Global demand for general industrial lubricants and grease is expected to remain to stand through 2021, hovering around 6.4 million tons, said Kline & Co. in a webinar.
Over the past five years, general industrial oil and grease demand has declined slightly but has remained in the 6.4 million to 6.5 million ton range, according to Kunal Mahajan, project manager for the Parsippany, New Jersey-based consultancy.
He noted that demand for some oils, such as turbine and circulating oils, compressor oil and refrigeration oil, has increased, while demand for other oils – like hydraulic fluid and industrial grease – has declined.
At present, hydraulic fluids lead the segment, accounting for more than 50 percent of industrial oil and grease demand in 2016. Hydraulic fluids are used across various industries in equipment such as forklifts, cherry pickers, metal rolling and hydraulic pumps and motors.
Gear oils and turbine and circulating oils each make up roughly 15 percent of the segment – for a total of 30 percent – followed closely by grease, at around 10 percent. Compressor oil and refrigeration oil share the remaining demand.
Asia-Pacific, with its many developing markets, dominates, holding approximately 45 percent of global demand. The region is followed by Europe and North America, with nearly 15 percent each, with South America and the rest of the world at roughly 7.5 percent of demand.
Kline, however, anticipates demand in Asia-Pacific to decline because of shutdowns in excess capacity in the primary metals and mining industries in China, and industries in Japan shifting operations overseas.
On a global scale, all general industrial oils are expected to enjoy slight growth, all under a CAGR of 1 percent. Grease, however, will see a CAGR decrease of around 1 percent through 2021. Mahajan cites three major factors contributing to this decline.
The less demand for primary metals and mining industries, shifting towards high-performance greases, increasing use of over-greasing prevention methods has mentioned as the major factors contributing to this decline.
Some modern equipment, like new hydraulic equipment, have lower fluid volumes with respect to pump flow rate and operate under high temperatures and pressure. “Under such extreme conditions, mineral-oil based products tend to break down, resulting in the precipitation of contaminants. Therefore, end users are moving towards synthetics in modern equipment,” asserted Mahajan.
Synthetics will grow most in turbine and circulate oil, at a CAGR of about 3.5 percent through 2021, followed by refrigeration oil at a CAGR just under 3 percent and gear oil hovering around a CAGR of 2 percent.
It is an observation that the higher use of synthetics, using recycled lubricants and fluid management services may slow down demand; however, the swift growth of synthetics over mineral oils in all product categories offers a new opportunity to the market.
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Headline crude prices for the week beginning 11 March 2019 – Brent: US$66/b; WTI: US$56/b
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In 2017, Norway’s Government Pension Fund Global – also known as the Oil Fund – proposed a complete divestment of oil and gas shares from its massive portfolio. Last week, the Norwegian government partially approved that request, allowing the Fund to exclude 134 upstream companies from the wealth fund. Players like Anadarko Petroleum, Chesapeake Energy, CNOOC, Premier Oil, Soco International and Tullow Oil will now no longer receive any investment from the Fund. That might seem like an inconsequential move, but it isn’t. With over US$1 trillion in assets – the Fund is the largest sovereign wealth fund in the world – it is a major market-shifting move.
Estimates suggest that the government directive will require the Oil Fund to sell some US$7.5 billion in stocks over an undefined period. Shares in the affected companies plunged after the announcement. The reaction is understandable. The Oil Fund holds over 1.3% of all global stocks and shares, including 2.3% of all European stocks. It holds stakes as large as of 2.4% of Royal Dutch Shell and 2.3% of BP, and has long been seen as a major investor and stabilising force in the energy sector.
It is this impression that the Fund is trying to change. Established in 1990 to invest surplus revenues of the booming Norwegian petroleum sector, prudent management has seen its value grow to some US$200,000 per Norwegian citizen today. Its value exceeds all other sovereign wealth funds, including those of China and Singapore. Energy shares – specifically oil and gas firms – have long been a major target for investment due to high returns and bumper dividends. But in 2017, the Fund recommended phasing out oil exploration from its ‘investment universe’. At the time, this was interpreted as yielding to pressure from environmental lobbies, but the Fund has made it clear that the move is for economic reasons.
Put simply, the Fund wants to move away from ‘putting all its eggs in one basket’. Income from Norway’s vast upstream industry – it is the largest producing country in Western Europe – funds the country’s welfare state and pays into the Fund. It has ethical standards – avoiding, for example, investment in tobacco firms – but has concluded that devoting a significant amount of its assets to oil and gas savings presents a double risk. During the good times, when crude prices are high and energy stocks booming, it is a boon. But during a downturn or a crash, it is a major risk. With typical Scandinavian restraint and prudence, the Fund has decided that it is best to minimise that risk by pouring its money into areas that run counter-cyclical to the energy industry.
However, the retreat is just partial. Exempt from the divestment will be oil and gas firms with significant renewable energy divisions – which include supermajors like Shell, BP and Total. This is touted as allowing the Fund to ride the crest of the renewable energy wave, but also manages to neatly fit into the image that Norway wants to project: balancing a major industry with being a responsible environmental steward. It’s the same reason why Equinor – in which the Fund holds a 67% stake – changed its name from Statoil, to project a broader spectrum of business away from oil into emerging energies like wind and solar. Because, as the Fund’s objective states, one day the oil will run out. But its value will carry on for future generations.
The Norway Oil Fund in a Nutshell