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PAOs Growing Pains.

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Following years of robust demand, many in the industry expect consumption of polyalphaolefins to ease off in 2009, along with sales of all lubricants. That would be a sharp contrast to the years since 2005, when PAO suppliers had to keep their plants running at full tilt, and buyers scrounged for every drop of the synthetic base oil.

When the economy recovers, however, PAO demand can be expected to resume its growth, according to Jim Herman, global business manager for polyalphaolefins at Chevron Phillips Chemical Co. And for a while, thanks to improving feedstock availability, PAO supply should be adequate to meet expected demand.

But beyond 2013, Herman cautioned, demand may again start to outpace supply. Assuming a growth rate of 3 percent per year, he believes that only by operating at rates in the range of 100 percent to 105 percent of capacity will PAO manufacturers be able to come close to meeting demand, which by 2016 could approach 500,000 metric tons per year worldwide.

Many plants can run at 100 to 105 percent of name-plate capacity, even over the long term, Herman recently told LubesnGreases, but the industry as a whole is not able to do it all the time. And operating in the range of 110 to 113 percent is very difficult. Chemical plant turnarounds, maintenance, outages and weather threats inevitably will cut into operating days. The result will be a taut balance between supply and demand.

Herman, who is based in The Woodlands, Texas, spoke about PAO supply and demand in December to the ICIS Pan American Base Oils & Lubricant Conference in New York City, and then updated his analysis two months later for the ICIS World Base Oils Conference in London. And while his update was tempered by the current economic downturn, at both meetings his message was clear: Demand for PAO has been strong since 2005, thanks to its performance advantages. Although the market is slumping now, we believe demand will come back, he said. And while the need to build new PAO capacity may be deferred somewhat by the market slowdown, without it the lubricants industry could be staring at a shortage of supply.

BUILDING A BETTER FLUID

PAOs are mainly used in specialty industrial oils, compressor oils, premium heavy-duty gear oils, some engine oils, and as lube additives. The heavier viscosity PAOs also are used as correction fluids to reach viscosity targets for automotive engine oils and transmission fluids.

Unlike mineral base oils which are derived from crude oil, the story of PAO begins with ethylene (the C2 hydrocarbon), which in the United States is most often derived from natural gas, Herman told the ICIS meeting in New York. Several steps are required to get from ethylene to PAO. First, the output from an ethylene cracker must go through oligomerization to be built up into larger moleculescallednormal alphaolefins, or NAO. (Other manufacturers use the term linear alphaolefins, but Chevron Phillips prefers to call them normal alphaolefins.)

A full-range normal alphaolefins unit will produce the even-numbered comonomers C4,C 6,C 8,C10,C12 and so on. These go into a huge array of products – polyethylene, surfactants, plasticizers, drilling fluids, paper sizing – but the C10 hydrocarbons are largely devoted to making PAO. Also known as decene, the C10 is fed into PAO reactors and catalyzed; some dodecene (C12) can be processed this way too, in a separate campaign through the reactor.

Next, the PAO is hydrogenated for stability. This results in a mixed bag of PAO molecules, Herman said, so a distillation step then is needed to sort them out, into cuts such as PAO 4, PAO 6 and PAO 8. The number indicates the fluids viscosity in centiStokes; the higher the number, the heavier the fluid. Low-vis PAOs are considered to be those that are 10 cSt and below; high-vis fluids range from 40 cSt to much higher.

PAO is distinct enough to merit its own designation as Group IV base oil under the American Petroleum Institutes system. The world has only seven PAO producers, mostly concentrated in the United States and Europe, which include Ineos Oligomers (formerly Innovene), ExxonMobil Chemical, Chevron Phillips Chemical and Neste Oil in Belgium. Smaller players include Chemtura, the Russian chemical company Nizhnekamskneftekhim and Idemitsu Petrochemicals in Japan. Just two North American companies, ExxonMobil Chemical and Chemtura, make the high-vis PAO cuts.

RISING FORTUNES

In terms of market penetration, the last significant challenge to PAO was the introduction of hydrocracked Group III base oils, which elbowed PAO out of the synthetic engine oil market starting in the mid-1990s. Following that blow, PAO operating rates declined to the mid-60-percent range, recounted Herman.

PAO was able to stake out new turf, though, especially in lubricant performance areas where it still has advantages over Group III mineral oils, such as premium industrial fluids that need excellent low-temperature flow properties. The introduction of automotive engine oil standards with more stringent requirements, like ILSAC GF-4 and API CJ-4, also helped stimulate demand.

By 2005, PAO producers were seeing worldwide consumption beginning to surge to about 400,000 metric tons a year. They responded by pushing their plant operating rates to 93 percent and higher, and often skirted close to 100 percent of capacity, Herman said. As demand soaked up every available gallon, it appeared that manufacturers were going to have to push their operating rates even higher.

Unfortunately, the tight supply of decene had a braking effect. In 2005, Innovene closed its NAO plant in Pasadena, Texas, taking some 1.1 billion pounds of alphaolefins off the market, including 156,000 metric tons of decene. Other NAO plants were being built, but most were narrow cut chemical plants designed to make just a few selective olefins – not the full range that includes decene for PAO reactors. Feedstock constraints made it impossible to crank up PAO units to meet demand.

Feedstock is easing a bit now. In 2008 Sabic opened a full-range NAO plant in the Middle East, which brought 17,000 t/y of C10 and 12,000 of C12 to the market. And next year, even more decene and dodecene will come from the joint venture Q-Chem II in Mesaieed, Qatar. Owned by Qatar Petroleum and Chevron Phillips Chemical and under construction now, the chemical plant will make the full range of normal alphaolefins.

When complete, Q-Chem II will have capacity to produce 345,000 t/y of normal alphaolefins, and 12 percent of it – 42,000 t/y – will be decene. The facility will come on line in stages during 2010 to 2011, and all of its decene already is committed for sale to PAO producers, Herman said. So more PAO availability could be on the horizon – provided all of the decene goes to make PAO. (It might not, he conceded.)

That wont completely solve the feedstock availability issue, however. Even after Q-Chem II comes on stream, the global olefins market will still lack about 6 percent of its pre-2005 C10 and C12 supply, Herman indicated.

Additionally, any full-range NAO plant must produce the entire slate of products, meaning each of these diverse molecules has to find a buyer, he said. The end-use markets, however, are rarely all in sync. Most C4 and C6, for example, is used to make polyethylene. If polyethylene demand is slack – as it is now – production rates will be reduced to avoid overstocking on unneeded cuts. That will also dry up the supply of decene, of course.

Some PAO capacity increases have come on line, most recently at the end of 2008 when Neste Oil boosted its capacity in Beringen, Belgium, by 20 percent, to an annual 60,000 tons. Other upgrades have come at Chemtura, ExxonMobil and Ineos, and another substantial expansion is under way at Ineoss facility in Feluy, Belgium. In all, Feluys target is to add over 50,000 t/y of PAO by 2010, Ineos says. Even so, more PAO capacity will be needed, Herman indicated. And when it is built, the Q-Chem venture will help supply the decene, he added.

At least PAO supply has recovered from Hurricane Ike, which battered the U.S. Gulf Coast in September. Shut ahead of the storm, Chevron Phillips Cedar Bayou, Texas, plant (capacity: 48,000 t/y) restarted after about two weeks, coming up without incident. ExxonMobil Chemicals much larger PAO plant in Beaumont, Texas, was not so lucky. It shut down on Sept. 13 as Ike was approaching and didnt reopen until December. As Beaumont worked hard to repair its reactors and get back to normal, ExxonMobil shipped in product from abroad to help bridge the gap. The entire industry breathed a sigh of relief when Beaumont was restored to operation, since it is a key supplier of both low- and high-vis PAO, with 82,000 t/y of capacity.

CHALLENGES AHEAD

Many believe that gas-to-liquids (GTL) will be the next big challenge to PAOs. GTL base oils are expected to have a viscosity index that rivals PAO, and originally were scheduled to begin flooding the market this year. Construction projects were knocked back though, and a number of announced GTL ventures were cancelled outright. Only Shells Pearl project in Ras Laffan City, Qatar, is still on track to produce a GTL base oil in 2010.

So far, with no significant amount of GTL base oil available yet to field test or compare with PAO, the impact on PAO is still unclear, Herman said in London. Their impact will depend on GTLs price and properties.

Thats obvious, of course, but we just dont have any better information yet, he added. In applications where GTL can match PAO performance, the newcomer probably will win ground. Some market analysts expect GTL base oils will more likely target the larger market space now occupied by Group III base oils. If so, there will be less impact on PAO. Another observer at the February meeting observed that if GTL can meet PAOs performance and do it at less cost, that could chill investment in future PAO plant expansions.

Overall, despite the supply constraints of the past four years, Herman concluded, the PAO industry has done a great job of supplying the lubricants market.

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