In Large Engines, we cover stationary gas engines and the railroad sector.

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 With the world’s GDP and population increasing, the I.E.A. expects total energy demand
will rise through 2040. So, expect growth in the combined heat and power market and
an increase in natural gas consumption, as abundant resources and rising production
contribute to its strong competitive position. And this growth, will also drive demand
for gas engine oils.

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 Changes in the global energy mix are also ahead. Oil will remain the world's primary
energy source, meeting about one-third of all demand. Natural gas is forecasted to grow
the most of any energy type, reaching a quarter of all demand by 2040 and to date
we’ve produced 15% of the available gas reserves. Although coal will be important in
some regions, it’s expected to lose significant share as the world transitions toward
lower emissions energy sources. So, expect to see growth for nuclear and renewables.

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 For power generation trends, over the next decade, renewable power capacity additions
will be twice that of gas, but larger load factors will allow gas and other fossil fuels to
maintain their dominance in this segment. Looking further ahead, between new
installed capacity and retired gas power plants, an additional 6,700 gigawatts of power is
expected to be added in the next 25 years.

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 The growth of gas is not surprising considering its advantages in terms of speed, cost
and cleanliness, compared to other sources of power. Since gas is a flexible power
source, with benefits such as rapid start, output flexibility, and turndown capability, it
will be increasingly used to complement intermittent renewables like wind or solar.

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 We expect growth in distributed power generation to meet the growing demand for
energy, which means smaller power plants will be located closer to the consumer load
center. The global market for distributed power generation technologies is expected to
reach more than 109 Billion dollars in 2021, which means smaller scale systems,
including wind turbines, solar panels and reciprocating engines will continue to see
strong growth. However, these technologies have similar issues to those of centralized
power plants, including the need to improve efficiency and reduce emissions.

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 In response, gas engine manufactures have introduced design changes including tighter
tolerances and reduced clearances for engine components, higher compression ratios,
increased turbocharger pressures, and improved combustion and valve timing. Naturally,
these new more efficient engines present a challenging environment for gas engine oils.

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 Higher temperatures and pressures combined with a challenging chemical environment,
due to the increasing use of sour gases, means the effective neutralization of
combustion acids, prevention of deposits and robust oxidation and nitration control is
becoming even more important. Despite these challenges, gas engine oils must deliver
exceptional hardware protection over longer oil drain intervals with reduced oil
consumption, which means the oil needs to work twice as hard. A correctly balanced
formulation will not only reduce the risk of ring sticking, bore polish, filter-plugging and
bearing damage, but will also help operators keep their engines running efficiently for
longer, regardless of fuel or base stock chosen.

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 The United States will continue to be the world’s largest consumer and producer of gas.
Because of the growth of the domestic shale industry, by 2022, US gas production will
be more than 20% of global output.

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 In North America, about 13 gigawatts of coal fired power generation capacity is set to
retire in 2018. If all the scheduled natural gas power generating capacity for 2018 is
realized, it would be the single largest increase since 2004. North America industrial
consumption is expected to increase as low natural gas prices make it economical for
use as a feedstock for ammonia in fertilizer or for methanol production. For 2017, the
US was a net exporter of natural gas. This was the first time since 1957 and by 2022, the
US could challenge Australia and Qatar for lead exporter of LNG. Much of the expected
growth in natural gas production is the result of increasing capacity out of the
Appalachia producing region to end-use markets. The greater pipeline connectivity
contributes to higher wellhead natural gas prices for producers and is expected to
encourage production growth. All this activity means more natural gas reciprocating
engines in use, and opportunities for gas engine oil suppliers.

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 Before we leave large engines, we turn to the US railroad sector, which delivers 5 million
tons of freight and 85,000 passengers each day. Although efficiency and productivity
improvements have been made, further investments are needed comply with tighter
emissions regulations. Diesel is still the major fuel used, even where lines are
electrified. Locomotive diesel engine technology lags behind on-highway trucks,
however new Tier 4 emission compliant engines with exhaust aftertreatment systems
have been introduced. With a 40-year asset life, railroads continue to search for the fuel
and technology with the lowest operating cost, so we anticipate an increase in the
number of natural gas and dual fuel engines.

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 All these changes will impact rail road lubricants. Improved soot handling and lower
SAPS are required to protect the new after treatment systems. As natural gas is
increasingly used, specially tailored lubricants for these applications will also be needed.
Fuel economy benefits from lower viscosity oils, means we expect a further shift
towards multigrade use. Railroad oils need to protect engine durability and cleanliness,
over longer drain intervals. Finally, those longer drain intervals must coincide with
required federal safety inspections every 6 months. Locomotives forced out of service
for just an oil change, would represent a greater cost to railroads than any savings
gained from fewer oil changes.

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