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Prepared by Meinhardt Infrastructure & Environment Group
The purpose of this chapter is to examine the lubricant market in Australia. Initially, the Australian lubricant market is described. The amount of lubricants produced in and imported to Australia is determined, in addition to the amount of lubricant exported from and domestically sold in Australia. From this the total amount of lubricant sold in Australia can be estimated.
An evaluation of the quality of the data available is also included to determine the reliability of this estimate. This chapter also investigates the lubricant market segments to identify and determine which segments purchase, and thus use, significant amounts of lubricants.
All data on the lubricants market together with all data referred to in subsequent chapters can be found in Appendix B.
The virgin lubricants market consists of several 'tiers' that reflect the level of engagement and market penetration by each company. The first tier is comprised of companies that are engaged in both the refining and downstream production of lubricants, and includes BP / Castrol, Caltex, Mobil and Shell.
The second tier of companies are those who purchase base stocks from first tier companies and then blend them with additives to produce lubricants, usually for specialised markets, and includes Fuchs, Gulf-Western, Pennzoil, Penrite and Valvoline. A third tier of companies may exist, comprised of importers of prepared lubricants for niche markets such as steel rolling, although no major companies operating in this area were identified during this project.
A report prepared for the Australian Institute of Petroleum (AIP 1997b) indicated that the viability of the downstream oil refining and marketing industry faced a number of challenges. These challenges included low profitability, oversupply of petrol in Asia, development of petroleum product import terminals in Australia, new entrants to the Australian petroleum products market, and legislative and regulatory compliance.
Whilst a number of these challenges relate directly to the production and sale of petrol, it can be assumed that changes to the viability of principal products such as petrol will have flow-on effects on subsidiary interests such as lubricants.
The size of the Australian market will determine the amount of lubricants used in Australia. This section aims to quantify, based on the information available, the import, production, sale and export of lubricants in Australia. Data utilised to do this comes from a variety of sources, including ABARE, DISR, ATO and AIP. The integrity of each data source is assessed to clarify any discrepancies identified.
The production of petroleum products in Australia is dominated by the production of automotive gasoline and diesel oil. Lubricant refining represents a comparatively small portion of total Australian petroleum production.
Data sourced from the Australian Bureau of Agriculture and Research Economics (ABARE) in Table 3.1 indicates that lubricant production comprised approximately 1.3% of total petroleum production in 1999/2000. This is a small reduction from approximately 1.6% in 1991/92, and a peak of approximately 1.7% between 1994 and 1997.
Table 3.1 Australian Production of Major Petroleum Products
|Automotive diesel oil
|Aviation turbine fuel
|Liquified petroleum gas
It is interesting to note that the production of lubricants in Australia has remained fairly stable over the past decade, whereas the production of automotive gasoline, automotive diesel oil and liquefied petroleum gas has steadily increased. This may indicate that the status of the lubricants market is affected by factors independent of those affecting automotive gasoline and diesel oils.
The figures provided in Table 3.1 above relate only to the production of petroleum products and not to their import, export or domestic sales. These aspects of the virgin lubricating market are discussed in the following sections.
Crude oil produced from Australia's reserves lack the heavy paraffin and naphthalene components that form the source of lubricating oil base stocks. Therefore lubricants produced in Australia are made from imported crude oil stocks (ANZEC 1991, EA 1999). A small quantity of prepared lubricants is also imported into Australia.
Table 3.2 lists the annual volumes of lubricants and crude oil imported between 1992/93 and 1999/2000. The table indicates that the quantity of lubricants imported into Australia varied from year to year but had increased by 1999/2000 to almost three times the volume imported in 1992/93.
Table 3.2 Import of Lubricants, Crude Oil and Other Refinery Feedstock
|Crude oil and other refinery feedstock
Source: ABARE (2001)
It must be noted that the volume of crude oil and other refinery feedstock has been provided only for comparison of the magnitude of trade. Imported crude oil and refinery feedstock will be used in the production of a range of petroleum products for which indigenous crude oil and feedstock cannot be used, including but not restricted to lubricant production. As such, it must be noted that "refinery feedstock" is a different commodity to "base stock".
Information on the level of imported lubricants is also maintained by the Australian Taxation Office (ATO) for the purposes of the levy established under the product stewardship arrangements for waste oil. Details of imported lubricants that have been subjected to levy under the product stewardship arrangements have been provided in Table 3.3.
Table 3.3 Levied Lubricant Imports (Jan-Jul 2001)
|Additives for lubricating oil containing petroleum oils||9.4|
|Hydraulic brake fluids 0.5||0.5|
|Petroleum based oils inc lubricants hydraulic fluids and transformer oils 10.3||10.3|
|Preparations for the treatment of textiles containing petroleum oils||0.3|
|Other preparations containing petroleum oils (eg. cutting oil, anti-corrosives, etc.)||1.9|
Source: Australian Taxation Office
As the new levy came into effect halfway through the last financial year it is difficult to extrapolate the data to the whole year, particularly as figures for each category may vary significantly from month to month.
As such, it is not feasible to compare the data provided by ABARE (in Table 3.2) with that collected by ATO, however the degree of variation in the total of lubricant imports as reported by ABARE would suggest a broad agreement with the data collected by ATO. The figures indicate that the principal lubricant imports are prepared lubricants and additives for lubricant production, with significantly smaller amounts of other commodities being imported during the reported period of time.
The volume of lubricants exported by Australian refiners has varied between 258 megalitres and 447 megalitres over the past decade, as indicated by Table 3.4.
Table 3.4 Lubricants Exported from Australia
Source: ABARE (2001)
The trend in recent years indicates a decline in exports of lubricating oil. Comparison with Table 3.2 indicates that the volume of lubricants exported from Australia is considerably greater than the volume of imported lubricants.
The sale of lubricants in Australia has remained relatively stable over the past decade.
Table 3.5 indicates that the sale of lubricants is a minor portion of overall sales, particularly when compared to the total volume of sales for the major petroleum products listed. The increase in lubricant sales from 1992/93 to 1999/2000 is small in comparison to those recorded for other principal products, most notably aviation turbine fuel and automotive diesel oil.
Table 3.5 Australian Domestic Sales of Major Petroleum Products
|Automotive diesel oil
|Aviation turbine fuel
|Liquified petroleum gas
The data in Table 3.5 supports the assertion by a previous study that the market for lubricating oil has remained stable over the last decade, remaining relatively static and not experiencing growth in sales akin to major petroleum products (EA 1999b). Whether this trend is likely to continue in the future is less clear, however, particularly given the fluctuation reported over the three most recent years.
It must be noted that the values presented in Section 3.2 do not form a 'closed loop' where the sum of production and import may be expected to be equal to the sum of export and domestic sales. If the annual quantities recorded for each activity were tallied, then the total volume of lubricants either sold domestically or exported would exceed the total volume of lubricants produced or imported by 53 megalitres.
Advice sought from the Department of Industry, Science and Resources (DISR), who provide the data to the Australian Bureau of Agriculture and Resource Economics (ABARE) indicates that this discrepancy may be attributable to a number of factors, including double-counting by reporting companies, errors within the import and export data (prepared by the Australian Bureau of Statistics) and uncounted volumes, which may include field and plant usage, re-refining or refinery waste. An assessment of lubricant statistics is currently being undertaken by DISR and it is expected that this discrepancy will be addressed within this review.
The size of the Australian lubricants market is the basis of all estimates within this report. Thus, any errors in this initial estimate may result in significant variation of the final estimate of unaccounted for used oil.
The data in Table 3.6 represents sales for lubricant types reported by BP / Castrol, Caltex, Mobil, Shell and Valvoline to the Department of Industry, Science and Resources (DISR). It should be noted that Valvoline is the only second-tier company that provides sales data to DISR. As Valvoline purchases base stock from first-tier companies to make finished products, the volume of base stocks shown should not include that sold to Valvoline.
Assumption 1: It is assumed that, based on information provided by DISR, the volume of base stocks reported by DISR excludes sales of base stocks to Valvoline.
When discussing the sale of base stocks to second-tier companies, it is therefore important to note that the share of base stocks sold to Valvoline are accounted for amongst other lubricant categories as a proportion of their finished products.
Table 3.7 Levied Domestic Lubricant Sales (Jan-Sept 2001)
|Lubricant base oils||80|
|Prepared lubricant additives||15|
|Gear, transmission, transformer & heat transfer oils||53|
|Hydraulic fluids & brake fluids||36|
|Metal working & process oils||28|
|Recycled hydraulic fluids & brake fluids||-|
Source: Australian Taxation Office
The deviation from the average monthly volume ranges from 1% to 5% depending on the product category, suggesting that it may be possible to extrapolate sales for the whole financial year.
If the three-quarter-year is assumed to represent 75% of annual sales, then the estimated annual total for 2001 will be 431 megalitres. This estimate is significantly lower than those recorded previously by either ABARE (526 megalitres) or by DISR (554 megalitres). This restriction of the levy data to domestically produced lubricants does not solely account for the difference in totals, as the volume remains lower than that reported by ABARE or DISR after the addition of ATO import levy data (doubled to represent a full year). Insufficient information is available to further assess this difference in volumes.
Despite the difference in totals between ATO data and that prepared by DISR, the relative proportion of sales within each product category may still be compared to average annual totals recorded from 1998 to 2000 for the equivalent DISR categories. Advice was sought from ATO and DISR to guide the concordance between classifications.
Sales of engine lubricants reported by ATO account for a smaller proportion of sales than is reported in DISR statistics (being 35% and 38% respectively). By comparison, sales of hydraulic oils account for a greater proportion of the sales reported by ATO than is reported by DISR (being 10% compared to 8%).
Some of the categories used by ATO and DISR cannot be clearly reconciled. Whilst the ATO categories do not include "other industrial oils" and DISR do not provide separate categories for transformer and heat transfer oils, it is assumed that the ATO category for gear, transmission, transformer & heat transfer oils encompasses some or all of the products categorised by DISR as "other industrial oils". The proportion of the total volume sold as indicated by the ATO category for gear, transmission, transformer & heat transfer oils is less than that indicated by DISR data for gear oils, transmission fluids and other industrial oils (being 15% and 19% respectively).
There is agreement between data sets on the portion of sales allocated to greases, and to metalworking and process oils. Advice obtained from ATO indicates that the category "lubricant base oils" is roughly equivalent to base stocks. The portion of sales occupied by base stocks reported by the ATO is considerably higher than that reported by DISR (being 23% and 14% respectively). If the sales of base stocks for the three-quarter-year is assumed to represent 75% of annual sales, then the estimated annual total for 2001 will be 106 megalitres, which compares well with the volume reported by DISR for 2000.
The distribution of lubricant sales across States and Territories is shown in Table 3.8.
Table 3.8 Sales of Lubricants in Australia by State/Territory (2000)
|Sales by State/Territory
|Engine oil gasoline||26.9||27.5||19.4||7.9||9.3||2.1||1.0||94.1|
|Engine oil diesel||23.3||20.9||32.9||7.1||18.9||2.2||2.1||107.3|
|Hydraulic brake fluid||0.4||0.6||0.4||0.2||0.4||0.1||0.1||2.1|
|Metal working oils||2.4||2.4||2.1||0.3||1.8||0.1||0.0||9.2|
Source: Department of Industry, Science and Resources
States on the eastern seaboard (New South Wales, Queensland and Victoria) have the three largest totals across the majority of categories. The exceptions to this trend are:
According to DISR statistics (Table 3.6), at least 19% of lubricant sales in Australia are base stocks. This excludes base stock sales to Valvoline, the only second-tier company to provide sales data to DISR (refer to Assumption 1). Base stocks are thus a significant component of the lubricants market.
Base stocks are purchased by second-tier companies and blended with additives to produce lubricants, usually for specialised markets. In order to determine the total sales of lubricants to various product categories, it would thus be beneficial to determine what portion of base stocks can be attributed to each product category.
Limited advice was obtained from second-tier producers with regards to the final products derived from base stocks, with only two of the five known companies providing sales data.
Care must therefore be taken to avoid generalising the data provided, as each company may be expected to have its own bias towards either sales of particular oil types or supply to specific market sectors. Given that one company advised that they produce approximately 750 different types of oils, lubricants and greases, it can readily be seen that the market coverage of each company may be quite diverse.
One of the second-tier companies that provided sales data indicated that their sales are comprised of a range of automotive lubricants, whereas another company reported that the majority of sales were in bulk or large packs; the latter were comprised of approximately 65% automotive lubricants and 35% industrial and mining lubricants. These figures compare well with the assertion by AIP (AIP 1998) that base stocks are normally used to make up and package automotive oils. However it must be recognised that smaller quantities of industrial and specialised products will also be produced from base stock.
As discussed, insufficient information has been provided to allow for the definitive categorisation of base stocks according to final products as a part of this study. In the absence of any additional information, the following assumption has been made:
Assumption 4: The majority of base stocks sold are used to produce lubricants for the automotive sector.
The total quantity of finished product is expected to be higher than the quantity of base stock supplied, in order to account for the blending of additives to create the finished product. Advice from one company indicates that approximately 80% of the finished product will be base stock and the remaining 20% will be lubricant additives. If this estimate is applied to the volume of base stocks sold in 2000 as reported by DISR, then the expected volume of lubricants produced by second-tier companies will be approximately 132 megalitres. As mentioned in Section 3.3 this estimate excludes Valvoline, whose sales are already included in the DISR data.
Assumption 5: As a result of additives to base stocks, the total quantity of finished product will be 132 megalitres (based on the DISR reported volume of base stocks sold in 2000).
It is not prudent to apply this estimate to the sales of base stocks by State or Territory, as the distribution of base stock sales are more likely to indicate the location of second-tier companies than the locations to which those second-tier companies sell their product. Only one second-tier company was willing to provide State-by-State sales data. This data is not only commercially sensitive but also cannot be extrapolated to represent other companies due to differences in market coverage and penetration. As such, it is not feasible to provide a geographic distribution of sales by second-tier companies.
Packaged petroleum products include small packs that are plastic bottles varying in size from less than one litre to ten litres, and large packs that are plastic or steel drums containing as much as 205 litres. Larger containers, such as 1,000 litre 'polyboys', are considered to be semi-bulk.
Data prepared by AIP members as part of their participation in the National Packaging Covenant indicates that more than 22 million small packs of oils and lubricants (ranging in size from 0.125 litres to 10 litres) were sold in 2000. The volume of oils and lubricants sold in these packs was more than 54 megalitres. Over half of these sales were of either one or four litre packs. The lubricant categories and volumes for each lubricant category were not specified. Similarly, data was not available for packs sized between 20 and 205 litres.
One of the second-tier companies that provided sales data indicated that more than one-third of their sales are of automotive lubricants in small packs (4-6 litres), and another third of sales are of automotive engine oils in 205 litre packs.
Another company indicated that less than 10% of their sales are comprised of containers ranging in size from one to five litres, with the types of lubricant sold being automotive engine oils, transmission fluid and chain and bar oils. Over 60% of sales by that same company are in packs ranging from 20 litre containers to 205 litre drums. Of this latter portion, two-thirds of sales were of automotive oils and one-third were industrial and mining lubricants.
It has been previously asserted that the predominant quantity of packaged oil is purchased by domestic householders for use in the do-it-yourself (DIY) market (EA 1999b). Advice from one second-tier company indicates that sales to the DIY market ranged from 10% of their 60 litre drums of engine oils, to 45-50% of their 20 litre containers of engine oils, to all of their sales of 10, 5 and 2? litre packs of engine, gear and specialty oils. The assertion regarding the packs sized between 2? and 10 litres was tempered by an observation that some smaller workshops will buy oil as required from retailers and as such the exact nature of the split between sales to workshops and DIY has never been quantified. This is also the case for half-litre packs of hydraulic brake fluid.
Whilst this data should not be applied to other producers due to the likely differences in market focus, it illustrates that the percentage sold to the DIY market will vary according to producer and pack size.
Bulk sales by second-tier producers vary depending on their market focus. One of the second-tier companies advised that approximately 30% of sales were bulk supplies, with the type of lubricant sold being split approximately in half into automotive lubricants, and industrial and mining lubricants. Another company indicated that less than 5% of total sales were bulk quantities.
If it is assumed that the volume of lubricants sold in small packs extrapolated from AIP members' data is correct, then bulk lubricant sales by BP / Castrol, Caltex, Mobil, Shell and Valvoline in 2000 will be some portion of the remaining 395 megalitres of lubricants sold (excluding base stocks). The percentage of this remaining quantity that will be shipped in bulk compared to large packs has not been established.
Data regarding the import, production, sale and export of lubricants in Australia are available from a number of sources including ABARE, AIP, ATO and DISR. Where data has been prepared for the same component of the market (e.g. imports) by different organisations, estimates are generally inconsistent.
Comparison of data prepared by DISR to other sources indicates that the quality and accuracy of the data may be less than desirable, however the level of detail provided by this data is superior to other sources and as such the reported volume for 2000 is accepted with reservations.
Assumption 6: It is assumed that data provided by DISR with regard to the size of the Australian lubricants market and proportional lubricant sales within product categories is representative of the Australian lubricants market.
There is broad agreement between data sources that automotive lubricants account for more than one third of total lubricant sales. The sale of base stocks has been estimated to equate to the production of 132 megalitres of lubricants by second-tier companies (refer to assumption 4), with the majority of lubricants being produced in the automotive sector. Addition of this estimated total to the sales data reported by DISR yields an adjusted total volume of lubricants sold in 2000 of 581 megalitres.
The size of the Australian lubricants market and proportion attributed to each DISR category is the basis of all estimates within this report. Thus, any errors in this initial estimate may result in significant variation of the final estimate of unaccounted for used oil in Australia.