Pale Oils in Asia: Feast or Famine


KUALA LUMPUR, Malaysia – While overall demand for naphthenic oils in the Asia/Pacific region will jump from 600,000 metric tons per year in 2005 to 920,000 t/y by 2010, the outlook differs significantly by country, says Nynas Naphthenics. Including announced new plants, Chinas naphthenic output will reach 2 million t/y over the next five years, making it the regions leader for both supply and demand. But in other Asian countries, naphthenics are nonstarters.

The Americas- particularly Venezuela – supply the lions share of the worlds naphthenics, but Petrochina is currently the worlds largest single producer, Valentina Serra-Holm, senior technical coordinator with Swedens Nynas Naphthenics, told the ICIS Asian Base Oils & Lubricants Conference here on June 21. The Chinese state-owned oil company produces nearly 850,000 t/y, followed by Nynas at about 750,000 t/y. (Ergons current expansion, however, will soon jump it to the lead, increasing its production to more than 950,000 t/y.)

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Naphthenics, characterized by high solvency, high heat transfer properties, low viscosity index, good low temperature properties and good water separation, are preferred in three primary applications, Serra-Holm noted. These are transformer oils used in the electrical industry; base oils for lubricants, particularly metalworking fluids and greases; and as process oils in the chemical industry.

The trend is toward growth of naphthenics in the Asia/Pacific region, due to increased capacity and import, Serra-Holm said. But the situation differs by country.

China has a large and growing naphthenic production. Including two announced plants, Chinas output will reach 2 million t/y over the next five years, Serra-Holm said. Pale oils currently have a very high market share in transformer oils, and about a third of the process oil market. But there is still low use in base oils, she noted. They are mostly used in refrigeration oils and metalworking fluids, with limited use in greases.

Opportunities for naphthenics in China include rapid growth of metalworking fluid consumption to meet the needs of expanding automotive and metallurgical industries. The shift from neat oils to water based fluids, because of higher speed tools, will favor naphthenic oils due to better emulsion stability, Serra-Holm continued. In addition, expect increased use of naphthenics for textile oils, compressor oils and other specialty lubricants. And as more international metalworking fluid manufacturers start production in China, they will bring their global specifications calling for naphthenics.

Finally, Serra-Holm noted, Europe is banning aromatic extracts in tires, and China will be the biggest tire producer in the world in coming years, so demand will rise for naphthenics to replace aromatic extracts.

But the outlook for naphthenics in China is not without threats, Serra-Holm said. They will face possible competition from hydrotreated paraffinics in transformer oil applications, and strong competition from Group I paraffinics in base oil applications.

In sharp contrast with China, India has no local naphthenic production, and transformer, process and base oils are overwhelmingly paraffinic markets.

There are opportunities for pale oils in India, Serra-Holm noted. The transformer oil market is growing 12 percent per year, and international participation in power projects pushes for use of naphthenics. Likewise, more than 300 local transformer manufacturers use naphthenics for export. Automotive and metallurgical industries are also growing fast, driving growth of metalworking fluid consumption.

But imported pale oils face competition from local Group II oils in the transformer market, and they are perceived as low temperature oils, Serra-Holm said. In base oil applications, naphthenics face strong competition from Group I paraffinics, as well as high import duties.

There is some local production of naphthenics in Japan (about 3,600 barrels per day, according to LubesnGreases magazine), most used internally although some is exported. The transformer oil market is dominated by paraffinic oils. Naphthenics have some success in industrial lubricants and process oil applications.

Opportunities in Japan include increased naphthenic use in tires, and a move from paraffinics to naphthenics in transformer oils, Serra-Holm said. But slow growth of the economy, high naphthenic crude costs, and the relatively small plants of local naphthenic refineries and their high production costs may keep naphthenics from gaining market share.

Like India, Australia has no local production; its pale oils are imported by Nynas and others. But unlike India, Australias transformer oil market is overwhelmingly naphthenic, and pale oils are widely used in process oil applications, including printing ink, tires and industrial explosives. However, Serra-Holm noted, there is little use of naphthenic oils as base oils for blended lubricants.

Looking forward, space in the market for naphthenics may be created by possible shut-downs of local paraffinic production, and by replacement of aromatic extracts in tires and rubber. On the other hand, naphthenic suppliers are threatened by the increased use of vegetable oils in transformers, and the growing use of regenerated oils.

Southeast Asia
This region has no local naphthenic production, with napthenic oils limited to the transformer oil market. Opportunities in the region include the possible entrance of international auto manufacturing, with the consequent growth of metalworking fluid consumption, and the increased use of highly refined paraffinic oils that will require naphthenic solvency for some applications. The region features strong competition from Group I paraffinics in base oils, said Serra-Holm, and possible competition from local paraffinics in transformer oils.

Korea is a predominantly paraffinic market, noted Serra-Holm, with no local naphthenic production and dominant local production of paraffinics. Limited opportunities for naphthenics include the requirement for naphthenic solvency in industrial lubricants blended with highly refined paraffinics.

Overall, Serra-Holm concluded, the biggest opportunities in the Asia/Pacific region for naphthenics are:

  1. In base oils, as areas with very high growth – China and India – move towards water-based metalworking fluids.
  2. In process oils, as replacements for aromatic extracts in tires manufactured for export.
  3. In transformer oils, due to electrification programs in the fastest growing countries – again, China and India.

The major threats to pale oils in the region come from pricing and competition from local paraffinics.

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