Middle East has an especially large youth segment – 45 percent of the population is below 25 years of age. They are looking for jobs, and they are looking for mobility, so were seeing growing vehicle pools across the entire region, Heaton pointed out.

The market is also marked by relatively low oil drain intervals, he added. Typical is just 2,000 to 3,000 kilometers between oil changes. But some of this behavior is beginning to change toward longer drain intervals, especially with younger people who are actually reading their owners manuals.

Many key global drivers seen elsewhere – climate change, vehicle exhaust regulations, cost of commercial vehicle ownership – also apply in the Middle East and are putting pressure on lubricant performance. But some concerns rank lower among the regions consumers, Heaton said. Fuel economy is not much of an issue because fuel is so cheap, and resource efficiency appears to be low on the overall list of needs.

Seventy percent of this market is automotive lubricants, and vehicles often see poor conditions, like unpaved and dusty roads, Heaton said. There are also wide climate variations. The image of the Middle East is hot, but its actually very cold in many spots, especially in the high mountain regions.

Luberef estimates that 70 percent of oil changes in the Middle East are performed in small workshops. Plenty of older vehicles are still in operation, and installers and buyers alike tend to be skeptical of lighter weight oils, due to the harsh environment and concerns about engine protection.

Citing Luberefs own data plus research from Kline and Co., Heaton said heavy-duty engine oils are the leading automotive product, with 54 percent of the volume, followed by passenger car engine oils (37 percent) and transmission fluids and gear oils (9 percent).

Forty-four percent of the PCMO market is 20W-XX multigrade oil. Monogrades hold 28 percent, and 15W-XX multigrade represents 12 percent of the market. Lightweight PCMOs favored in North America, such as 10W- and 5W- multigrades, account for only 16 percent of sales in the Middle East.

Sixty percent of the heavy-duty market is satisfied by monogrades. SAE 15W-40 now has 37 percent and is growing. Heaton noted that a quality upgrade is occurring, with many countries moving to mandate API CH-4 as the minimum category allowed. This is a massive shift, and will eradicate much of the monograde heavy-duty volume.

Heaton said that Middle East base oil capacity is now 4.8 million metric tons per year, with 40 percent being Group III. Group III capacity was effectively built for export, he observed, and the Middle East …
has good logistics to reach global
buyers.

On the other hand, the regions blenders are suffering a slight deficit in Group I, which is largely what internal markets demand for their lower specification products, heavier viscosity profile and older vehicles.

Looking ahead to 2017, Heaton said that base oil capacity in the region will rise to 5.4 million t/y, which includes 500,000 tons of Group II capacity at Luberefs base oil refinery in Yanbu al Bahr, Saudi Arabia. This expansion, to be completed in 2016, will make Luberef the regions top Group II producer.

Yanbu currently has capacity to make 280,000 t/y of Group I, including bright stock and heavy neutrals. Although the heavy neutrals are going away, another speaker at the London meeting pointed out that Luberef plans not only to preserve Yanbus bright stock output, but to boost it.

Often, converting a refinery from Group I to Group II production spells the end of Group I operations. That wont be the case at Yanbu, said H. Ernest Henderson of K&E Petroleum Consulting, based in Oklahoma City, Oklahoma, United States. At Yanbu, Luberef will debottleneck the Group I plant and … use it to produce only bright stock. With a gain in bright stock production of approximately 110 percent, Yanbu will provide additional barrels to a region that is still highly dependent on bright stock, especially for making monograde automotive and marine oils.