ABU DHABI, United Arab Emirates – China’s Belt and Road Initiative is set to disrupt the 2.3 million metric ton global marine lubricants market as investment pours into ports outside the existing supply chain serviced by major marine lubricant distributors, an industry veteran warned at a conference here.
A potential shake-up could loosen the hold of established suppliers, opening the door to independents as the role of traditional ports like Hong Kong and Singapore is increasingly challenged, contended Caroline Huot, global head of lubricants at Cockett Marine Oil, a subsidiary of Vitol.
ExxonMobil, BP Castrol and Shell dominate the marine lubricants business, together accounting for over 50 percent of the market. A fundamental necessity of market participation is a global network offering proximity to key ports and vessels, but that model is being tested by Beijing’s hugely ambitious infrastructure play, Huot told the Base Oil & Lubes Middle East 2018 conference in Abu Dhabi. Independent suppliers with around 22 percent of the market look well placed to grab share at a time when the commitment of multinational corporations to the downstream sector is increasingly uncertain.
That is in contrast to growing interest in the sector from national oil companies. Saudi Aramco and Adnoc in the United Arab Emirates have both pledged major investment in the downstream business.
If independent suppliers are to gain market share, they must strengthen product ranges and develop additional cylinder oil formulations in conjunction with original equipment manufacturers as the shipping industry undergoes a period of profound change.
The fallout from the Maritime Silk Road Initiative, the maritime dimension of the China Belt and Road Initiative, is not the only issue confronting the marine lubricants business Huot says Beijing’s BRI drive could also hit shipping economics. “It is creating deep alterations in the Asian landscape and may ultimately create more rapid solutions inland,” she said.
Addressing delegates at the conference, Huot said BRI’s impact is such that moving freight inland could become a cheaper and faster option than shipping, long considered the most cost effective mode of transport.
According to the International Chamber of Shipping, the shipping industry is responsible for the carriage of around 90% of world trade.
The challenge for marine lubricant companies is gauging the extent of the threat from BRI, though precise estimates are hard to come by. Last month, the Washington, D.C.-based Center for Strategic & International Studies said BRI could cost anything between U.S. trillion to trillion, calling it a “broad and ever-expanding construct.” Ports including Gwadar, Pakistan; Hambantota, Sri Lanka; and Kyaukpyu, Myanmar, are integral to China’s maritime plans, but they are outlier ports as far as the current marine lubricants market is concerned. Indeed, some question their economic utility and practicality of their locations.
The center cites the Gwadar port, arguing it is too close to ports in the neighboring Arabian Gulf that supply more than half of the 7.6 million barrels of crude oil China imports each day. In its defense, China contends looking through the single prism of economics does not take account of the seamless corridor, which includes investment in roads and high-speed rail connections drastically reducing the transit time between Pakistan and China.
Huot says further ports under BRI are planned in Bangladesh, Kenya and Thailand, and major investment by Cosco in the port of Piraeus, Greece, has effectively created a BRI gateway to Europe.
Nervousness about industry upheaval wrought by China’s BRI comes at a time of confusion in the marine lubricants business as it grapples with the International Maritime Organization’s 2020 deadline capping sulfur emissions worldwide at 0.5 percent. How the industry responds will be driven by the reaction of ship owners to the IMO mandate. Still, the reality of formulating multiple grades of cylinder oil on-board will require additional operations, add complexity and likely increase costs for lubricant suppliers.
The U.S. billion marine lubricants business is entering uncharted waters.