Shell to Shutter Deer Park Lubes


Shell Oil Products US announced Thursday that it will close its Deer Park, Texas, base oil refinery – a move expected to tighten the U.S. base oil market, especially for naphthenics.

The shutdown, scheduled for March 31, 2003, will eliminate 11 percent of naphthenic capacity in the United States. Sources said the announcement has buyers of electrical transformer oils scurrying for replacement suppliers.

Its going to cause havoc for transformer oil customers, said a marketer who spoke on condition of anonymity. Theyre really going to be scrambling to find supply.

Deer Park produces 5,000 barrels per day of naphthenics, 4,600 b/d of paraffinic base stocks and 800 b/d of wax. Shell said it decided to close the plant because of the impending loss of its crude oil source and because of unfavorable economics for its base stocks. For years the plant has made naphthenics using Yates crude from West Texas, but Plains All American Pipeline LP decided recently to close the pipeline carrying that crude. Shell said it considered other transportation options but found none cost-efficient.

Deer Park makes Group I paraffinic stocks using a different crude source that remains available. Shell said it decided to cease that operation, too, because its margins have been poor in recent years and were expected to remain so.

Shell officials contended that the naphthenic market has also been soft and that the shuttering at Deer Park should have little impact.

Everything we read is that the nap market is over-supplied today, said Jamie Brunk, director of base oil manufacturing and sales. We expect that the other producers will jump right in to meet the demands of the market.

Other naphthenic marketers, however, contended the closing will have a large impact on the domestic market, which has capacity of 45,300 b/d. Whereas Shell said the market has been running at approximately 80 percent of capacity, other producers said their own plants have been running closer to capacity.

Sources predicted that the greatest impact from Deer Parks closing will be in the market for transformer oils, the biggest destination for low-viscosity naphthenics. Greases are a large market for heavy grades. Significant portions of naphthenics also go for process oils and industrial lubricants.

A day after Shells announcement, a second marketer, who also refused to be identified, said he had already received calls from several transformer oil users seeking a new supplier. He speculated that customers are now shopping 20 million gallons of annual demand and suggested that domestic supply may not meet it. He and others predicted an increase in naphthenic imports to the United States.

They also predicted that the tightening of the naphthenic market will lead industrial lubricant blenders to substitute paraffinic stocks in some of their products, although they noted that Group I paraffinics lack the pour-point performance needed for transformer oils.

Deer Park will be the third naphthenic source in less than two years to be taken off the market. Calumet Lubricants converted its Shreveport, La., facility to paraffinic production earlier this year. Golden Bear Specialties, which operated a plant in Bakersfield, Calif., went out of business in early 2001.

Naphthenic marketers welcomed the latest closing, saying it should allow them to widen margins that have been somewhat depressed. Several predicted prices will rise soon.

I think its going to have an impact very soon, a marketer said. After the first of the year, youll probably see a tightening up of prices in the spot market. Then suppliers are going to start doing contracts without discounts. After that, people will have had enough time to get a feel for the market and decide where to go from there.

Sources predicted the closing at Deer Park will have less of an impact on the paraffinic market, which has 151,800 b/d capacity in the United States. Marketers said the closing may bring more balance to bright stock and light Group I, which have been over-supplied lately.

Brunk said Shell plans to run both the naphthenic and paraffinic lines at full capacity until the shutdown. Deer Parks lubricant operations employ 110 people. The company said it expects to absorb a majority of them into other activities.

Related Topics

Market Topics