Logue, who is based in Houston, cited other factors in todays tight naphthenic market, including:

Growing demand in Asia Pacific, South America and Eastern Europe;
Refinery shut-downs;
Phasing out of aromatic extracts, prompting industrial rubber and ink markets to look to naps as replacements;
High diesel prices – base oil distillates compete with diesel distillates, and diesel is easier to produce, so base oils must offer even higher returns;
The trend in paraffinics to Groups II, II-plus and III, resulting in less Group I available.

What is naphthenic oil? There is no clear standard for classifying crudes into naphthenic or paraffinic oils, said Logue. Convention is that if paraffinic carbon content is less than 55 to 60 percent, its called naphthenic. High solvency properties, excellent low temperature properties, and high compatibility with certain resins are important nap characteristics.

Most of the naphthenic oil extracted today comes from Venezuela, said Logue. Nynas runs Venezuelan crude at Curacao and Nynashamn, Sweden. Venezuelan crudes give better yields and better products, she told Lube Report.

Just a dozen companies supply 92 percent of the worlds total capacity of some 3.8 million metric tons per year. Nynas is the leader, with combined capacity at its Sweden, Curacao and Three Rivers, Texas, plants of 700,000 tons per year. (Three Rivers is owned by Valero, but its output is exclusively handled by Nynas.) The United States has considerable production, Logue noted. Ergon, Calumet, San Joaquin, Cross Oil and Lydondell-Citgo together have combined annual naphthenic capacity of almost 1.9 million tons per year.

Chinas PetroChina has capacity to produce about 500,000 tons per year at its Kalamayi plant, Logue said. According to CNOOC, Chinas total naphthenic output will double by 2010, to 1.4 million tons per year, after a new CNOOC refinery producing 400,000 tons per year comes on stream by late 2007 or 2008, and PetroChina and other nap suppliers upgrade. [See Lube Report, Nov. 16, 2005.]

Real vs. Potential Markets
Nynas views naphthenic markets in three categories. Key markets such as transformer oils, rubber oils, soluble metalworking fluids and some greases, are those in which naps are technically superior to paraffinics. In secondary markets, such as neat metalworking fluids, naps are technically equal to paraffinics. And in non-key markets, such as monograde engine oils, naps are technically inferior to paraffinics, but are used because of price and/or availability.

In North America, traditionally over-napped, Logue said, naphthenics have been used for secondary and non-key applications, while limited availability and higher prices have restricted naphthenics to key applications in Europe and Asia.

Of the total global naphthenic market, 50 percent by volume goes to lube oil, 33 percent to transformer oil, and 17 percent to process oil. Looking just at the global naphthenic lubricating oil market, the real market, the amount actually sold, is 1.3 million tons, Logue said, while the potential market, the size of the market where naps should be used, is 1.15 million tons.

Logue compared the real and potential naphthenic lubricating oil market by regions:

Overall, the outlook is bright for naphthenic sales to the electrical and chemical industries, said Logue. The electrical industry is a growth area thanks to growing electrical demand. In developed regions, there is a healthy replacement market for transformers, plus new demand in developing regions. Increased usage as a solvent means growing demand for naps in the chemical industry.

In the lubricating industry, growth is linked to industrial development and gross domestic production. Its cyclical, but flat overall, said Logue.

Demand will shrink in secondary and non-key markets, where naps face severe competition from Group I paraffinic base oils.

Regional Trends
In Asia-Pacific, base oil demand is strong and growing, said Logue. PetroChinas exports, mostly naphthenics, fell 52 percent in 2004 to meet internal needs. At the same time, total base oil imports into China in 2004 increased 43 percent. New naphthenic refineries have the potential to free up volumes for Europe and North America – much depends on quality, quantity, grades and location of production – but the Asia-Pacific demand is growing so fast that production will likely be consumed internally.

In Europe, there is a shortage of all base oils, Logue said. Bright stocks in particular are short and will remain short. REACh will pressure formulators in their base oil selection and will make reformulating more difficult. And the spot market is gone. In general, the lube market is declining in Western Europe, although the nap market is stable, having secured its key markets, Logue continued. Upgrading in Eastern Europe means less consumption but higher quality.

Europes naphthenic transformer oil market is strong – Eastern Europe has a huge demand for transformer oils – but transformer manufacturing in Western Europe could shift out of the region at any time, as many of the transformer manufacturers are Indian-owned, Logue noted.

Canada is a stable market with little growth, Logue continued. There are no new plants, and the strength of the Canadian dollar is pressuring many U.S. companies to pull manufacturing from Canada back to the United States. At the same time, lower costs in Mexico and Latin America have pulled manufacturing away from Canada. Good news for naphthenics, Logue said, cold weather requirements will continue to sustain demand for naphthenics in many applications.

Brazil is the largest naphthenic market in South America, consuming some 100,000 tons per year. Its total lubricant market is about 890,000 tons per year. Naps enjoy a strong market share due to a source of local production in the northeast, and availability of high-quality imports. In addition, Logue noted, many lube producers in Brazil are global companies – Chevron, Castrol, Shell – using global formulations calling for naphthenics. Brazils grease market uses about 35 percent naps and the industrial lube market about 32 percent.

Mexicos lube market is about 616,000 tons per year, with a potential naphthenic base oil market of 85,000 tons per year. The countrys base oil production is 100 percent paraffinic; all naps must be imported. While the manufacturing base and power demand are growing – good news for naps – the market is price sensitive, and the country has historically been a dumping ground for off-spec or low demand products.

In the rest of Latin America, traditionally a paraffinic market, the nap market is growing fast, but from a very small base. Total naphthenic lube sales in 2002 were only 227 tons, said Logue, and increased to 8,509 tons by 2004.

In the United States, naphthenic producers are largely sold out, said Logue, but can still move volumes because a significant amount of product is going into non-key applications because of pricing. A big change in the U.S. naphthenic market is developing, Logue concluded. Naphthenics will no longer be used in non-key applications because of price.