Shell Oil Products US will cease most U.S. sales of its market-leading Diala electrical transformer oils, continuing to sell only a small portion of Diala AX primarily through distributors. Due to the closure of two base oil plants, the company will also exit other process oil markets in the United States.
Shell had previously announced plans to close both of its American sources of naphthenic base oils – a plant at Deer Park, Texas, is closing this month, while a Martinez, Calif., plant is scheduled to close Sept. 1 – but had not indicated if it would sell businesses such as Diala or maintain them using naphthenics from other sources.
The Deer Park and Martinez plants had combined capacity to produce 9,500 barrels per day of naphthenics – one-fifth of U.S. naphthenic capacity – much of it lightweight 60 pale oil that is typically used to make electrical transformer oils. Armed with that supply, Shell claimed approximately 40 percent of the transformer oil market in the United States. Most of its sales have been direct to transformer manufacturers, although a small portion have been made through distributors.
During a presentation at a power industry conference sponsored by Doble Engineering in Boston two weeks ago, Specialties Product Manager Dave Duxbury said Shell will supply reduced levels of Diala AX – about one-tenth of current levels – primarily to distributors. Shell will blend the products using base oil provided from another U.S. source, which Duxbury declined to identify. Shell will discontinue sales of Diala A, as well as other process oils sold under the Shellflex brand name. In discussing exact cutoff dates, Duxbury said Shell plans to supply established customers of the two plants at 2002 rates through the dates that the plants close.
Duxbury explained that Shell decided to keep the distributor sales of Diala AX because it is the one area where the brand name holds value.
Diala is a well-known brand with a good reputation, he said during a telephone interview yesterday. In the initial fill market, though, the original equipment manufacturers are just looking to see if a product meets the standards.
Duxbury allowed that Shells exit may disrupt the transformer oil market but maintained that it will do so only temporarily.
In the long-term, I bet the market will reach an equilibrium, he said. In terms of the overall naphthenic market, we believe there will still be excess capacity.