Environmental regulation to drive demand for synthetic lubricants
Global consumption of synthetic lubricants (synlubes) is on the rise, propelled by stringent environmental regulations, even as the overall lubricant market experiences a decline in demand. The synlubes market is forecast to grow at an annual rate of 2%-3% through 2029, according to the Lubricant, Synthetics report published by S&P Global Commodity Insights’ Specialty Chemicals Update Program (SCUP).
In 2023, the global market for synthetic lubricant base stocks reached 1.5 million metric tons, valued at $7 billion, showing growth from 2020 despite the challenges of the COVID-19 pandemic.
Synthetic lubricants, unlike conventional mineral lubricants that are refined from crude oil, are formulated from chemically synthesized base stocks and additives, offering superior physical and chemical properties.
In 2023, synthetic lubricant base stocks represented only about 4% of global lubricant base stock consumption, primarily due to their high cost. The three most commonly used synthetic lubricant base stock types — polyalphaolefin (PAO), esters and polyalkylene glycol (PAG) — together accounted for 87% of the entire synlubes market.
The automotive and industrial sectors were the primary applications for synthetic lubricant base stocks in 2023. In automotive applications, using synthetic lubricants such as PAO as engine oil can significantly enhance fuel efficiency and extend engine lifespan, ultimately reducing carbon emissions, despite their higher cost.
Governments, environmental regulators and automotive OEMs are currently working to raise emission standards in new regulations to address global warming and environmental pollution. Increasing the synlubes content in engine oils has emerged as a promising strategy to achieve these objectives.
Meanwhile, the engine oil market is challenged by the growing number of electric vehicles (EVs), which use significantly less lubricant oil than combustion engine vehicles. Supported by governments in regions such as mainland China, Europe and the US, EVs are promoted for their potential to reduce automotive carbon emissions substantially. In 2023, EVs accounted for about 12% of vehicle production, a figure expected to rise to 34% by 2029, according to S&P Global Mobility.
PAO consumption will be weakened by the shrinking engine oil market, but synthetic lubricant manufacturers can still find opportunities in the rapidly developing EV sector. PAO is considered a promising base stock for very low viscosity EV transmission oil, particularly in high-performance vehicles, due to its superior properties.
Many synlube manufacturers are actively working to design lubricants for EVs, but the development cycle requires extensive time for qualification. This is because the operating conditions for lubricants in EVs differ from traditional engines, necessitating careful consideration and balance of factors such as electrical conductivity, heat compatibility and extreme pressure resistance.
Refrigeration oils are lubricants used in refrigerators and air conditioners that must be chemically compatible with refrigerants. In these applications, commonly used refrigerants such as chlorofluorocarbons (CFCs) and hydrochlorofluorocarbons (HCFCs) have been replaced by hydrofluorocarbons (HFCs) due to their ozone-depleting effects, as regulated by the Montreal Protocol since 1987. This shift has caused synthetic lubricants such as polyol esters to replace completely the formerly used mineral-type refrigeration oils.
However, since HFCs significantly contribute to global warming, they are also being phased out in favor of hydrofluoroolefins (HFOs) in many regions including North America, Europe, mainland China and Japan, with other regions expected to follow soon. This transition is likely to reshape the synlubes market in terms of refrigeration oil applications once again.
Currently, North America and Europe remain key players in the synthetic lubricant market, as producers and consumers. More than 90% of PAO production capacity is concentrated in these two regions.
Mainland China ranks as the third-largest synthetic lubricants market globally, with a significant portion imported from leading international manufacturers. The new China VI emission standards are driving the automotive industry toward higher-quality lubricants, boosting demand for synthetic base stocks.
Growth of the EV market is, however, tempering overall lubricant market growth, resulting in an annual growth rate of 2.5%-3.0% through 2029. In other Eastern Asia countries (Japan, South Korea and Taiwan), the electrification of vehicles is less aggressive and the market is relatively mature, so significant changes in the synlubes market are not anticipated.
Meanwhile, South Asia and Southeast Asia are experiencing rapid industrialization and urbanization, fueled by substantial external investments, leading to 3%-6% per year growth in synlubes consumption, together with stricter carbon emission policies.
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