“The North American market is very competitive with several domestic naphthenic producers, and it is very tough to produce in Europe and ship the products to North America and compete successfully,” Communications Director Hans Ostlin told Lube Report Tuesday.

Nynas produces pale oils at two refineries in Europe. Its base oil plant in Nynashamn, Sweden, has capacity to make 7,600 barrels per day of naphthenic oils, while another plant in Harburg, Germany, has capacity of 6,300 b/d. In the past it also had marketing agreements giving it access to naphthenic oils produced at Valero’s refinery in Three Rivers, Texas, and Refineria Isla, in Curacao, but its arrangement at the former facility lapsed, and the latter refinery went dormant.

As a result, pale oils that it supplies into North America are produced in Europe and transported across the Atlantic. Developments since the start of the coronavirus pandemic made that business model uncompetitive, the company said.

“I think that like many other companies, the pandemic and the current business environment for crude oil, transportation costs and energy prices has triggered a process at Nynas to review our current direct sales footprint,” Ostlin said.

An official at one U.S. naphthenic base oil supplier speculated that natural gas prices have had a large impact on Nynas’ ability to compete. After crude oil, hydrogen is one of the main material inputs for base oil producers, used to heat crude oil at the start of the refining process and also as a source of hydrogen used in hydrotreating – a category of processes that upgrades base oil by reducing the number of unsaturated molecules.

Natural gas prices in Europe have increased approximately five fold in the past year to U.S. $31.961 per million British thermal units for April settlement of Dutch TTF futures. Natural gas prices in the United States have also risen but were only about $5/mmBtu the past few days.

“If you’re having to pay that much more for natural gas, there’s no way you’re going to be able compete in this market,” said the official from the U.S. supplier, who did not want to be identified speaking about a competitor.

The United States has five pale oil producers – Ergon Refining, San Joaquin Refining, Calumet Specialty Products Partners, Cross Oil and Valero – with combined production capacity of 44,500 b/d. Ergon is by far the biggest producer with capacity of 22,000 b/d at its refinery in Vicksburg, Mississippi. Nynas is the only naphthenic base oil producer in Europe but does have competition. Ergon, for example, exports to terminals there.

While stating that is direct sales activities will now focus on its core market of Europe, Nynas added that it will supply into other selected markets, depending on local conditions.

Editor’s note: This article has been updated to correct the caption’s identification of the company operating the storage tanks in the photo.