Supply stands to get a big boost by the middle of 2008 from a capital project that Ergon announced last month for its naphthenic plant in Vicksburg, Miss. That plant is already the worlds biggest source of pale oils, with capacity to make 11,400 barrels per day. That will swell to 19,000 b/d, after a $100 million project that includes construction of a hydrogen generation unit, a solvent deasphalting unit and a high-pressure hydrotreater.

Ergon said it is undertaking the project partly to increase production of low-viscosity oils, which are used to make electrical transformer oils, and also to meet anticipated demand from the tire industry. The latter stems from new legislation that prohibits tire manufacturers in Western Europe from using aromatic extracts beginning in 2010. Tire producers, which are generally global, mostly have decided to stop using aromatic extracts in all regions.

One option – and the one North American tire plants are expected to employ – is to use heavy grades of naphthenic base oils. U.S. pale oil suppliers say that will significantly tighten availability of heavy grades.

There are not enough [heavy] naphthenics being produced globally to replace all of the aromatic extracts, one supplier said. This is going to represent a very large amount of new demand competing for supply, so large that we believe the only people who will continue to use heavy naphthenics will be those who have a chemical need for the molecule.

Heavy demand from the tire industry is not expected to kick in for a couple years, but some naphthenic suppliers said it has begun on a small scale, and is already pushing up prices.