Kline News

LITTLE FALLS, NJ, January 31, 2007 – Growth rates for synthetic and semi-synthetic lubricants are expected to far outpace conventional lubricants in the near future, presenting healthy profits to lube formulators and marketers. But this promise is tempered by uncertainty of how it may affect pricing for both basestocks and finished products. A newly proposed study by Kline & Company is set to explore this market shift and examine the opportunities and threats presented by synthetic lubricants in the global market.

“Although synthetics account for only about 5% of the total lubes market right now, the high growth rate and profit margins for synthetics should be very attractive for lubes marketers. But there are a lot of questions to be answered about exactly what will happen when GTL basestocks hit the market in a few years,” says Geeta Agashe, director of Kline’s Petroleum & Energy practice.

While growth of the global market for conventional lubricants is expected to average about 1% annually through 2010, synthetic lubricants are likely to grow by more than 6% a year, according to preliminary estimates from Kline’s study, titled BUSINESS OPPORTUNITIES IN THE GLOBAL SYNTHETIC LUBRICANT AND FUNCTIONAL FLUIDS MARKETS, 2006-2016. Looking further out, the influx of gas-to-liquids basestocks––also known as GTL or API Group III+ basestocks––into the marketplace is expected to introduce complexity into the market that will affect manufacturers of synthetics made with Group III and Group IV basestocks. By 2015, Kline predicts that global GTL production will reach 80,000 barrels a day.

“There should be good opportunities for global brands like Mobil 1 to take advantage of the surge in synthetics, but what will happen to synthetic basestock manufacturers like PAOs, and what will all this high-performance synthetic material do to pricing and margins?” Agashe asks.

Historically, synthetic lubricants have been priced about four times higher than conventional oils, due to higher material costs for polyalphaolefins (PAOs) and other synthetic components. But it is now generally accepted practice (except in Germany) to use API Group III base oils to blend certain types of synthetic automotive lubricants, allowing marketers to reduce their costs. And by keeping the sale price of synthetics made with Group III basestocks at about the same price as synthetics made from PAO basestocks, profit margins have moved to a level far more attractive than in the past.

“When you combine higher margins with better-than-6% growth, you can get a much higher return for the effort with these top-tier positions then in the more competitive positions in the market space,” says Bill Downey, vice president and head of Kline’s Petroleum & Energy consulting practice. “The key is to have multiple formulations plans because the exact timing of GTL plants is uncertain. And then monitor the timing of the plants to determine which plan to use.”

BUSINESS OPPORTUNITIES IN THE GLOBAL SYNTHETIC LUBRICANT AND FUNCTIONAL FLUIDS MARKETS, 2006-2016 will analyze both the basestocks and finished lubricants markets, predicting the impact of GTL basestocks, paying particular attention to the implications for both the PAO and Group III markets, as well as the overall profit margins and pricing structure for synthetic lubricants.

For more information on this study, go to www.klinegroup.com/reports/y638.asp or contact Geeta Agashe at +1-973-435-3484. In Europe, contact Erin Durham at +39-0331-976969.

For information on the customized consulting capabilities of Kline’s Petroleum & Energy practice, contact Bill Downey at +1-973-435-3388.

Established in 1959, Kline & Company, Inc. (www.klinegroup.com) is an international management consulting and market research firm that offers a broad range of services to the petroleum and energy, chemicals and materials, consumer products, and life sciences industries.