The global lubricants industry is in (e-)motion. Lubricant players are facing at least three major disruptions to the ways they do business today, which will have an impact on the development and pattern of global lubricants consumption in the future, with a decisive question asked behind: “DrivElectric, Decarbonization, Digitalization – Do Disruptions Damage Demand?”
Apu Gosalia Vice President Sustainability (CSO) & Global Intelligence FUCHS PETROLUB |
“DrivElectric”
The successful technical breakthrough of electric vehicle technology depends on three factors: competitive car prices, increased driving range and accessible recharge infrastructure. Electric vehicles have different lubrication needs, so factory fill engine and gear oil demand will certainly be negatively impacted, with the combustion engine being replaced by the battery. The same will be the case with metalworking fluids, while aftermarket demand for automotive lubricants will shrink rather slightly year on year as internal combustion car stock will be replaced. Also, the trend towards light weight, as steel is being replaced with more aluminum and thermoplastics, will lower the demand for forming lubricants and corrosion preventives. However, in every disruption lies not only a threat, but also an opportunity to increase or at least sustain ability. The batteries for e-vehicles for instance will require new formulations of battery cooling fluids, still largely to be researched and developed. First fill grease demand needs to be evaluated too, as some applications will grow in volume and new applications could come up. The whole infrastructure for electrified cars has partially still to be built, further developed and maintained, which will increase the demand of lubricants e.g. in the construction industry segment. All over all, the impact of e-mobility on global lubricants demand in the next 10 -15 years will be slightly negative on balance. Demand in Europe could decrease by up to 10 percent and in the United States by up to 20 percent in this time frame, as result of the previously mentioned influences, while lube demand in China could increase by 15 to 20 percent due to increased car sales.
“Decarbonization”
There exists a logical bridge between “DrivElectric” and “Decarbonization”. The evolution of e-mobility along with the replacement of the combustion engine by a battery in cars, will also offer new sales opportunities for lube manufacturers based on sustainability criteria. The whole focus of car manufacturers will shift from the use phase to the supply chain regarding their CO2-distribution, i.e. a measurable low(er) product carbon footprint of a sustainable lubricant will help the car manufacturers to lower their overall CO2 -balance in the future. In this way sustainability is becoming a differentiation criteria and competitive advantage for lube manufacturers’ products to their customers. Decarbonization in the lubricants industry is not only relevant on the sales side, but much so also on the raw material side. The corporate carbon footprint is a key performance indicator that specifies the amount of greenhouse gas emissions that every company produces. The largest share of the corporate carbon footprint of a lubricant manufacturer at the end of the process and value chain is not produced within the company’s own – and therefore directly controllable – limits, but much more in its supply chain. Hence, decarbonization in the lubricants industry will also require global partnerships between lube manufacturers and suppliers, who need to find procedures to reduce the carbon footprint of the raw materials they supply to lubricant blenders, as only in this way they will ultimately be able to significantly and measurably reduce the carbon footprint of their finished lubricants.
“Digitalization”
There exists as well also a logical bridge between “Decarbonization” and “Digitalization”. According to a year 2018 study by the World Economic Forum and the consultancy Accenture, the broader use of digital technology could bring the chemical industry a $550 billion benefit over the next 10 years, while reducing CO2-emissions by around 100 million tons. Digitalization is a term referring broadly to employing information technology to make business practices more effective and in this way is an opportunity, as data collection throughout the whole value-chain will be widened compared to today’s standards. An extended exchange in between customer and lubricants company will allow for new services and therewith add extra value to business. On the other side digitalization is a disruptive development that lubricant manufacturers need to handle not only as an opportunity, but also when it becomes a threat. Direct and automated usage of information generated at a later step of the process will affect all steps before and start-up companies could nudge their way into the lubricants industry, by applying whatever statistics and simulation methods one can think about to substitute and dig in into the traditional relation between lubricant manufacturer and customer. This trend is mostly visible in China in these days. These start-ups can offer directly to the lubricant customer sophisticated tools such as sensoric condition monitoring, data mining and big data – all of which can be used for system modelling in chemical, tribological, logistic and manufacturing areas, i.e. they ultimately offer them to analyze nearly all parts of their operations. In the next step they advise them not only about their lubricant usage in the future, but also on various other aspects of their business – such as the raw materials or equipment they use in their manufacturing process. The potential threat behind to lubricant marketers is, that in this way these start-ups may also determine the lubricant characteristics itself that are needed for the customer and then identify the best source for such performance, with the traditional lube formulating manufacturer developing to nothing less than just a simple toll manufacturer.
“Do Disruptions Damage Demand?”
The initial question can be answered with a clear: “No!”. We need to pay attention to the disruptions of our time, but they cannot kill lubricants (demand). We simply need to adopt to the new realities for the future of our business. However, considering the previously mentioned developments – for instance the impact of electrified cars on the global and regional lubricant consumption shifts – we can also clearly say three things: “Disruptions Divert Demand!” – “Solution: Sustainability!” and “Sustainability Demands Disruption”. And why is that so? Sustainability demands us to radically rethink our business models, not just how we sell our products in the future but how we create value. The issues that come under sustainability – climate change, resource constraints, food security, population growth, poverty and more – are so large and pressing, that they are changing the context in which businesses operate. Sustainability issues will drive waves of change in business sectors, affecting customer needs, resources and technologies available, investor expectations, regulatory requirements and much more. Companies need to come up with radical new products and services just to stay in business.
“How Disruptions Sustain Ability”
How will the European lubricants industry handle all the disruptions of our time and how do they call for sustainability as a solution and business concept? The Union of the European Lubricants Industry (UEIL) announced at UEIL’s Annual Congress in Budapest/Hungary in October the formation of a sustainability task force to tackle these questions and to develop a framework to measure the sustainability of lubricant companies in the future, which will be chaired by Fuchs. The group will work proactively to define requirements that the European Union is already beginning to introduce for the industry. The task force will commence in January 2019 and will essentially function as a think-tank, with three task force meetings planned in the first year, mainly to be held in Brussels. It will evolve into a full-fledged committee of the association at a later stage. One of the main tasks is to write a framework for lubricant suppliers to report about their sustainability, as the European Union is requiring public interest entities and businesses with at least 500 employees to file non-financial declarations on sustainability and diversity, including information about key performance indicators (KPIs) for ecological impact, such as energy consumption and carbon footprint since 2017. At some point, the regional body will extend that requirement to smaller companies and begin to mandate that businesses meet some level of sustainability. The ecological impact will be one criteria of the sustainability framework to be developed in the task force, but there will also be measures of a business’s economic sustainability and of its social impacts.
We need KPIs beyond performance and price for selling lubricants, i.e. also based on sustainability criteria. For the ecological dimension it is important that the industry starts working toward a lifecycle assessment, measuring impacts at every point in the process and along the value chain. Lubricant companies should receive credit for their social impact, considering that some 30 percent of global energy production is lost to friction, wear and corrosion, while the primary focus of our lubricant industry is to reduce all of these. We reduce more CO2 with our products in their use phase than we produce in making them. This message needs to reach young people, if the industry is to attract the best talents in the future, as the next generation expects no longer only money, career or job security from their future employers, but also the conviction, to work for a good and sustainable company. It is noteworthy, that organizations other than lubricant companies will be allowed to participate in the task force. For the first time, the entire process and lubricants industry value chain will work together, from raw material suppliers to lube blenders, customers and end-of-life treatment representatives. The task force will cooperate closely with the European Re-refining Industry Section of the UEIL and the union’s Health, Safety and Environment Committee, as well as the Sustainability Initiative of the German Lubricant Industry (NaSch), which Fuchs helped to form under the umbrella of the German Lubricants Manufacturers Association (VSI). We also plan to coordinate with external parties. It needs to be a work towards creating a coalition of the willing to find sustainable solutions for dealing with all the disruptions of our time and finding new ways of how we want to develop, produce and sell lubricants in the future.
