Investing to capture growth

Nearly every talk at this year’s ICIS conference referenced the changing environment, with many looking at alternative powertrains as a route to reducing CO₂ emissions. However, that was where the similarity stopped. The estimates of just how far and how fast these changes will impact our industry ranged from just a few years to several decades.

“It’s hardly surprising these estimates vary so widely,” Trevor confirms. “We’re seeing increased activism, which increases societal awareness of environmental issues that in turn puts pressure on politicians, influencing their policies and feeding through to laws and ultimately to responses by industries like ours. This can be a long process which is why predicted outcomes vary so much. Additionally, politicians are making bold statements about carbon targets without the backing of plans on how to achieve their targets. So, while the conversations are, quite rightly, being accelerated by the activists, we are yet to see a clear view of when or how change is going to happen."

Right now, less than 2% of the 80 million or so new car sales are battery electric vehicles. While Trevor sees electric vehicle sales growth in the coming years, that still puts a lot of new combustion engines on the roads that will still be there in 10 to 15 years’ time.

“It seems very likely that the internal combustion engine, even at the most rapid rate of de-carbonisation, will be around for many years to come.”  

Important environmental contribution

With internal combustion engines expected to be such a big part of our future mobility, Trevor explains the positive environmental impact additives and lubricants can have here. “Don't underestimate it. I really believe that companies like ours, those with strong technology, have the responsibility to get the internal combustion engine as clean as it possibly can be for as long as it’s around. What I mean by that is providing better fuel economy, reducing emissions, reducing waste by enabling longer time between oil drains, and extending component and engine life”.

“We have a really exciting role to play in today’s internal combustion engine and in the improved versions we will see in the future.”

Electrification uncertainties

In terms of vehicle electrification, Trevor feels that the whole conversation around electrification and de-carbonisation of the economy has a long way to go. “In my opinion,” he continues, “there are a number of key uncertainties as we look to electrification as a solution. There are issues around battery life, charging speed and charging infrastructure for example. A lot of investment is needed there – which brings another set of uncertainties such as: how quickly can it be put in place, who is going to pay for it and where does the return on investment come from? Then you have to think about where the electricity comes from. We don’t have enough electricity in the world today, so where is it going to come from in the future and what is going to fuel the power stations? Right now, that’s unclear.”

Today, 40% of the world's power generation comes from coal, with demand for energy rising – particularly in East Africa, India, China and Southeast Asia. These markets will need to increase production rapidly and are all looking at coal-fired power stations because they are relatively cheap, simple and easy to run, using readily available raw materials. “But,” Trevor added, “this cannot be the solution for vehicle electrification as the environmental impact will likely be worse than efficient combustion engines. New, clean power sources need investment and time to be delivered. And lastly, a point that is often forgotten in the race to electrify the powertrain is how governments will replace the lost tax and duty on liquid fuel sales; other mobility taxation methods will need to be found which may in turn reduce the attractiveness of electric options.”

Modelling the future

Clearly, the mobility path ahead is uncertain, as is the best way to supply the energy that will be required. However, there are actions that can be taken to avoid the pitfalls and embrace the opportunities that arise. “Infineum's response is to model as best we can out to 2040 and beyond using different scenarios backed by data relevant to oil and additive demand,” Trevor explains. “We chose the International Energy Agency scenarios of four degrees (4DS), two degrees (2DS) and well below two degrees (WB2DS) warming by the year 2100 versus pre-industrial times. With 4DS, there would be more internal combustion engines and very little electrification in the 1.9 billion vehicle parc by 2040; while with WB2DS, electric cars would be around half of the parc. We then overlaid the results with likely miles driven, lubricant quality and the likely innovative chemistry developments, and the conclusion was clear.”

“In any of the scenarios we've looked at, the additive industry is bigger and more complex in 2040 than it is today, with a growing level of technical fragmentation driven by different powertrain solutions.”

What does that mean for Infineum, a business leader in this industry?

“Ultimately, our goal is to deliver an unparalleled customer experience, and to that end we will continue to invest in developing new and innovative additive technology, in adapting our manufacturing footprint to a changing world and in our people, while concurrently always striving to improve the sustainability of our operations. Is this an easy balancing act? Of course not, but I see endless opportunities to add value by keeping delivering on the changing needs of this marketplace.

Investment in digitalisation is another really big area for us, because I just can’t imagine that we'll be doing business 10 years from now in the same way we're doing it today. It will change the way we interact with our customers, the way we run and maintain our plants, and the way we run our supply chains. Beyond that, digitalisation may well change the way we prove the performance of our products. Today we are burning a lot of fuel to do that, which is unsustainable. I just have to believe that as we look out 10 years, digitalisation and data analytics will be at the core of proof-of-performance testing.”

Complexity continues

In such a complex industry, as Trevor explains, it is important to distinguish good complexity from bad. “I see good complexity as, for example, a major technical issue that can be solved with new lubricant or additive technology; it might make our lives more expensive or challenging, but that complexity is providing solutions and taking us forward. On the other hand, bad complexity might be where we measure the same performance parameter in different ways using engines tests that are hard to calibrate, fitted with parts that can be variable and that do not necessarily correlate to real world conditions. The bad complexity clearly leads to resource waste.”

Trevor cites the North American passenger car specification, ILSAC GF-6, as an example. “It has taken an extraordinary amount of time to get that specification finished and in May the oils are finally going to be launched. Parts of the development process were complex and wasteful. From our standpoint, we have invested significant resources on developments for ILSAC GF6 - running tests as they evolve, developing formulations and deploying them in multiple base stocks. And, in our case, if you introduce new components to meet the specifications, you need to build the assets to be ready for the day that you need the formulations in the market.”

“Overall, Infineum’s ILSAC GF-6 investment was over $100 million dollars and we're just one stakeholder in this business.”

While ILSAC GF-6 might be behind us, in the North American heavy-duty diesel market, upcoming emissions requirements will drive significant engine technology change that will likely create a new set of requirements for PC-12. “Cross industry committees and panels have formed and I thank those people from additive companies, lube oil companies, base oil companies, OEMs, specification setters and test houses who are working together to look to how we can simplify industry processes. I hope we can take the learnings from ILSAC GF-6 forward into PC-12 to make sure that we are streamlining and removing unnecessary complexity as we go.”

As a final message, Trevor looks out to the future and the increasingly complex nature of our business. “We have to use our fundamental competencies with detergency, dispersancy, flow improvement, wax modification and so on, to capture growth and deliver innovation in our existing industry, with a particular focus on sustainable solutions. Then we need to find ways to use them to also capture growth in new markets where these skills and competencies are every bit as important, including embracing the many new opportunities that mobility changes around the world will bring. There are only going to be more interrelationships between all the drivers that are impacting this industry; we know change is coming thick and fast, so let's embrace it.”

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