In a move that bodes ill for buyers of electrical transformer oils, Nynas Naphthenics AB imposed allocations Friday due to operational problems at its naphthenic base oil plant in Nynashamn, Sweden.
Nynas is the worlds largest supplier of transformer oils, and observers said its problems are bound to exacerbate existing supply shortages.
Its a big deal because theyre such a big supplier, and the market was already so tight, one U.S. marketer said. They go all over the world.
Nynas said it has not yet identified the problem and therefore could offer no estimate of when it will be resolved.
We still have not found the problem, so we dont know yet when it will be fixed, Supply Chain Director Per Dahlstedt told Lube Report yesterday from Stockholm. In the short term, this will have some consequences [on the market]. Hopefully we can fix it soon.
Used to cool and insulate electrical transformers, transformer fluids are traditionally made from low-viscosity naphthenic oils. Worldwide availability of transformer oil has been short for the past year due to Shells closure in 2003 of two U.S. base oil plants that produced naphthenics. Shell was the worlds biggest producer of transformer oils.
With capacity to make 400,000 metric tons of oils per year, the Nynashamn plant is the largest of three facilities in Nynas stable and the worlds second-largest naphthenic plant behind an Ergon plant in Vicksburg, Miss. Nynas also markets naphthenics produced at a Petroleos de Venezuela S.A. refinery in the Netherland Antilles and at a Valero plant in Three Rivers, Texas. Nynas, a joint venture between PDVSA and Finnish oil company Fortum, is based in Stockholm.
Dahlstedt said the problem at the Nynashamn plant has something to do with the largest of three hydrotreaters. The treater in question is used to make transformer fluids, but products have been off-spec for the past two weeks. The company has contracted specialists to try to identify and solve the problem.
In Fridays letter, Nynas took the unusual step of declaring force majeure, a legal term generally used as an excuse from liability for not meeting contractual obligations in case of natural disasters, war or failures of third parties. The company imposed worldwide allocations, warning that it will meet only 50 percent of contracted volumes of transformer oils until further notice. Dahlstedt said 50 percent is a worst-case projection.
Observers said Nynas problems would have the greatest impact in Europe, which has only one other significant naphthenics supplier – a Shell plant in Harburg, Germany. But Nynas is also a significant supplier in North America and in other regions of the world.