Neste/Takreer Deal Collapses


ABU DHABI, United Arab Emirates – Neste Oil, the Finnish refiner and marketer of base oils, has confirmed to Lube Report it will not be marketing API Group II and Group III base oils produced at Takreers new plant at Ruwais, United Arab Emirates.

The development has also been separately corroborated by Abu Dhabi National Oil Co., known as Adnoc.

There are differences over interpretation of the outcome, but the two companies appear to have reached deadlock over ownership of the marketing rights. An executive at Adnocs marketing and refining directorate who asked not to be named said discussions lasted more than two years. We had a lot of proposals from Neste, but we were clear we would not give marketing to a third party. We are a seller of base oils, and if they want to be a buyer they are welcome – most likely they will be.

However, Ulla Kotila, a spokesperson for Neste, said there were concerns over demand. Due to overcapacity in the market we didnt see demand for the entire output in the short term and decided to go for other commercial alternatives for meeting long term growth. The Ruwais plant, wholly owned by Adnoc, will produce up to 500,000 metric tons per year of Group III and 100,000 t/y of Group II base oils.

Production at the Takreer plant, originally scheduled to commence by the end of this year, will now begin sometime during the first half of 2014, according to the Adnoc executive. There is no set date, but it could be decided by customers we are currently in discussion with. Around 50,000 t/y is earmarked for Adnoc Distribution, a marketer and distributor of petroleum related products primarily in the UAE.

Neste first alerted the market to its exit from the planned Takreer marketing agreement as part of a wider stock exchange announcement during a capital markets day in London in September. The planned marketing cooperation in VHVI [very high viscosity index] base oil with Abu Dhabi National Oil Co. (Adnoc) will not proceed as previously announced, it stated. Nestes exit looks cost free, as it claims it had no financial exposure to the project. The partnership arrangement was purely a marketing one, and Neste Oil did not invest in the project, Kotila confirmed.

Nevertheless negotiations started out differently. In 2007 Neste, Takreer and the Austrian oil and gas group OMV signed a heads of terms agreement for the design, construction and operation of the plant which envisaged Neste handling the marketing of VHVI Group II/III base oils with viscosity grades from 2 centiStoke up to 6 cSt. Neste said at the time the joint venture would be 60 percent owned by Takreer and 20 percent each by Neste and OMV. However, in 2010, Takreer awarded the engineering, procurement and construction contract to Hyundai Engineering, and joint venture negotiations ended in early 2011.

According to analysts, the development with Adnoc may have implications for Nestesjoint venturewith Bapco, the Bahrain Petroleum Co., a point the Finnish refiner denies. We are fully committed to our JV with Bapco, and we continue producing high quality Group III base oils both in Finland and in Bahrain to serve our customers globally.

In May, under the headline “Who Will Market Ruwais’ Base Oils?” Lube Report revealed Nestes role had been cast into doubt following remarks at a conference by Fareed Mohamed Al Jaberi, vice president, supply division, Abu Dhabi Oil Refining Co. (Takreer) and additional comments from an executive at Adnoc, both of whom stated Adnoc would manage marketing.

Related Topics

Base Stocks    Business    Mergers & Acquisitions    Middle East    Region