Whats next? A welcome opportunity to get an up-to-date picture came at the recent Union of European Independent Lubricant Producers Annual Congress in Rome, where Martin and other European base oil experts looked at the future of base oil supply.

Most delegates to the UEIL meeting realize that the next step forward will be gas-to-liquid (GTL) plants, Martin told the October meeting. Billions are being invested in new GTL plants, and construction is under way at various sites around the world. However, these facilities are intended primarily to convert gas into liquid fuels – especially diesel, for which the demand is predicted to increase steadily in the foreseeable future. However, the base oil units planned with some GTL plants will produce Group III+ types of products with negligible sulfur contents, similar to that of their fuels, he pointed out.

Technically, Martin added, it is possible that 20 to 25 percent of the output from a GTL plant could be base oil. However this will depend ultimately on the economic factors surrounding diesel fuel demand; it is extremely unlikely that base oil output will represent anything like this percentage, he indicated.

Of interest to delegates was where in the marketplace Martin thought GTL base oils would be effective. Was it against existing Group III, or perhaps taking on polyalphaolefins (PAOs) as well? Both are targets, he confirmed, but GTL base oils would not be able to compete with PAO at very low application temperatures, of say -40 degrees C.

Prospects for Pale Oils

While most developments to produce a higher-quality base stock have focused on products that are very high in paraffinic content, there still will be many areas where naphthenic oils are essential. Rogier Van Hoof of Nynas Naphthenics emphasized to delegates that his company believes the market for naphthenics will grow in the short and longer term. Van Hoof manages the Swedish refiners sales and marketing in Europe, the Middle East and Africa.

Nynas seems very confident of the future of naphthenic oils, as it is increasing the hydrofinishing capacity at its 7,800-barrel-per-day refinery in Nynashamn, Sweden. The upgrade will increase total output by 10 percent.

Modern hydrotreating refineries are capable of producing very high quality naphthenic oils for use in those niche markets where their performance is superior to equivalent paraffinic products. The main advantages held by naphthenics are good low-temperature properties, better heat-transfer properties, and the ability to more readily solubilize additive treatments, Van Hoof said.

In describing the business environment for base oils, however, he made the points that less people are now employed in base oil research and dont forget that only 1 percent to 1.5 percent of refining output is base oil, so [its] not very important to refiners.

Interestingly though, naphthenic crudes are very high in bitumen content compared to paraffinics, and so are of little use to most refiners looking for high fuel contents. This means that naphthenic crudes are producing fuels as a byproduct, and so in the longer term, fuel refining economics and demand will not be the big factors that they are with paraffinics.

Van Hoof put the use of naphthenic base oils into context. The world mineral base oil market is 36 million metric tons, he said, with naphthenic products accounting for about 3 million tons, or around 8 percent. Transformer oils – a major market for naphthenics – by themselves represent a 1 million ton market. The world transformer oil market is predicted to grow but gradually shift to Asia.

The tire industry is another major buyer of naphthenic oils; it is now looking to the newer quality levels of pale oils to help reduce its consumption of aromatic extracts, as mandated within the European Union. However, as Van Hoof pointed out, the tire industry is faced with European legislation but is using worldwide formulations. It takes a long time to change tire formulations.

Competition from Fuels

Bruno Cabernel, area sales manager of Finlands Neste Oil, returned to the theme running through the conference, namely that to most refiners fuel is more valuable as an end product than base oil, and so base oil will only be available in future at fuel-plus conversion factor pricing levels.

Cabernel said the current European market for Group III base oil is 400,000 tons a year, and Nestes Group III capacity in Porvoo, Finland, is 250,000 tons/year.

Worldwide, the Group III base oil market has grown to 950,000 tons, and it is predicted to grow at 15 percent per year, Cabernel said. However, no new Group III production plants are expected online until 2008 – although several have been announced, including Nestes own joint venture in Bahrain, which is to have annual Group III capacity of 400,000 tons.

Some upgrading of existing plant capacities also is under way, but many see the introduction of GTL base oils as the longer-term solution to the potential shortfall in Group III supply, Cabernel indicated. As a manufacturer of both Group III hydroisomerized base oils and PAO – the latter in Beringen, Belgium, where it has 50,000 tons of capacity – Neste has different views on the future marketing of GTL oils.

For example ExxonMobil has introduced mixed-olefin PAOs, claiming they can provide enhanced performance over traditional PAOs to meet anticipated future demand. However, Bruno confirmed, although Neste had looked at this option, it had not found the right process/product combination. He observed there is not much current investment across the world in PAO because of the advent of GTL and the thought that GTL may kill PAO.

The overall picture emerging from these experts is that the economics of refining and increasing demand for diesel fuel will continue to put pressure on base oil supply. Even though demand for gasoline, heating oil and heavy fuels is sliding, demand for diesel in the European Union is booming, van Hoof pointed out. Diesel demand will hit 200 million metric tons in 2010 – versus only 140 million in 2000. Such shifts in the market will consume a great deal of refiners attention and capital.

Discussions with delegates at the congress seemed to suggest that in Europe there have been no interruptions in base oil supplies to blending plants. However the continuing upward price spiral is causing major cash-flow problems and is creating severe financial pressure on some business operations. Maybe those operating in the specialist lubricant areas will be seeing a more stable long-term supply/price relationship established in the area of naphthenics.

One thing is certain. Base oil manufacturers and suppliers will need to keep a watchful eye on the challenges of the new global market.