Despite the setback, market share began to rise again in the 1990s and continues to do so. During that decade, naphthenic producers shifted focus from the automotive to the industrial market and only marketed in industrial applications where they held a technical advantage.

The number of specialties grew rapidly, and additional blends and differing degrees of refining were introduced. Taken together, these developments were instrumental in stemming the market decline. Today, naphthenics are used in a broad array of industrial applications.

In the last few years, the trend toward specialization has accelerated, Sadasivam said, as naphthenic producers have focused on process oils, electrical oils and base oils to be used in industrial lubricants. Under health, safety and environmental regulations on polyaromatic hydrocarbons, process oils are the segment that have displayed the biggest growth, and the outlook for the future appears encouraging largely driven by two categories – the tire market and the increasing rationalization of API Group I plants around the world, combined with the need for viscosity and solvency.

The application and complexity determine naphthenic properties, for example, high naphthenic content oil for high solvency, technical white oil for adhesives and food grade lubricants. Naphthenic producers have increasingly made dedicated efforts toward the industrial sector by identifying the different applications, analyzing the applications technical requirements and developing a portfolio of products for each.

Sadasivam said the industrial market is fundamentally different from the automotive market. But in the next few years, more producers will target the industrial market particularly as the availability of Group II and III base oils grows and midsize producers search for an outlet for their oils.

Some of the differences that characterize the industrial segment are the high number of applications and formulations, inherently smaller volumes and specific supply solutions as well as product portfolio complexity and customization. That stands in stark contrast to the automotive sector, which is usually served by a limited number of formulations, a streamlined product portfolio and shipload supplies.

The naphthenic business requires a large product range with different degrees of refining and broad viscosity intervals which, in turn, demands extensive product development. Equally, industrial applications require properties like solvency and high viscosity that are normally not associated with Group II and III base oils.

Putting all the issues together reveals a number of critical success factors to enter the industrial market. According to Sadasivam, these include a resource intensive sales organization, a highly competent sales force, strong technical support, an integrated marketing department, deep supply network, large product offering, ad-hoc oils specially designed to optimize performance in target applications, suitable technical properties (typically solvency/viscosity) and high levels of customer service.

The next few years will see greater competition among producers as they eye the industrial segment. If midsize Group II or III refiners want to address the market, they will need to adapt their business model. Whether existing paraffinic producers are ready to take on what would be a major change of strategy remains to be seen, but with expectation of ongoing Group I plant shutdowns and excess capacity in the Group II and III segments, their hands may be forced as refining economics increasingly take center stage.

With base oil prices likely to languish for some time to come, the drive for new revenue streams and higher margins will dominate the industry. It is already clear that some paraffinic refiners are operating at a loss and facing potentially expensive upgrades. The naphthenic market offers more of a line extension and may not require expensive investment under certain circumstances. What it does require is extensive planning and resources to cater to the diversity of product applications and technical expertise required to meet demand.