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Monday, September 11, 2017VOLUME 13 ISSUE 37
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Vehicle Electrification to Put Damper on Lube Demand

As the move to electric vehicles steadily gains speed, there are implications for oil product markets, including light vehicle lubricants, which could see demand begin to fall in Europe and North America by 2030, says a recent report "Impact of electric vehicles on lubricants demand" published by global consulting firm McKinsey & Company.

In 2015, according to the report, there were about 1.1 billion light (passenger) vehicles, of which 0.9% were electric, while the remainder were internal combustion engine (ICE) vehicles. In particular, battery electric vehicles (BEV) were 0.1% of the light vehicles, while 0.8% were hybrid electric vehicles (HEV) / PHEV (Plug-in hybrid electric vehicles)).

"Despite the limited penetration of electric vehicles in 2015, the trend towards electrification of road passenger transport looks likely to gain significance over the next decade as more countries and municipalities around the world implement measures to reduce carbon, particulate, and other emissions", the report says. "The recent signing of the Paris Agreement, along with rising air quality concerns and the diesel emissions scandal, have all helped precipitate diesel or fossil fuel restrictions. France will ban all gasoline and diesel vehicles by 2040, while Athens, Madrid, and Mexico City have announced plans to ban all diesel cars and vans by 2025. China and India are also considering electric vehicle targets."

"At the same time, original equipment manufacturers (OEM) are divesting from ICEs, adding momentum to the transition. Volvo, for example, has announced it will no longer develop new diesel engines after 2019, largely because it believes compliance with carbon emission regulations would be difficult to achieve at reasonable cost."

These and other similar moves around the world, combined with technology-driven cost and performance improvements, mean electric vehicles are likely to gain market share from ICE vehicles in the upcoming decade, more quickly than has so far been the case.

In 2015, 52% of world lubricant demand—totaling about 9 million metric tonnes—came from the automotive industry, so any change as we switch to electric vehicles would be significant to the lubricant market as a whole.

McKinsey believes that engine oil demand will be hit the hardest with the shift to electrification. "In the light vehicle segment, lubricants demand is dominated by engine oil, which accounts for the majority of automotive lubricants demand and for 21% of total lubricants demand in 2015. It is changed every 3,000–10,000 km. Almost one-third of lubricants demand comes from light vehicles (mostly engine oil)"

After engine oil, lubricants demand falls into three smaller categories:
- Wheel bearing and chassis grease, which is mostly sealed and changed every 130,000 km, if at all
-Transmission fluid, which is changed every 150,000 km, if at all
- Gear oil, which is changed every 50,000–60,000 km

By 2030, according to the report, we expect that the number of light vehicles will have risen to about 1.6 billion (an increase of 500 million from 2015), with an estimated 18% of the fleet (290 million cars) electric.

This scenario would have a strong impact on the demand for light vehicle lubricants, because penetration of BEVs (which do not use engine oil at all) affects lubricants the most. Total lubricants demand in 2030, led by Asia, would still grow 1.5% p.a. to about 11 million metric tonnes. But, despite the overall increase, demand declines by around 1% p.a. in Europe and North America, and overall growth is far lower than it would be without the expected EV growth. After 2030, the impact is likely to be more pronounced.

This slowing of growth, and especially the decline in demand in Europe and North America, has some serious implications for lubes companies. In order to avoid shrinking along with the market, they can attempt to maintain growth by expanding market share in Asia and other developing markets; or by focusing on higher margin products such as synthetic lubes and/or high-grade lubes for the growing HEV/PHEV market, says the report.

To read the complete report, visit www.mckinseyenergyinsights.com/insights/impact-of-electric-vehicles-on-lubricants-demand/


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