CNOOC to Build Naphthenic Plant


HOUSTON – Base oil production in China has for decades belonged almost exclusively to PetroChina and Sinopec, two of the communist nations large state-owned oil companies.

Now the third major player is preparing to enter the fray. An official from state-owned China National Offshore Oil Corp. (CNOOC) told an industry conference here last week that it plans to build a 400,000-metric-ton naphthenic plant to open in 2007. The company sees opportunity in the naphthenic business, both at home and abroad.

There is strong demand for naphthenics in Asia, especially in the Chinese market, CNOOC Director of Lube Technology Yue Fu said after her Friday presentation at the National Petrochemical and Refiners Associations International Lubricants and Waxes Meeting. Also, the global supply is tight.

China currently has capacity to produce approximately 4.9 million metric tons of base oil per year. PetroChina operates plants that account for 60 percent to 65 percent of that capacity, according to various estimates, while Sinopec holds another 25 percent to 29 percent. Three small refiners have approximately 500,000 tons of capacity combined.

CNOOC, which gained international recognition earlier this year in a failed bid to buy the American petroleum company Unocal, is focused on exploration and production of oil in the waters off China and is the nations largest refiner. It also produces petrochemicals, fertilizer and bitumen and is a partner in a joint venture that plans to open a $4.3 billion petrochemical complex by the end of this year.

Fu, who is based in Beijing, said CNOOC has not yet decided where to build its base oil plant, but is considering multiple possible locations. The company may build the plant at a new refinery along Bohai Bay, in northeastern China. Alternatively, the plant could be built at one of the companys existing refineries.

Fu contended that naphthenics offer performance advantages over paraffinic base oils, including lower pour points, thermal stability, excellent solvency, a high tendency for gas absorption and the fact that they are ashless. But pale oils only account for a tenth of global base oil production, she added, because no more than 3 percent of crude reserves are naphthenic.

China currently has three naphthenic base oil plants with capacity to produce 700,000 tons per year. Use in China is approximately 1 million tons and rising fast, Fu said. She projected naphthenic consumption in China will increase by 800,000 to 900,000 tons within the next three years, with rapid growth in demand for metalworking fluids, process oils, electrical transformer oils, high-performance greases and lubricants.

CNOOC is not alone in gearing to meet that demand, Fu said, as PetroChina and Sinopec are planning or considering their own projects. CNOOC is well-positioned to produce naphthenic base oils, she said, noting that the company has a large supply of naphthenic crudes from Bohai Bay.

Despite trends in China, Fu said CNOOC expects to export significant amounts of its base oil since demand in other parts of Asia is also growing. Global supply of naphthenics tightened after Shell exited the market two years ago. Fu noted that several other oil companies closed plants during the past 15 years, largely because of crude availability issues.

CNOOC does not currently produce finished lubricants, but will consider entering that market after the base oil plant is built.

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