The Middle Easts largest consumer by far is Iran, with a 37 percent share, Al-Nouri said. Iran is followed by Saudi Arabia, which held a 20 percent share, Iraq with a 13 percent share, and UAE with 6 percent. Jordan, Yemen, Syria, Kuwait, Qatar, Bahrain, Oman and Lebanon are significantly smaller lubricant markets, he told the Argus European Base Oils conference, held in Istanbul in March.

Automotive lubricants represent 65 percent of the Middle Easts lubricant consumption, Al-Nouri said, while industrial oils hold a 29 percent share and 9 percent go to process oils, greases and other uses. In the automotive sector, 62 percent of the engine oils go into passenger cars, and 38 percent are heavy-duty diesel oils. API Group I base oil held 88 percent of the regions finished lubricants content, while Group II and Group III held 12 percent, he said.

JNLO counts 18 base oil refineries across the Middle East and North Africa, with a total of 3.9 million tons per year of capacity; the majority are smaller plants that make only Group I. But the region also has Shell and Qatar Petroleums massive gas-to-liquids Group II and III plant in Ras Laffan, Qatar, with 1.4 million t/y of capacity; and Neste and Bapcos 400,000 t/y Group III plant in Sitra, Bahrain. Al-Nouris regional tally also includes another newcomer, the Adnoc plant in Ruwais, UAE, which completed construction in March and is due to stream soon with 620,000 t/y of Group II and III capacity.

Irans Potential

Many of the regions Group I base oil plants are in Iran, Al-Nouri pointed out. However, Irans 700,000-ton lubricants market is dominated by poor quality products with very low involvement of the global lubricant majors in the country.

Yet Iran holds great potential, as another speaker reminded. It is the largest economy in the Middle East and an industrial powerhouse with steel, petrochemicals, energy, mining, metals, cement and other manufacturing, pointed out Mehrdad Vajedi of Permian Energy. It has a population of 76 million, and per capita lubes demand of 10.4 kilograms a year. And if sanctions against Iran were eased, he believes the country could drive the regions economic development and its lubricant demand.

Vajedi, who is director of the Dubai-based petroleum trading company, pegged Irans lubricants market at 790,000 t/y (slightly higher than Al-Nouris figure). He said its five largest base oil plants produce around 1.05 million tons of Group I, much of which is used as process oils. In addition, the country recycles 150,000 t/y of used oil. Around 37 percent of Irans base oils are exported and main destinations are Turkey and United Arab Emirates, Vajedi told the conference.

In 2012, Iran imported 12,000 tons of base oil. By far the largest source of these imports was UAE, followed by Turkmenistan and India.

Also, Iran has a significant additives production of 42,000 t/y, a $200 million niche. These are mostly engine oil additive packages, and components for metalworking fluids, Vajedi said.

Key Markets

JNLOs Al-Nouri also looked at other countries in the region:

Saudi Arabias market is characterized by stable currency, large investments on infrastructure projects and high involvement of the global lubricant majors. This is a 400,000 ton finished lube market, of which 360,000 tons are produced and consumed inside the country and 40,000 tons are exported. The biggest blending plant in Saudi Arabia is operated by Petromin, a state-owned lubricant manufacturer. Shell, Fuchs, ExxonMobil and Total have their own, but smaller lube production facilities, Al-Nouri said.

Iraqs import-dependent 230,000 t/y finished lubes market is very promising, and JNLO expects to see more investment in both base oil capacity and new blending plants. LubesnGreases estimates the countrys base oil refining capacity at 350,000 t/y, but these operations are going poorly, Al-Nouri confirmed. The countrys existing base oil production is very limited and amounts at the most to less than 40,000 t/y. It imports finished lubes primarily from UAE, Kuwait, Turkey, Jordan and Iran, he said.

In the last few years United Arab Emirates consumed an average 130,000 t/y, and is a quality-driven market. UAE has very large export volumes. The country produces low-quality [finished] lubes for export, with over 1.3 million t/y of blending capacity. The country has 25 major blending plants and numerous smaller ones. They export to Africa, the CIS countries and Afghanistan. Dubai and Jebel Ali are the regions hubs for base oil imports and re-export, Al-Nouri said.

Yemens 40,000 t/y market is characterized by low-quality products; only 4 percent of the product mix is synthetic and semi-synthetic, while the rest is mineral and monograde oils, according to Jordan National Lube Oils data. Yemen has no exports and it has few local blending plants, with local brands such as Falcon and Sonic. Imports are primarily coming from Saudi Arabia, UAE and Oman.

Kuwait, Qatar, Bahrain and Omans lubricants consumption totaled 125,000 tons in 2012. Kuwait was the biggest in the group with 50,000 t/y, followed by Oman (35,000 t/y), Qatar and Bahrain with 20,000 t/y of lube demand each, according to Al-Nouri These markets are characterized with 5 percent annual demand growth in the last few years and a shift towards lighter grades in the automotive sector.

Jordan and Lebanon each had 50,000 tons of lubricants consumption in 2012. Local lubricant markets will be reinvigorated with commencing of Sayagh Groups new 40,000 t/y blending plant near Amman later this year, Al-Nouri revealed. Notably, around 20 percent of Jordan and Lebanons lube consumption is high-quality, premium lubricants. Syria consumed 200,000 t/y of finished lubricants before the civil war and unrest, but JNLO asserts it is much less now. These three countries import all their needs of Group I base oil. Jordans local blending plants take care of 50 percent of its need for finished lubricants, the rest is imported primarily from UAE, Saudi Arabia and Qatar.

Focus: North Africa

Turning his gaze to the five countries that span Africas Mediterranean coast, Al-Nouri observed that all base oil refineries in this region produce Group I stocks.

Egypt is North Africas largest lubricant producer, with three base oil plants belonging to Egyptian General Petroleum Co. (total annual output: about 225,000 t/y). In 2012 the country consumed 450,000 tons of finished products, and it accounts for as much as one-sixth of Africas demand for lubricants. There are also blending facilities such as that of Caltex based in Cairo and others.

In 2012 Moroccos lube demand amounted to 150,000 t/y, and about two-thirds of this is blended domestically, one-third imported. Participants in this market include Shell, Total, Libya Oil, Petromin and a variety of local blenders, Al-Nouri said, and the country has a 125,000 t/y base oil plant at the privately owned Samir refinery in Mohammedia.

In 2012, Algeria, Libya and Tunisia had finished lubricant consumption of around 225,000, 50,000 and 100,000 t/y, respectively, Al-Nouri indicated. Algerias Naftec (part of the national oil company Sonatrach) can produce 183,000 t/y of base oil at its Arzew refinery, but after Libyas 2011 civil war, its Azzawya and Ras Lanuf refineries are not yet ready to resume base oil production, he added. Tunisia has no base oil manufacturing.

Opportunity Knocking?

Over the last few years the Arab states have seen a boom in construction of Group II and Group III base oil plants, and at present they give a total output of 750,000 t/y, JNLO research indicates. In the short term, if we experience some gradual relief of sanctions imposed on Iran, we might see more Group I base oil availability out of that region, Al-Nouri observed.

The trend is to build larger base oil plants to gain economy of scale and to close small, obsolete ones. Therefore in the next decade we might see more concentration of base oils production within a more limited number of suppliers, compared to the last decade, he surmised.

On the demand side, the Arab Spring which started in December 2010 has brought political crises, wars and unrest in Tunisia, Libya, Egypt and Syria, and it affected negatively on these countries lubricant demand. It is very difficult to estimate when the conditions in these markets could normalize, he acknowledged.

JNLO expects the region to see a slow but stable transition to use of Group II and Group III base oils. It will be prompted by the growing demand for new vehicles, regulatory measures on emission standards and vehicle safety, and an increased thrust on improving lubricant performance. These are key drivers that will spearhead the shift towards sophisticated lube formulations, Al-Nouri said.

Over the next five years, his expectations are that base oil demand for both regions will split as 80 percent for Group I, 10 percent for Group II, and 10 percent for Group III base oils.

Following the pain of the global economic recession, the Middle East and North Africa are showing some signs of recovery at the moment. It will be difficult to see a significant increase in [lubricants] demand this year, but it would seem that the worst is over, Al-Nouri concluded.