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Wednesday, August 23, 2006 VOLUME 6 ISSUE 34  

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Nynas Beefs Up as Citgo Bows Out of Pale Oils
By Tim Sullivan
 
Lyondell Chemical Co. bought Citgo’s stake in their Lyondell-Citgo Refining joint venture last week and then agreed to sell the naphthenic base oils produced by the Houston refinery to the U.S. subsidiary of AB Nynas Petroleum.
 
It adds up to one less pale oil marketer in the United States and more barrels in the hands of Nynas, already the world’s biggest naphthenic marketer.
 
The buyout of Citgo gives Lyondell sole ownership once again of the joint venture’s refinery in Houston. Lyondell contributed the facility to the partnership when it was formed in 1993. Lyondell, which is headquartered in Houston, paid $2.1 billion in cash and assumed debt – including $300,000 to cancel a crude oil supply contract – for Citgo’s 41.25 percent stake.
 
The refinery has capacity to process 268,000 barrels of crude per day and supplies feedstock that Lyondell uses to make petrochemicals. It has a base oil plant with capacity to make 3,600 b/d of naphthenics and which can also process paraffinic base oil feedstock into 1,000 b/d of white oils.
 
Citgo has been the marketing agent for the naphthenics and white oils, but Nynas announced yesterday that it has agreed to buy the entire naphthenic output, which it will resell.
 
Nynas officials said they entered the agreement because they are bullish about the outlook for naphthenic demand.
 
“Nynas foresees a continued growing worldwide demand for naphthenic specialty oils, largely because the number of oil applications requiring highly refined products has surged in recent years,” Senior Vice President Tomas Wallin said. “Meanwhile, areas such as rubber and tire compounding are experiencing a growing interest in naphthenics, which meet increasingly stringent regulatory requirements.”
 
Stockholm-based Nynas operates a 7,800-b/d naphthenic plant in Nynashamn, Sweden, and controls another 6,000 b/d of pale oils through an agreement to market output from Petroleos de Venezuela S.A.’s Isla Rafineria plant in Emmastad, Netherland Antilles. In addition, it purchases output from Valero’s 2,300-b/d naphthenic plant at Three Rivers, Texas, under an agreement similar to the new one with Lyondell.
 
The barrels from the Lyondell plant will temporarily widen Nynas’ edge on the second-largest naphthenic marketer, Ergon Refining, which operates an 11,400-b/d plant in Vicksburg, Miss. Ergon said this month that it plans to expand that plant to 19,000 b/d in 2008.
 
Citgo’s exit from the naphthenic market leaves the United States with five sellers, including Calumet Specialty Products, San Joaquin Refining and Cross Refining. Citgo will continue marketing white oils produced by Lyondell’s refinery, which will be renamed Houston Refining LP. Citgo also operates a paraffinic base oil plant in Lake Charles, La., with capacity to produce 9,500 b/d of Group I stocks.
 
As part of Nynas’ 2003 agreement with Valero, the latter spent approximately $10 million to upgrade and expand its plant. Nynas officials declined yesterday to say whether any such capital investment is in store for the Lyondell plant.
 
Nynas officials did say the Houston plant serves a somewhat different customer base than Nynas’ existing business, but added that they still consider it a good match.
 
“If you look at our existing business, we are interested certainly in transformer oils,” said Jay Flint, who was named president of Nynas USA Inc. last week. “This [deal with Lyondell] does not add anything to that market. But we are interested secondarily in process oil applications, and we see a lot of future growth potential that needs continuing investment in that area.”
 
Before joining Nynas, Flint held a management position at Kraton Polymers. Previously he worked for 24 years for Shell.
 
Nynas is a 50-50 joint venture between PDVSA, the national oil company of Venezuela, and Finnish refiner Neste Oil Oyj.

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Tim Sullivan, Editor. Lube Report (ISSN 1547-3392), Lubes'n'Greases Magazine and Lubricants Industry Sourcebook are published by LNG Publishing Co., Inc., 6105-G Arlington Blvd., Falls Church, Virginia 22044 USA. Phone: (703) 536-0800. Fax: (703) 536-0803. Website: www.LNGpublishing.com. Email: info@LNGpublishing.com. For sponsor information contact Gloria Steinberg Briskin at (800) 474-8654 or (703) 536-7676 or gloria@LNGpublishing.com.
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