Lubricating oils have traditionally been one of the most attractive areas in the oil and gas value chain, but disruption is on the horizon with the rise of electrification in the transport sector.

With consistently high margins overall, lubricating oils have traditionally been one of the most attractive areas in the oil and gas value chain. However, looking ahead, we could see disruption as electrification takes hold in the transport sector. To assess what may be on the horizon, we conducted an in-depth market study and developed granular projections out to 2035. The main finding was that, while volume growth may be flattening, there is still room for value-pool expansion. This will, however, be highly variable by region, market segment, and product type, so where to play matters. This growth is also subject to some significant risks, so investors will need to keep a close eye on developments in areas such as technology and policy.

The study confirmed our expectation that lubes volume growth would continue but at a slightly slower rate over coming years, with road-transport demand (currently 40 percent of the total) likely to peak within the next five years (Exhibit 1). From then on, transport demand will decline slowly as the share of The global electric-vehicle market is amped up and on the rise | McKinseyW (EVs), car sharing, and hailing increases and as we see longer change intervals for remaining internal-combustion-engine (ICE) vehicles.

Demand from other transportation sectors—such as marine, aviation, and rail—is less significant and will continue to grow. Nontransport and industrial consumption, which makes up the majority of lubes demand, should also keep growing steadily, tracking global GDP per capita growth and more than making up for the decline in transport demand.

Looking at margins, the road-transport sector will perform favorably as higher-margin synthetic lubes expand sharply to take a 70 percent market share by 2035. Top-branded products will achieve the highest premiums, although whether this can be sustained remains to be seen.

Margins will also rise significantly in smaller industrial sectors, such as fast-moving consumer goods (FMCG) and chemicals, but will stagnate in the key industrial sectors of transport equipment and metal works—which together account for more than 30 percent of the global value pool (Exhibit 2).

Industrial demand and higher transport margins to drive value-pool growth

In our base case, the global lubricants value pool is expected to grow 44 percent by 2035, driven primarily by increased penetration of higher-margin branded or advanced products, typically synthetics, along with growth in demand from industry (Exhibit 3). Road transport, transport equipment, and FMCG are the sectors most likely to offer the fastest-growing value pools.