Pale Oil Output Rises, But So Does Demand


Lubricant manufacturers who rely on naphthenic base stocks for critical applications – metalworking fluids, lubricating greases, heavy industrial oils – might feel heartened by recent data from the Energy Information Administration. Despite a few bumps in April and May, U.S. production of naphthenic base stocks is on track this year to pass the 10-million-barrel mark for the first time since 2002, the final year before Shell withdrew from the market.

Production through June had already reached 5.26 million barrels, and significant new capacity is on the drawing boards. But it’s not here yet, and output remains more than 20 percent lower than five years ago. Meanwhile, other users are casting hungry eyes on the available barrels, and with demand booming in non-lube applications, blenders need to be nimble to avoid being disadvantaged, suggests James Mike Burnett Jr., vice president of independent refiner Ergon Inc. in Jackson, Miss.

At the ICIS Pan-American Base Oils and Lubricants Conference later this month, Burnett will describe how two key markets in particular – the electrical industry and tire manufacturers – are clamoring for naphthenics, and how this will alter both the quantities and qualities of naphthenic stocks that are available for lubricant blenders.

Those are the two key drivers we’re seeing, he told Lube Report recently. There’s tremendous demand for 60 SUS oil for use as electrical transformer oils, and at the other end of the viscosity spectrum, the need for 2000 SUS is growing as the tire industry shifts towards replacing aromatic extracts with heavy naphthenics. He expects tire manufacturers in North America to complete their transition to naphthenics no later than the first half of 2009 – a shift which Ergon is bracing for by enlarging its own capacity by 7,600 barrels a day in 2008.

That’s the primary reason to expand our capacity, but even so, the heavy vis grades will be extremely tight, he cautioned.

Enlarging Ergon’s Vicksburg, Miss., refinery means its supply of other cuts will grow, too, such as the 60 SUS grade that is favored as an electrical transformer oil.

Of course, the electrical infrastructure being built in China, India and Eastern Europe is a big factor, but also we’re seeing great demand in the United States, he said. This is because the Federal Energy Regulatory Commission, a part of the Department of Energy, has put pressure on the electrical utilities to make them accountable for brownouts and blackouts. So they have huge programs under way to replace and upgrade their transformers all over the country.

Five years ago, Ergon’s output of this grade of oil was 80,000 barrels a month. Now it’s 120,000 barrels, and we still can’t make enough, he added.

Along with describing how these market changes are going to affect pale oil availability in the coming years, Burnett will tell the Nov.30-Dec. 1 ICIS conference how new capacity promised in China and elsewhere may redraw the global picture. And in keeping with the conference’s Pan-American theme, he’ll highlight the market demand and trends that are specific to Latin America.

The ICIS Pan-American Base Oils and Lubricants Conference will be Nov. 30 and Dec. 1 at the Hyatt Regency Jersey City, across the Hudson River from Manhattan, with spectacular views of the skyline and fast access to downtown. Also speaking at the conference will be a number of other experts in lube marketing, manufacturing and applications, including:

Luiz Correa Dias of Petrobras, Brazil’s national oil giant, will detail the supply and demand picture for Latin America.

Tom Glenn of Petroleum Trends International will offer an in-depth review of the global market for base oils.

Jim Linden of General Motors will spotlight the key developments and trends in automotive lubricants for cars and light trucks, and Bengt Otterholm of Volvo Technology will do the same for heavy-duty diesel engine oils.

Jamie Brunk of Solomon Associates looks at the costs of base oil production, and how processing efficiency – or lack of it – affects a refinery’s competitive position.

Terry Hoffman of Valero tackles the provocative question, Is there a future for Group I lube plants?

Co-moderators for the conference are Lithcon’s Ernest Henderson and Gerry Jackson of Motiva. For registration information, visit on the web.

Lube Report publisher LNG Publishing Co. Inc. is media sponsor for the conference.

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