Pars Oils Majid Safdari told Aprils Base Oils and Lubricants Middle East Conference that wax from gas- and coal-to-liquids projects could help make up some of the lost volumes. But to date, he added, industry has yet to find substitute products that can match its performance or cost effectiveness.

Petroleum wax is one of several types of wax, but it dominates the market in terms of volume. Pars Oil, a base oil and lubricant producer based in Tehran, estimates global supply of all waxes to be 3.1 million metric tons per year. Petroleum wax accounts for 87 percent of that amount, said Safdari, a planning manager with the company. Synthetics and semi-synthetics such as Fischer-Tropsch and polyethylene waxes comprise 10 percent of the market, with vegetable and animal waxes accounting for 2 percent and 1 percent, respectively.

Petroleum wax is primarily used in candles, which take 49 percent of its volume, but also for a broad array of other applications including packaging (14 percent), construction materials (10 percent), hot melts (3 percent), fire logs (3 percent) and cosmetics and pharmaceuticals (2 percent).

With petroleum wax playing such a key role, its no surprise that the industry is concerned about a decline in supply. According to Safdari, the number of wax-producing refineries in Europe has fallen from 28 to 21 since 1993. The trend has been similar in the U.S., where the number dropped from 18 to 10 since 1990. The volume of wax output in the U.S. has fallen 30 percent just since 1998.

About 30 percent of global wax supply has already disappeared, Safdari said.

Its true that supply of petroleum wax has increased elsewhere, most notably in China, which passed the U.S. to become the globes largest producer. Together, China and the U.S. generate more than 50 percent of wax production globally. Still, global supply of petroleum is falling at an average of 1.5 percent annually, Safdari said. At the same time, demand is growing at 1 percent per year.

Given the difference in supply and demand [trends], we expect a shortage that will increase by 2.5 percent a year until 2020, he concluded.

These trends have had a direct effect on prices for slack wax – an oily, semi-refined material that is a by-product of base oil plants and which is further processed to make finished petroleum wax. Slack wax prices have risen steadily in recent years, sometimes running up to 15 percent higher than base oil prices, which is high compared to historical norms, Safdari said. He predicted that prices for petroleum wax will continue rising as the supply shortfall grows.

Pricing is key given the near commodity nature of the wax market. In Safdaris opinion, price is 40 percent of the basis for decisions on wax purchases. By comparison, quality and dependability of supply each carry 20 percent of the weight and distribution and payment terms 10 percent, respectively.

Petroleum wax is a price-sensitive market, he said. For most applications, petroleum wax has an intrinsic cost advantage over alternative types of wax, but recent price increases for the petroleum type have led to it being replaced by vegetable and animal waxes in some cases. Soy wax already has around 2 percent of the U.S. candle wax market. But regulatory concerns have held back alternatives from replacing petroleum wax in the food and packaging industries.

Most observers agree that Group I base oil plants will continue closing. Safdari cited a number of reasons. Base oil demand continues to shift from Group I to Group II and III, and Group I plants typically have higher operating, maintenance and repair costs, along with lower revenues. Group II and III plants are springing up in their place, but most of these do not produce wax. The reason is that modern refineries use technologies such as hydrocracking and wax isomerization to turn waxy molecules into high-performance base stocks. For example, Safdari said, European refiners currently convert approximately 100,000 t/y of wax feedstock into Group III base stocks – this from a total of 1.2 million t/y of wax feedstock.

While Group II and III plants produce little or no wax, Safdari said another technology could help with the growing shortage of petroleum wax. Fischer-Tropsch turns petroleum gas into liquid hydrocarbons and is the key process in gas-to-liquids and coal-to-liquids plants. (GTL facilities use natural gas as their feedstock. In CTL facilities, the first step is to gasify the coal into gas.) Today there are just five GTL and CTL plants that make wax, but these types of facilities are capable of producing large volumes. Some analysts predict that three more GTL plants will be built by 2020, Safdari noted, so they have potential to help fill the void left by declining production from Group I plants.

We could see the introduction of huge quantities of Fischer-Tropsch wax, Safdari said. GTL can fill the gap.

Safdari added, though, that it is not yet clear whether Fischer-Tropsch waxes will be able replace petroleum waxes in all applications. Fischer-Tropsch wax is considered a high-grade mix of iso- and normal paraffins in the range of C20 toC60 and above. They have already established their suitability in applications such as hot melt adhesives, powdered coatings, inks, textiles, color concentrates and plastics. But Safdari said there is limited information on the performance of Fischer-Tropsch wax. As a result, he said, there is no guarantee that Fischer-Tropsch waxes are a solution to petroleum wax shortages.

Petroleum wax capacity will continue decreasing in the future, but we do not yet have a suitable alternative, he said. Industry will have to introduce an alternative that is comparable in price and quality and that can keep pace with the depletion of capacity for petroleum wax.

The Middle East lags far behind China and the United States in terms of wax production, but Safdari said it is a significant and growing supplier to other regions via exports. The Middle East has seven refineries that make paraffin wax feedstock, and Pars estimates that their output is 300,000 t/y. Two of the refineries are in Saudi Arabia and five in Iran, with the latter group producing 200,000 t/y of paraffin wax feedstock. Ninety-two percent of the amount that Iran produces ends up exported, Safdari said, either still in the form of wax feedstock (45,000 t/y) or as finished wax (70,000 t/y) after processing by the nations 60 paraffin wax manufacturers.

In addition to its petroleum wax production, the Middle East is also now a source of Fischer-Tropsch wax. Shell makes wax at its Pearl GTL joint venture with Qatar Petroleum in Ras Laffan, Qatar. It is believed that much if not all of this output is also exported out of the region, though the companies have not disclosed capacity or volumes produced.