Lubricating Oils and Greases

Industry Snapshot

Slow growth continued to cause problems for the mature U.S. lubricants industry into the early years of the 2000s. The fastest-growing segment in this industry, valued at $3 billion in 2008, continued to be synthetic and synthetic blend lubricants. Although they represented only 11 percent of the market, synthetic product sales were expected to continue to rise. Synthetics gained popularity because they were longer lasting and less toxic than conventional lubricants.

An area under development was eco-friendly vegetable-oil lubricants. These new compounds, which blend a variety of familiar oils such as canola and soybean, were touted as being nontoxic and renewable, greatly reducing the environmental impact of producing and disposing of lubricants. In addition, some research indicates vegetable-based lubricants can perform better in motor vehicle engines and other applications than their petroleum-based counterparts.

Safety was a growing issue by the middle of the first decade of the 2000s. In 2004, the Independent Lubricant Manufacturers Association aligned with the Occupational Safety and Health Administration to protect workers from industrial hazards in the manufacturing industry and promote measures available to reduce possible health risks from exposure to lubricants and metalworking fluids. The alliance planned to create training and education programs on the safe and proper use of lubricant products.

At the end of the first decade of the 2000s, most regions of the lubricating oils and greases global market experienced stagnant or limited growth, although some reported growth. Global demand for lubricating oils and greases was projected to reach 11 billion gallons by 2010, according to Global Industry Analysts, Inc.

Earlier projections of lubricating oils and greases reaching 11 billion gallons by 2010 were never realized as the industry was significantly impacted by one of the worst economic recessions that started in late 2007.

Organization and Structure

Manufacturers in this industry compete directly with petroleum refiners in many instances. However, some argue that the increasing degree of specialization required within the lubricants market gives lubricant manufacturers an edge over general refiners because specialized equipment and multiple blending agents are more difficult to maintain in an integrated refining plant than in a lubricants plant.

Product Overview.
The several thousand different lubricant products manufactured in the United States fall into the three categories of automotive lubricants, industrial lubricants, and greases.

Within the automotive category, the three main products are crankcase oils, transmission and axle lubricants, and fluids for hydraulic torque converters and fluid couplings used in automatic transmissions. Each category had subdivisions based on viscosity, or resistance to molecular rearrangement or flow. Automotive lubricants kept various parts of auto bodies and engines running smoothly by cushioning adjacent metal pieces, oiling moving parts, and keeping dirt out of combustion chambers.

Industrial lubricants range from machine oils to steam-turbine oils. These products serve similar purposes as automotive lubricants, with added endurance capacity. This allows them, for example, to prevent rust from high-temperature steams. Viscosity represents the main difference between lubricant uses.

A lubricating grease is a solid or semisolid lubricant composed of a fluid lubricant with an added thickening agent. The fluid base typically is petroleum derived, while the thickening agent usually consists of soap made from aluminum, barium, calcium, lithium, sodium, or strontium. On occasion, if wide temperature variations will be encountered in use, the fluid base is a synthetic, such as silicone or polyalkylene glycol. In some instances, non-soap thickeners, such as modified clay or fine silica, may be used. Grease manufacturing in the middle of the first decade of the 2000s was moving toward longer-lasting products.

Lubricating oils accounted for about 80 percent of the industry's sales in 2002, while greases amounted to around 11 percent, and miscellaneous lubricants brought in the remainder. Industry sales rose moderately from $6.3 billion in 2002 to $7.62 billion in 2004, then increased significantly to $10.06 billion in 2005. There were 354 establishments engaged in the production of petroleum lubricating oil and grease, most of which were in Texas, followed by Pennsylvania, Louisiana, and Florida. Manufacturers of lubricating oils and greases employed 10,646 people in 2005. 5,634 of which were production workers earning an average hourly wage of $22.50.

In the middle of the first decade of the 2000s, many small industrial lubricant suppliers were struggling to boost businesses that had reported declines in part due to such factors as manufacturers moving offshore and drop in demand. The devastation caused by Hurricane Katrina in 2005 also affected the industry according to Celeste Powers, executive director of the Independent Lubricant Manufacturers Association.

According to industry statistics, there were an estimated 787 establishments engaged in the production of petroleum lubricating oil and grease with a value of $3 billion in 2008, with industry-wide employment of 21,251 workers. Also in 2008, lubricating oils and greases accounted for 55.9 percent of market share, with 13,410 workers and shipments totaling $1.3 billion. California, Texas, Ohio, Illinois, Pennsylvania, and Michigan were home to the majority of producers, with nearly 45 percent in market share. Of these, Pennsylvania was the top performer with shipments of $636.2 million in lubricating oils and greases.

In 2008, there were 153 producers engaged in the production of lubricating oils collectively shipping $1.1 billion in oils. The 153 lubricating oils production facilities had shipments totaling $1.15 billion and a workforce of 3,327. Oils and greases (blending and compounding) had 107 operations that generated $419.9 million in shipments.

Global Industry Analysts, Inc., reported on PRWeb on August 23, 2011, that "[e]conomical, regulatory and political issues are rewriting the demand and supply dynamics of the worldwide lubricating oils and greases market." Technological advances continued lowering demand for lubricating oils, and the acceleration of production of synthetic lubricants that cost nearly four times more than standard lubricants was expected to continue.

Despite the downturn that the global lubricant market reported in 2008, Shell Lubricants was able to post gains of 13 percent and 6 percent in Brazil and Russia, respectively. Shell also exhibited growth in the Asia Pacific region, which was the largest lubricants-consuming region worldwide. This marked the third consecutive year that Shell outperformed its competition. Nevertheless, according to David Pirret at Shell Lubricants in an August 13, 2011, press release on PRNewswire, "The global recession has undoubtedly had a significant impact on the lubricants market and brought rapid change and volatility."

>Current Conditions

In 2010 Dun & Bradstreet listed 747 establishments engaged in the production of petroleum lubricating oil and grease valued at $3.47 billion with industry-wide employment of 20,897 workers. Lubricating oils and greases accounted for 58.5 percent of market share, with 12,863 workers and shipments totaling $1.9 billion. The majority of producers were located in Texas, California, Ohio, Michigan, and Pennsylvania.

For 2010, there were 128 producers engaged in the production of lubricating oils with shipments totaling nearly $1.1 billion. Oils and greases (blending and compounding) had 100 operations valued at $277.4 million. In addition, the cutting oils, blending (made from purchased materials) segment generated $112.5 million.

Global lubricant demand was expected to increase in 2010 with 10 percent growth to 36 million tons compared to 32.8 million tons in 2009. The emerging markets compensation for the volume declines in mature markets was significant. Lubricating oils and greases were on target to reach 10.5 billion gallons by 2015, according to Global Industry, Analysts, Inc., providing there were no additional economic downturns.

In mid-2011, the major players in the industry announced that the price of lubricants was about to climb between 8 and 12 percent. This announcement came on the heels of increased raw materials costs for such items as fuel and base oil, as well as political and social upheaval in the oil-producing nations of the Middle East and North Africa.

Industry Leaders

Exxon Mobil Corporation of Irving, Texas, was the leader in the petroleum lubricating oil and grease industry in the middle of the first decade of the twenty-first century. In 2008, Exxon Mobil sales were $477.3 billion before falling to $383.2 billion in 2010. The company operates worldwide with 45 refineries in 25 countries, which together produce 4 million barrels of product per day. Chevron Corporation of San Ramon, California, was the second-largest U.S. integrated oil company, with 2008 sales of $273 billion and a daily capacity of 2.67 million barrels. Revenues fell to $204.9 billion in 2010, and the total number of employees dropped from 65,000 in 2008 to 62,000 that year. In 2011, Chevron acquired Atlas Energy, which was worth $4.3 billion.

Other industry leaders in the middle of the first decade of the 2000s included Gulf Oil Limited Partnership, of Chelsea, Massachusetts, which had 2005 sales of $5 billion, and Shell Oil Products U.S., of Houston, Texas, with 2006 revenues of $2.15 billion that grew to $20.3 billion in 2010. Shell bought former industry leader Pennzoil-Quaker State Company in 2002. The Jiffy Lube quick oil change chain and other oil-related businesses, mostly in the West and Midwest, were also Shell subsidiaries. Together with its sister company, Motiva, Shell was the number one gasoline retailer in the United States in the middle of the first decade of the twenty-first century. The Valvoline Company in Lexington, Kentucky, was another leader in the oil change segment, just behind Shell. Valvoline's sales in 2004 were $1.29 billion. The company reported revenues of $258.4 million in 2010 with 5,000 employees.

America and the World

The United States was the largest exporter of residual petroleum products in the middle of the first decade of the 2000s, followed by Belgium and Germany. The Netherlands was the biggest importer of such products.

At the end of the first decade of the 2000s, the Asia-Pacific was listed as the top performing country based on a 5 percent annual growth rate between 2001 and 2010, before reaching 3.5 billion gallons of lubricating oils.

Research and Technology

The U.S. Department of Energy provided funding of more than $175 million for "advanced vehicle" research and development, of which $4.7 million was allotted specifically for research linked to lubricants. According to George Gill, writing for Lube Report on August 17, 2011, The Massachusetts Institute of Technology in Cambridge, Massachusetts, was awarded $1.5 million "for a project to investigate the use of novel lubricant formulations that target differing lubricant requirements of the major engine subsystems, such as valve train vs. bearings," Gill added that another area of research would focus on "lubricant additives to allow use of lower-viscosity engine oils, to improve engine efficiency."