Should we worry about supply? No. Global supply of pale oils will increase by up to 1.5 million metric tons per year by 2012, with even more plans to increase capacity by 2014.

Per Klintstam, president of Ergon Europe, Middle East, Africa, based in Brussels, described the outlook for naphthenic supply and demand from 2006 to 2012 at the ICIS 12th World Base Oils Conference here.

That outlook has changed greatly in the past decades, he first observed. In 1980, Klintstam said, 15 companies, led by Shell and Exxon, produced 4.5 million tons per year of naphthenics, some 17 percent of total world base oil supply. A technology shift in the 1980s that moved the world away from naphthenic-based motor oils, coupled with health concerns over poorly refined oils, reduced demand. By 2006, naps share of total base oils had shrunk to 9 percent of the total, produced primarily by a new cast of companies, lead by PetroChina, Nynas and Ergon.

The key characteristics of naphthenics, relative to paraffinics, are higher solvency, better heat-transfer properties, better low-temperature properties, lower viscosity index and higher volatility, Klintstam noted. This makes pale oils the base stock of choice for transformer oils, industrial lubricants and process oils, and increasingly for tire and rubber applications.

DEMAND GROWS

Installation of electricity distribution capacity through 2012 will grow by 7 to 8 percent per year, an enormous number, said Klintstam, driven by emerging markets in China and India. This will drive significant growth in demand for transformer oils. Expect a gradual move from high voltage (close to the generation point) to medium or low voltage (close to the user) systems. New demand in developing regions will be accompanied by some replacement needs in Europe and North America. On the quality front, he added, there is a shift toward transformer oils with additives for oxidation stability. This shift is almost complete in North America, and just starting in Europe.

Solvency is the factor driving demand development in industrial lubricants and process oils, where pale oils dissolve additives, pigments and resins, allow saponification processes for grease, and provide compatibility with polymers. On the paraffinic side, the move from API Group I to more highly refined base oils – largely driven by automotive needs – increases the solvency gap, Klintstam said, and could lead to new applications for naphthenics, for example as diluent oils for industrial formulations.

Marine engine oils will become a new market for bright stock originating from naphthenic crude, Klintstam continued. With a viscosity index of around 80, and some solvency benefits for additives and deposits, he sees a market potential by 2012 of 2.5 million metric tons per year, or around 20 percent of the marine market. Ergon will be making this product beginning in 2009, Klintstam noted.

Finally, there is new demand as an extender oil in rubber mixes. A European Union directive has banned by January 2010 the use of aromatic extracts, a residual from Group I base oil refining, as rubber oils. Because the tire manufacturing business is global, it is seeking global substitutes, and the naphthenic industry is responding.

In summary, Klintstam sees over 1 million tons per year in new demand for naphthenics between 2006 and 2102.

SUPPLY KEEPS UP

Turning to supply, he noted the availability of 1 million to 1.5 million tons per year of new base stock capacity for transformer oils in the same time frame, based on current expansions and increased yield. In addition, low-viscosity isoparaffins from Group II and III production are used to extend transformer oil base stocks, and this use is expected to continue, although diesel fuel refineries are competing for the same cut. Nonetheless, said Klintstam, these extenders should add an additional 200,000 tons per year of supply.

For industrial lubricants and process oils, Klintstam also sees a net increase in base stock availability of 200,000 tons per year.

For tire and rubber applications, the availability of 1200 and 2000 SUS naphthenic stocks is expected to increase to 500,000 tons per year, based on known production and projects, Klintstam said. The availability of mildly extracted solvent refined stocks and treated distillate aromatic extracts, specified in Europe as rubber extender oils, is more difficult to predict, as production involves modifying and investing in Group I refineries. But Klintstam estimated a global increase of those extenders of 200,000 to 400,000 tons per year, to meet demand.

Should the industry be concerned? Not really, Klintstam concluded. Over the next few years, naphthenic supply will clearly be sufficient, and there are plans to increase naphthenic capacity. Nynas has applied for a permit to increase production in Nynashamn, Sweden, he said. Ergon is doing engineering for further capacity increases at its 11,300 barrel per day refinery in Vicksburg, Miss., pushing that plant to about 19,000 b/d. And Chinas CNOOC has announced plans for further base oil production using Bohai Bay crude. And from 2012 to 2014, there are more plans to increase capacity. There are committed players.