In this interview, Argus Base Oils associate editor Gabriella Twining speaks with Dr Valentina Serra Holm, the Vice President for Engineered Fluids at Perstop. Dr Holm spoke at the Argus Global Base Oils conference in February on the topic of sustainability, so we caught up with her for an update on the information she shared.
Q. Thank you, Valentina, for your support as well as pertinent and interesting presentation. You explained European legislation in a relatable and succinct manner to the whole base oils and lubricants community. How did you find the conference, and what would you say were the highlights for you?
A. It was a great conference, with an interesting programme but even more importantly the networking was exceptional — all the relevant players were there and more.
Q. The EU fit for 55 has already pledged to ban non-zero-emission vehicles by 2035, while the UK has set an earlier deadline for pure ICE vehicles in 2030. As motor lube is a large part of base oil demand, will this affect European demand, and how can producers meet this challenge?
A. There is no doubt that to some extent demand will be impacted. The auto market won’t be affected hugely because there will still be vehicles on the road with ICEs that will maintain the need for engine oils, which will support aftermarket demand. It will much depend on how quickly e-vehicles penetrate the market. To some extent everyone will see their market erode, especially those producers that are more exposed to first fill, vs those who are only active in the aftermarket. Producers should look to offset losses by looking at the total value of their offering — especially smaller more agile producers should move to lower volume with higher value applications and sustainable or synthetic lubricants.
Q) In contrast, a large amount of demand for lube, as well as fuels, comes from the heavy trucking industry, which has shown little signs of entering a post-ICE world. Do you foresee the rapid electrification of this industry in the same manner as the car market, or will it remain a bastion of lube consumption?
A. In the EU-55 there are rules that also apply to larger trucks, albeit that will come at later stage. The commercial and HD fleet will progressively move towards decarbonisation and away from ICEs, but at a slower pace. However, a lot of OEMs in this space are already working with alternative engines and are active in product development. But the demand for HD engine oils will still be a robust fall-back plan.
Q) Re-refined products are increasingly popular in the EU, especially following the UEIL/ATIEL carbon methodology proposal. But there is no standardised definition for products in Europe and quality concerns remain. How quickly can this issue be solved?
A. We need to differentiate between the automotive and industrial space. In the industrial space there is limited standardisation and overall fewer standard specifications. Here we see a robust appetite for re-refined oils and the circular economy is gaining attention all along the value chain, supporting demand for re-refined products. A lot of work can be done to increase acceptance in the automotive space. I believe that quality issues will become less relevant as the re-refining industry has made huge progress in terms of feedstock quality. The future is bright for the re-refining industry.
Q) In your slide for the Carbon Border Adjustment Mechanism (CBAM), several industries are noted as needing to buy emission certificates, but base oils were not mentioned. Will this be part of the programme?
A. Yes, all refining is part of the programme — refiners and the chemical industry will need to buy — or if they are very good even sell — carbon credits.
Q) Feedstock for European refineries remains high while Indian and Chinese refineries are operating at capacity thanks to Russian crude. is this the right time for legislation, given the pain suffered by European refineries?
A. sustainability comes at a cost, but what do we want to do? Do we want to save or think about the long term? Do we want to fix the profitability maximiser or convert our production footprint to improve the health of our planet? I believe we need to take a take a short-term hit for the long-term implications.
Q) The CBAM could protect producers in the European market, but what about refiners who export? Will this put them at a disadvantage to Asia-Pacific and Middle Eastern producers that do not have stringent environmental requirements?
A. There could be an issue when it comes to export — we had the same concerns with REACH. When it was introduced in Europe the industry reacted in a concerned way because it was thought to be putting Europe at a disadvantage. But now there is similar legislation in Turkey, China and South Korea, for example. I believe if there is a competitive disadvantage, it will be more of a short-to-mid-term rather than long-term issue.
Q) What is one issue that the base oils and lubricants industry should be looking at?
A. There is a need for a robust and tangible sustainability agenda and strategy, including on how base oil producers and blenders will reduce their scope 3 emissions and how that will be measured. Secondly, we need to think more about the long term —designing and future-proofing product portfolios getting away from this comfort zone of having always done things in a certain way. The industry needs to think about how to adapt to stay competitive and embrace change rather than fight it.