The expansion of electric networks in developing countries, as well as the modernisation of electric grids in industrialised economies, are driving the demand for transformer oil. This is due to increasing industrialisation and urbanisation.
Impact of COVID-19 on the Transformer Oil Market
The pandemic of COVID-19 has had a mixed influence on specialised chemical producers. Because of the drop in crude oil prices, the majority of transformer oil makers have been able to lower their raw material costs. However, because of the supply chain disruption, firms are having problems with procurement and logistics. Furthermore, the decrease in demand for transformer oils has resulted in an increase in storage demand for transformer oil makers, raising production costs and causing a cascade effect on the transformer oil selling price. Transformer oil manufacturers have used a variety of techniques to adjust to these changing market conditions, including increasing manufacturing efficiency, expanding refineries and storage depots, expanding product lines through new product releases, and other inorganic strategies.
Market Trends for Transformer Oil
Electric grid expansion in the Asia-Pacific area is a driving force.
T&D system investments were predicted to be around USD 250 billion in 2020, and are expected to expand at a CAGR of 4.15 percent to USD 386 billion by 2030. Asia will lead T&D investment in 2020, accounting for around 44.5 percent of global T&D spending. Grid reinforcement, replacement of obsolete T&D infrastructure, and grid extension are all covered by this investment. Furthermore, T&D investment in the Indian subcontinent is expected to expand at a CAGR of 6.72 percent from 2020 to 2030, signifying a significant growth of the region’s electric grid network.
The global transformer oil market is expected to grow at a CAGR of 6.5 percent from an anticipated market value of USD 1.9 billion in 2021 to USD 3.3 billion by 2030.
Developing economies in the APAC area are investing in the expansion of their T&D systems and grid networks to meet the expected rise in power consumption caused by the region’s fast industrialization and urbanisation. The installation of new transformers and switchgears as a result of the development of the grid network and T&D system will increase demand for transformer oil.
Environmental concerns about the use of mineral-based transformer oil are a source of restraint.
Because of its high efficiency, ease of availability, and helpful chemical features such as good pour point at low temperatures and exceptional thermal cooling capability, naphthenic mineral oil has long been the most popular transformer oil. Because of its exceptional oxidation stability, paraffinic mineral oil has gained popularity throughout the years. Both paraffinic and naphthenic mineral oils, on the other hand, are made from highly refined, purified, and processed petroleum, making them extremely non-biodegradable. Mineral oil has a biodegradability range of 0–40% and is derived from a non-renewable resource.
Green and ecologically friendly technology are being adopted by both developed and emerging economies around the world. This change could stymie the use of mineral-based transformer oils in the near future, as well as becoming a long-term constraint on the mineral oil market.
Expansion of cross-border electricity commerce is an opportunity.
Cross-border electricity trading has grown in popularity in recent years, with the number of economies engaging in the trade increasing rapidly over time. For example, the European Union (EU) intends to reinforce individual countries’ electricity grids while also establishing a pan-European grid. The Indian Energy Exchange (IEX) recently proposed that cross-border energy trade between Myanmar, Bhutan, Sri Lanka, Bangladesh, and Nepal be used to form an integrated South Asian regional power market. These advances are projected to lead to grid expansion and the construction of additional transmission lines, resulting in increased demand for transformers, switchgears, and transformer oils in the future years.
Price fluctuations in crude oil are a challenge.
Crude oil is the most vital energy resource for conducting economic operations, and crude oil price volatility has a substantial impact on economic stability. Transformer oil is a crude oil product that has been thoroughly refined, treated, and filtered. As a result, fluctuations in crude oil prices will have a direct influence on transformer oil manufacturers, creating an unstable situation. Since the collapse in 2014, crude oil prices have been constantly fluctuating, and the downward trend has continued till 2016. However, in 2017 and 2018, prices began to rise, resulting in increased demand for production enhancement operations. In 2019 and 2020, prices fell again, with a minor increase in the first quarter of 2021. The decision to buy crude oil at the proper price becomes difficult for transformer oil manufacturers as a result of these instances of uncertainty caused by fluctuating crude oil prices.
During the forecast period, the mineral oil sector is likely to be the largest section of the transformer oil market by type.
Mineral oil, silicone, and bio-based oils were used to segment the market. During the projection period, the mineral oil sector is likely to hold the biggest market share and increase at the fastest rate. Mineral oil is mostly utilised in transformers, reactors, and switchgears for cooling and insulating. It’s also utilised for heat dissipation and to protect the internal windings of the transformer. Mineral oil is further divided into naphthenic and paraffinic oils, and mineral oil is used as the insulating fluid in the majority of existing and new transformers. Mineral oil’s demand is predicted to increase throughout the forecast period due to its low cost index and ease of availability when compared to other transformer oils.
During the forecast period, the transformer segment is estimated to be the major contributor to the transformer oil market by application.
The market has been divided into transformers, switchgears, and reactors based on application. In 2020, the transformer segment accounted for the biggest proportion of the total transformer oil market, and this dominance is expected to continue throughout the forecast period. Rising electricity demands, owing to the exponential growth of the global population, have resulted in investments in both developed and developing countries for the extension of current power networks and the reinforcement of power infrastructure. The installation of transformers will increase as electric networks are upgraded and expanded in response to increased power demands, which is predicted to propel the transformer segment’s growth.
During the projection period, transmission and distribution is predicted to be the fastest-growing market by end user.
Transmission and distribution, power generation, and railways and metros are the three end-user segments in the sector. During the forecast period, the transmission & distribution sector is expected to be the most important transformer oil market by end-user. Because of the global development in the production and consumption of electricity, it has the greatest proportion of the transformer oil market. The transmission and distribution systems are owned and operated by transmission and distribution utilities. As a result, rising power consumption will entail the development of the transmission and distribution network, resulting in increased demand for electrical components such as transformers, reactors, and switchgears, as well as a rise in transformer oil demand.
The worldwide transformer oil market is likely to be dominated by APAC.
In 2020, APAC was the largest transformer oil market, owing to activity in China, India, Japan, South Korea, and Australia. The rapid rise in electrical demand and capacity in developing nations such as India and China, as well as the expansion of the industrial and commercial sectors, will result in an increase in the number of substations. The increase in the number of substations would drive up demand for transformers, which will boost transformer oil consumption in APAC.
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