Nynas naphthenic business segment, which primarily supplies base oils, reported 328 million Swedish krona (U.S. $35 million) in earnings before interest, taxes, depreciation, and amortization for full year 2018, down more than 59 percent from SEK 807 million for 2017. U.S. sanctions against one of its parent companies, Petroleos de Venezuela, took a heavy toll, according to the annual report that Nynas filed last week.
Naphthenic net sales revenue totaled SEK 8.3 billion, up almost 8 percent from SEK 7.7 billion in 2017. The company attributed that increase primarily to a higher oil price and stronger U.S. dollar.
The U.S. government has imposed several types of sanctions against Venezuelan entities in recent years, but earlier this year it imposed sanctions on PdVSA and companies and individuals that help it to make money, because Washington deemed the oil company as supporting the regime of President Nicolas Maduro, whom the U.S. considers an illegitimate ruler. The United States is among the nations that view Juan Guaido as Venezuelas legitimate president.
The company said the sanctions are restricting its crude feedstock availability, which is forcing it to seek alternative, more expensive external sources for the feedstock.
Nynas said it is also coping with other difficulties, including a run-up in global crude oil prices that squeezed margins for petroleum products, including base stocks.
To compensate, Nynas in turn raised prices on naphthenic specialty products, something that was not well received in a competitive market, Bo Askvik, Nynas acting president and CEO, stated in his Message from the President in the companys annual report released June 20. A weaker automotive sector in the second half of the year also affected our bottom line as demand for naphthenic oils dropped. All this resulted in much lower sales volumes than anticipated, which had a dramatic impact on our earnings.
Askvik explained that the company is working to mitigate the supply problem through a crude oil flexibility plan that aims to further increase purchase of crude oil from non-Venezuelan sources. During the year we increased the use of alternative feedstocks by qualifying other crude oils, including a heavy residue for use in our Gothenburg refinery, he noted.
He also cited what he described as reasons for optimism, including the fact that overall demand for naphthenic specialty oils continues to grow, as well as socio-economic trends such as with increasing electrification and urbanization.
We have also been reaching out to new markets, for example, India, where we have been strengthening our presence, Askvik added. In 2018 we had excellent sales in tire oils and a high market share in greases.
Nynas, a 50-50 joint venture between PdVSA and Finnish refiner Neste Oil, did receive special designation authorizing it to continue doing business. That authorization expires July 27. Nynas has a long-term marketing agreement to sell naphthenic base oils produced by the Refineria Isla refinery operated by PdVSA in Emmastad, Curacao. The base oil plant in that refinery, which has capacity to produce naphthenic and paraffinic base stocks, has not operated consistently for more than a year, at least partly because of difficulty obtaining crude oil feedstock, which is supposed to be supplied by PdVSA.
Askvik noted in the annual report that he became Nynas acting president and CEO in January 2019, after the companys board decided on a change of management, with Gert Wendroth, Nynas president and CEO since 2014, leaving the company.