The extra barrels will no doubt be welcomed by buyers in a market that has been short on supply since Shell Oil closed two naphthenic plants in 2003. But Ergon officials said they expect a jump in demand within the next two years and that the market will remain undersupplied for the foreseeable future.

The company is increasing capacity at Vicksburg by expanding the plants hydrotreater and through a variety of other debottlenecking procedures. This marks the second expansion at the plant since Shell closed its facilities. Ergon Vice President James Mike Burnett Jr. said the company began planning this latest project before Shells exit in anticipation of steps by European groups to prohibit the use of aromatic extracts in tires.

This is something that started off being pushed by Europe, but now it appears that the entire rubber industry is going to do it, Burnett said. And it appears that they are going to replace aromatic extracts with heavy naphthenic base oils.

The rules in Europe are currently not slated to take effect for a few more years, but the region is considering proposals for early implementation. In any event, Motiva, the leading producer of aromatic extracts, has decided to stop producing them as part of its plan to expand its Port Arthur, Texas, base oil plant. As a result, Ergon expects the increased demand from the tire industry to kick in in 2006.

Demand for light-end naphthenics is so undersupplied right now that [the Vicksburg expansion] really wont have much of an impact on that end of the market, Burnett said. Where it will have an impact is on the heavier grades. But even there its going to be short-term because of the extract replacement issue.

Posted prices for paraffinic base oils in the United States were unchanged this week. The price of crude on the New York Mercantile Exchange closed yesterday at $43.77 per barrel, up $2.23 from a week earlier.

Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.