Nynas officials have said that the company sees growth opportunity and that it wanted to increase capacity in order to take advantage. In 2009 officials announced plans to expand its main base oil plant in Nynashamn, Sweden, but that plan had since been tabled.

This is an important step forward in Nynas strategy to grow, Nynas President Staffan Lennstrom said in a written statement. It will allow us to quickly meet the growing demand from our customers globally.

The base oil plant is part of a fuels refinery, but Shell said in January that it would convert the site to a fuel depot by the second quarter of 2012. The main part of the refinery provides feedstock to the base oil plant, which is located on the opposite side of the River Elbe at Hamburg.

The deal announced Monday calls for Nynas to lease the base oil plant for 25 years and includes a two-phase plan to turn it into a stand-alone facility. Comments by a Nynas spokesman suggested that Nynas and Shell may have entered a lease agreement because they could not reach agreement on an outright sale.

The reason behind the long-term lease is that it is the best setup that both parties could agree on, Staffan Ceder told Lube Report. The companies did not disclose the price of the deal, which requires approval by European competition authorities.

The base oil plant is rare in that it produces both naphthenic and paraffinic stocks. Current capacity is 3,000 barrels per day of naphthenic and 3,300 b/d of API Group I paraffinic base oil, and Nynas said it will maintain those operations, at least initially. In the first phase of the takeover, beginning after European Commission approval, Nynas will take control of the base oil plant and related facilities on the south side of the river. The company will absorb approximately 90 employees, and a hydrogen plant to be operated by a third party will be built.

The second phase, scheduled to be completed in 2014, will modify utilities and other units on the north side of the river in order to allow the base oil plant to operate independently. At that stage, Nynas will take on an additional 130 employees. Nynas also plans to expand capacity and possibly convert some of the paraffinic capacity to naphthenic. Ceder said the company has not yet decided whether to continue some paraffinic production.

Nynas is currently the worlds second largest supplier of pale oils. In addition to its plant in Nynashamn, the company has long-term marketing agreements to sell naphthenic base oils produced at a PdVSA plant in Emmastad, Netherlands Antilles, and a Valero plant in Three Rivers, Texas. Naphthenic capacity at those facilities is 3,700 b/d and 2,400 b/d, respectively.

Ergon owns and operates a Vicksburg, Miss., plant with capacity of 22,000 b/d. Outside observers said naphthenic producers like Nynas do have opportunity to increase sales, especially for process oil applications such as tire manufacturing.

I suspect the attractiveness of this plant to Nynas is that it came available, said R. David Whitby, chief executive of Pathmaster Marketing Ltd. consultancy, of Woking, U.K. Also, its location means that it will give the company a supply source that is even closer to big customers in Germany and France.