Completion of these projects will pro-pel Ergon to the top of the ranks of naphthenic base oil suppliers. Its closest rival, Swedens Nynas, now supplies 17,500 b/d of naphthenic base oils world-wide, and PetroChina holds third place with about 15,000 b/d of supply.

LubesnGreases visited Vicksburg in early May, as construction crews were putting the finishing touches on the expansion, which involved the addition of three major new units and numerous storage tanks. New refinery units include a 7.5 million cubic foot per day hydro-gen generation unit that converts natural gas into the hydrogen required for hydrotreating; an 8,000 b/d propane de-asphalting unit to reduce residual oil output and produce the bright stock; and the high-pressure hydrotreater, which can run up to 8,000 b/d of trans-former oil and also produce ultra low sulfur diesel.

The hydrotreater is designed to be expandable to up to 16,000 barrels per day if future demand requires it, point-ed out Ken Dillard, refining vice presi-dent. We built it such that weve actu-ally got the plot space identified where we can add a second reactor. We can double the capacity of the unit in the future far cheaper than we could build another hydrotreater, Dillard explained during the visit. So when we do get to capacity on this unit, theres room for expansion.

Originally built in 1978, Vicksburg has evolved from a refinery that produced fuel oils to one that primarily produces non-fuel products. Following the cur-rent projects, Ergon expects a product mix of 70 percent process and base oils, 15 percent asphalt, 13 percent ultra low sulfur diesel and 2 percent naphtha. Thats compared to its pre-expansion mix of 60 percent process/base oils, 25 percent asphalt, 13 percent marine diesel and 2 percent naphtha.

THINKING GLOBALLY

Ergon sees bright stock becoming a niche market. It started heading that way before the recession, Burnett com-mented. We feel like that will continue after things come back. Thats what our strategys always been as niche mar-keters. Were not a big refiner – were big niche players.

Once the de-asphalting unit begins operations, he anticipates the resulting bright stock will look very similar to the way Citgos bright stock looked, before that company got out of the business last year. Vicksburgs capacity should add up to about 70,000 barrels of bright stock per month, he added, on top of 60,000 monthly barrels now produced at Ergons Newell, W. Va., refinery.

The company also will push to extend its marketing of electrical insulating oils. More of that will be global, so were beginning to move electrical oils globally. Were moving electrical oils in South America, into Europe and into Asia, Burnett added.

Another large portion of the expan-sions barrels are naphthenic cuts that aim for the tire market. That material will be going to aromatic extract replace-ment in the tire industry, primarily in North America and South America, although we are looking at moving some of that into Asia and Europe, he said.

For years, Ergon has been selling its pale oils internationally, but those sales in the past were primarily on a spot basis. Now it has staffed a European branch in preparation for the current expansion.

We decided with the last expansion, we needed to look at more of a global presence, Burnett noted. We started Ergon Europe two years ago, and have its corporate offices in Brussels. We have product stored in Antwerp, Belgium, in Ellesmere in Great Britain, and through a distributor on the Black Sea in Turkey. Were selling into Russia too.

That was partially done in preparation for this and our global expansion of sales and marketing growth, he continued. In Asia – where weve been moving products for several years – were under review now of how were going to manage our movements there. If we have any significant addition in market-ing and sales employees, thats where itll be, for the Asian markets.

If the market needs it and the oppor-tunity presents itself, Burnett said, Ergon will expand to meet the need. Weve discussed whether we should expand Vicksburg again or should we actually look at another facility some-where else in the world, he said. That discussion well be having over the next two or three years as we look at global markets.

LOVE THAT WATER VIEW

Two hundred seventy-five river miles south of Vicksburg, and 162 river miles from the mouth of the Mississippi River lies the Ergon-St. James Terminal. Barges from St. James move 8.2 million barrels of crude a year to the refinery in Vicksburg, and take products back the other way.

With three docks, the barges can move so much material that our capacity to get a lot out of this location is pretty strong, said Lance Puckett, operations manager for Ergon Refining.

Access to the Mississippi River has proven to be a huge boon for Vicksburg, enabling it to take in crude oil from all over the world. Thats one of the reasons were able to expand, Burnett emphasized. Logistically, it also lets us move our products up and down the waterway, which is the least expensive way to move our products.

Domestic sources of naph-thenic crudes have been declin-ing steeply for years, comment-ed Dillard, which increases the importance of being able to bring such crudes from offshore by tankers. Beyond the United States, most naphthenic crudes are found in Venezuela and the North Sea, and newer fields are being developed in China. When you find someone today that locates a naph-thenic crude field, theyll typi-cally contact Ergon and Nynas, because they know both of us are in the business and both of us have the capability of taking crude oil by water, Burnett said. Thats the rea-son the river plays such a huge part in our success, both in bringing raw materials in and taking our finished prod-ucts out.

The expansion hasnt neglect-ed the importance of overland transportation of products, though. We built a new truck rack, and doubled the capacity of our rail loading spur, Dillard added.

STICKING WITH NAPHTHENICS

Back in the late 1980s, forecasters pro-jected that many of the major naph-thenic producers of that time – includ-ing Texaco, Chevron, Sun, Exxon and Shell – would be getting out of that part of the refining business.

Ergon, by contrast, launched the first of a series of expansions to increase its stake in the business. That wasnt because we were such brilliant rocket scientists, Burnett said. This was because, for everyone other than Sun, it was less than 1 percent of their total pro-duction. So when you looked at it, you knew sooner or later, just business-wise, theyd make a decision this wasnt an industry they wanted to stay in.

We had some folks in the company, and our ownership, who had the kind of vision to look out there and say this is an opportunity where a small refiner can play a big role in niche markets, he continued. So as opportunities opened up for more naphthenics production, our ownership has been great about pumping money back into the compa-ny. And weve looked at filling those niches.

Some of the niches their products go into include transformer oils, inks, greas-es, belts and hoses, tires, specialty rub-ber products, paints, carpet backing, cut-ting fluids, white oils, tennis balls, shoe soles, refrigeration oils and plastic fishing worms. The oil goes into a lot of prod-ucts used each and every day, and it touches our lives in ways we never dreamed it would, Burnett noted.

OVER THE HORIZON

Planning for todays expansion began in 2006, Burnett recalled, years before the actual construction started, and also long before the economy faltered. The logical reasons for why we expanded the facility were global growth and bright stock production, he said. Those were there, and are still there now. The recession will certainly contribute to our tactical plan, but it doesnt change our strategic plan.

He noted that Ergons ownership and leadership likes to look 10, 20 and 25 years out and ask what the marketplace is going to be over that time. When you start looking at the growth of Eastern Europe, the growth of Asia, and other virgin markets, we definitely feel like theres at least one more expansion well be making in the naphthenics busi-ness, he confided.

News outlets in general tend to give only a very short-term picture of where markets are heading, said Burnett. You cant look at a business that way, he emphasized. Yes, we have to deal with the short-term, and we have to deal with the impacts of the short-term recession and economy. But if we only look at it that way, its not going to be a benefit for Ergon, and certainly its not going to be a benefit for our customers.

Motor oils may be down, metalwork-ing may be down, rubber production may be down, but one things for sure – itll be up again, and Ergon will be poised and ready when it happens.