The worlds largest naphthenic base oil supplier has gained a foothold in the United States – but not out of a desire to expand in that market.
AB Nynas Petroleum announced Monday that it has entered a long-term agreement to purchase all of the naphthenic capacity at Valero Energy Corp.s base oil plant in Three Rivers, Texas. As part of the deal, Valero agrees to invest approximately $10 million to upgrade and expand the plant.
Rumors have circulated the past few months that Nynas was trying to obtain capacity in the United States. Some observers assumed the Stockholm, Sweden-based company saw an opportunity to grab a bigger share of the U.S. market as Shell Oil Products US closes two naphthenic plants. A Nynas official said yesterday that that was not the case.
The main motivation is to get supply for the international market, Nynas NaphthenicsBusiness ManagerTomas Wallin said, adding that Nynas will make only moderate sales efforts in the United Statesand plans to export up to 50 percent of the expanded plants output. The U.S. might have a bit of a shortage in the short or medium term. But even with Shells exit, we see the market shrinking in the long term and supply exceeding demand.
Shell ceased production at its Deer Park, Texas, base oil plant last month and plans to close its Martinez, Calif., plant Sept. 1. Those plants had a combined naphthenic capacity of 9,700 barrels per day – just over 20 percent of the U.S. market.
The 2,300-b/d Three Rivers plant, which is part of a fuels refinery, is easily the smallest of six naphthenic plants (not counting Shells) in the United States. The expansion will increase that capacity by approximately 50 percent, according to Wallin. He added, though, that Nynas is most concerned about improving the quality of product.
The quality that they have doesnt meet the needs of Nynas customers in the international market, he said. The upgrade will allow the plant to produce oils with higher flash points, better color and better stability, he said, adding that product consistency will also improve.
The companies said the upgrade will be completed during the third quarter of 2004. Nynas is to begin buying the plants output June 1 of this year.
As a result of this agreement, we will be able to upgrade our facility to produce the highest-quality naphthenic base oil products, and well have a guaranteed market for them, Valero Chairman and Chief Executive Officer Bill Greehey said. Nynas is recognized as the worlds premier producer and marketer of these products so we couldnt have picked a better partner.”
Nynas is a 50-50 joint venture between Finnish oil company Fortum Oy and Petroleos de Venezuela S.A., the national oil company of Venezuela. Along with specialty naphthenics, it produces, markets and supplies bitumen. The company owns a naphthenic plant in Nynashamn, Sweden, and serves as marketing agent and transport company for product from PdVSAs naphthenic plant in the Netherland Antilles. Nynas already sells part of the output from the latter plant in the United States, doing business as Nynas USA Inc., in Houston.