The drive to net-zero, sustainability and digital
Technologies create many new opportunities and challenges for the lubrication industry when it comes to sustainability.
Sustainability is a megatrend of our time. Between 2020 and 2021, there has been a rush of corporate and government facilities declaring their intention to become carbon neutral by a given date, anywhere from 20 to 40 years into the future. The requirements of environment, social and governance (ESG) standards are expected to have a profound impact on the operational and business practices of enterprises worldwide.
Coupled with increasing customer demands, companies will need to make full disclosures to investors, financial agencies and credit rating agencies, making carbon neutrality the centerpiece of boardroom agendas going forward. To achieve their sustainability goals, companies will adopt a variety of operational measures and decarbonization technologies. As these technologies jostle for leadership in different countries and regions, the role that lubricants play will change.
The interaction between the drive to sustainability and the lubricant industry can be classified into three themes. This article will discuss these themes and what opportunities and challenges they present to lubricants industry participants.
Theme 1: Reducing the carbon footprint of finished lubricants
Similar to other industries, the lubricant industry is under pressure from the government, its supply chain partners and consumers to reduce the carbon footprint of its products. Increasingly, a carbon footprint is an important criterion for procurement decisions made by automotive and industrial OEMs, government agencies, industrial end users and consumers. This focus on the reduction of carbon footprints will only increase with time.
Despite the prevalence of re-refined and bio-sourced basestocks, the focus of carbon reduction in the lubricant industry has been limited. Only in Europe, and in Germany, in particular, there were efforts on this front. In Germany, mid-sized lubricant blenders created the German lubricant industry’s sustainability initiative (NaSch) inside the German Lubricant Industry Association (VSI). The group has made progress in calculating lubricant carbon footprints and plans to implement an industry-wide standard in Germany and Europe.
The International Organization for Standardization (ISO) is developing ISO 14068, which will define how to measure carbon footprints. This is not related to NaSch. Until this standard is finalized, there will be multiple claims of low-carbon/zero-carbon lubricants where the footprint is assessed on a different basis. However, thanks to this standard, the industry will hopefully not witness a battle about what makes a lubricant carbon neutral like the struggle to define what makes a lubricant synthetic, which occurred several years ago.
The prevalence of high-quality basestocks has made synthetic lubricants mainstream products. During the pandemic, many end users may have shifted from using top-tier brand synthetics to economy brands offering the same performance. Upon finding that this does not degrade the performance of their equipment, they may continue using these economy brands even after conditions improve. Global majors face a loss of market share. On this background, sustainability offers a new way of defining quality, as shown below.
If this thinking is correct, the industry will see more announcements like the recent one from Shell. As per a press release, Shell will market carbon-neutral lubricants in select markets around the world. The company expects to compensate for 700,000 tons of CO2e emission per year. It will be interesting to see if these products attract a premium due to greater market pull. The industry will surely see more suppliers offering similar products. Of course, Shell is not the first company to offer carbon-neutral product. Rowe has had “100% compensated” products for several years; Carl Bechem had the first full-lifecycle assessment for its Berufluid coolant in 2010.
Theme 2: Enhancing lubrication practices to reduce carbon footprints
Fuel economy and extended drain intervals have long been used by lubricants marketers to promote their products. Both reduce cost but also reduce carbon footprints by reducing resource consumption. This trend will be boosted in both the industrial and automotive space with the use of artificial intelligence (AI) and digital technology to drive predictive maintenance.
Marrying AI with digital technology is fast gaining ground among industrial OEMs. In 2019, Wartsila launched Expert Insight. In 2020, SKF acquired a company providing AI-powered predictive maintenance. But it is not just OEMs. In 2021, Shell, along with C3AI, Baker Hughes and Microsoft, launched Open AI Energy Initiative, described as “a first-of-its-kind open ecosystem of artificial intelligence-based solutions for the energy and process industries.” Under this initiative, Shell will offer specific modules for predictive maintenance of different types of equipment like pumps and other rotating equipment.
In the automotive space, dashboard indicators for oil servicing are becoming commonplace. Many OEMs offer connected apps that inform drivers of the vehicle condition and alert the driver when maintenance becomes necessary. A typical example is the recently announced deal between Ford and Google. As per a news article on the deal: “Ford and Lincoln vehicles will sport Android, the Google Assistant, Google Maps and Google Play starting in 2023, and Google’s cloud will enable other types of services. For instance, Google said Ford is looking to use the tech giant’s cloud to enable a system for sending customers messages about maintenance or trade-in opportunities.”
While the original focus of the deepening digital technology in such cases is to optimize equipment uptime while reducing maintenance cost and extending equipment life, it is easy to see how the use of AI can go beyond these objectives to include minimizing carbon footprint/fuel consumption.
Focusing on sustainability helps these OEMs promote the usage of these services. The increased data collection required to power the AI and the AI itself build entry barriers against competing suppliers of equipment maintenance. For lubricants companies, this is both an opportunity and a threat. The use of digital technology disrupts old supply chains and maintenance practices and could potentially lock out suppliers who are not digitally savvy. The drive toward sustainability will speed up this trend.
Theme 3: Developing lubricants for emerging low-carbon technologies
Lubricants are used in practically all industrial and automotive industries. All industries face decarbonization pressures for which they will adopt various decarbonization technologies. Which technology wins in each country/region and industry will depend on a variety of factors, and it will take a lengthy period of time for the winning technology to emerge. Lubricants suppliers will have to continue monitoring the space and developing products, capabilities and alliances to cater to the evolving lubrication and thermal management requirements of these emerging technologies. The table below shows the potential routes to de-carbonization that may become dominant in different lubricants end-use sectors.
Each of these technologies has some implications for the lubricant products used, as well as the supply chain. Some technologies such as carbon capture utilization and storage (CCUS) and e-fuels will allow the continued use of internal combustion engines (ICE) vehicles. Therefore, there may not be much change for the lubricants industry beyond some product reformulation due to the deployment of these technologies. Other technologies, such as electrification and fuel cells, will need the development of new fluids for thermal management while eliminating the need for some products like engine oils. Some lubricants products such as transmission fluids and greases will continue to be used but will have to be reformulated to meet new performance requirements, such as thermal conductivity and electrical resistance but also material compatibility and enhanced wear protection.
These de-carbonization technologies will be accompanied by changes in the supply chain and maintenance practices. Lubricants companies will have to develop new alliances to be able to cater to the new market. It is no wonder oil companies are investing in hydrogen technology and charging infrastructure, among other things.
Lubricants marketers choose your adventure
The drive to net zero and sustainability will present lubricants companies with multiple challenges and opportunities in three areas: creating low-carbon/zero-carbon/carbon-negative lubricant products; offering lubrication technologies to reduce the carbon footprint of transport and industrial applications; and creating products needed for emerging decarbonization technologies. The speed and time horizon for change in these three areas is different and varies with the region under consideration.
For example, creating zero-carbon lubricants has higher urgency in Europe compared to most of Asia, Africa and Latin America. But it would be reasonable to assume the latter regions will start valuing zero-carbon lubricants in the long term. The use of digital technology to optimize maintenance costs and the carbon footprint of operations will favor technically savvy lubricants companies. That is not to say hope is lost for companies that would consider themselves “old school.”
It simply means that such companies will have to work harder to build internal knowledge and continue to monitor the space. The same holds for the last area: creating products for new decarbonization technologies. In this area, change will be slow (though faster than before) given the scale of challenges involved. Lubricants companies should use this breathing space to prepare their product portfolio for a sustainable future.