Transformer Oil: Silent Backbone of Power Systems

Transformers are the critical infrastructure that supports national security, economic stability, and public safety in the modern age. A decade ago, the 2015 fire at a transformer forced the shutdown of the Indian Point nuclear reactor located north of New York City. This incident caused power disruption in multiple areas and a transformer oil leakage into the river, resulting in environmental contamination and costly cleanup efforts. 
This is one of many examples that highlight why the use of safe and reliable grid equipment, including transformers, is crucial to prevent cascading effects on the power grid and the environment.

Why Transformer Oil is the Key to Reliable Power

A transformer’s health is closely tied to the health of the grid, and a key determinant of that health is the transformer oil, the fluid that both insulates high-voltage components and removes heat from the windings and the core of the transformer. The choice of oil has a significant impact on a transformer’s efficiency, safety, and lifespan.

Almost 70% of grid transformers in the United States are past their service life. Utilities are rushing to modernize their infrastructure and replace aging assets amid an unprecedented rise in electricity demand. The tailwinds of growing power needs are also creating a surge in demand for transformers, and no transformer is complete without its insulation oil. Following the trends in the transformer market, the transformer oil market is also experiencing a shift, with purchase preferences starting to change due to:

• Sustainability targets

• Wildfire and storm risk

• Procurement specification

• Insurance considerations, and 

• Base-stock availability

These factors are prompting buyers to consider low-carbon transformer oil options. Mineral oil remains the baseline, but the market is tilting toward fluids that enhance resilience, reduce environmental impact, and extend equipment lifespan.

A Snapshot of the North American Transformers Market

Before we delve into the discussion on oils used in transformers, understanding their market dynamics is essential before exploring the critical role of transformer oils.

Installed Base & Demand Overview

The U.S. transformer fleet is both vast and strategically important in the world. Every year, utilities add more than a million transformer units to keep pace with electrification, infrastructure replacements, and renewable integration. 

Looking at the scale of installations in 2024, utilities across North America installed approximately 1.4 million oil-based transformers, with the United States accounting for a significant chunk of these installations. This wave of new connections and replacements underscores not only the size of the U.S. grid but also the continuous churn of assets needed to support reliable power delivery.

This surge in installations is not a one-time spike; it is expected to continue increasing annually by 2030, driven by several structural factors:

• Electrification: Growth in electric vehicles, heat pumps, and industrial electrification is driving higher distribution and substation loads, requiring continuous transformer additions.

• Aging infrastructure: Aging infrastructure plagues the power transformer market of the U.S., where extreme weather has doubled power outages, with 83% attributed to weather-related events. 

• Decarbonization: North America's power transformer market is set for significant growth due to ambitious decarbonization goals. Record levels of wind, solar, and storage capacity are being added each year, and each project requires grid and interconnection transformers.

• Grid Modernization: Federal and state programs, including billions in DOE Grid Resilience and Innovation Partnerships (GRIP) funding, are channeling capital directly into transformer procurement for both replacement of aging assets and system hardening against extreme weather.

• Data Centers: Digitalization and AI have given rise to a new significant demand segment of transformers, i.e., data centers. According to the US Department of Energy (DOE), in 2023, data centers accounted for approximately 4.4% of total electricity consumption in the U.S., and this share is only projected to rise in the coming years.

Supply Chain: Domestic Capability vs Imports

While demand continues to rise rapidly due to aging infrastructure and high volume of greenfield projects, the transformers market is now facing a growing supply crunch that threatens to strain operations across end-user segments. The United States is experiencing a supply chain crunch due to several factors, resulting in increased lead times and higher costs for transformers. Here are some of the main factors affecting the transformer supply chain in the U.S.

• Raw Material Shortage: The U.S. transformer supply chain is facing mounting pressure primarily due to raw material shortages, particularly in electrical steel, copper, and aluminum. Rising global demand, coupled with limited domestic production capacity, has tightened availability and driven up costs.

• Geo-Political Tensions: Geopolitical tensions between the U.S. and countries like China and Russia are further complicating transformer supply chains. Trade restrictions, tariffs, and sanctions on key materials such as electrical steel and critical minerals have disrupted imports and raised procurement risks.

• Regulatory Changes: The Department of Energy (DOE’s) new efficiency standards require manufacturers to design transformers with reduced core and winding losses, directly impacting material choices and manufacturing costs. Regulations are also influencing materials, like the Emorpha steel mandate, which emphasizes the adoption of advanced grain-oriented electrical steels. 

Additionally, stricter fire-safety, noise, and insulation requirements are pushing OEMs to redesign products to comply with evolving standards, leaving a strain on the supply chain of critical raw materials.

The U.S. is largely self-sufficient in meeting its domestic demand for small- to medium-power transformers with a current production capacity of 130,000 MVAs. However, it has heavy import dependence when it comes to large transformer units, with current domestic production capacity at 70,000 MVAs. The U.S. International Trade Commission (USITC)’s 2024 investigation notes that South Korea is a leading source for LPTs, and Mexico was the largest non-subject source in 2023.

To meet regional demand, substantial investments are fueling domestic production expansion, and the capacity is expected to double by 2030 for large units. Still, the distribution transformer market is expected to receive limited investments. 

Which Oil Keeps the Grid Alive? A Technical Comparison

There are multiple families of transformer oils used globally. Since our focus is on the US grid, most transformer units still operate on mineral oil. This oil is usually drawn from petroleum and refined into naphthenic or paraffinic grades. 

Ester-based fluids are available in both synthetic and natural (biodegradable) forms. This specific oil family is gaining attention for their higher fire safety ratings and lower environmental footprint.

Comparative Foundations: Oil Chemistry and Performance

To better understand the technical foundation and specifications of both transformer oil families, reference tables are provided below, presenting a comparative analysis of mineral oils and ester oils. 

Table 1: Naphthenic vs Paraffinic Mineral Oil Properties
Source: PTR Inc.

Table 2: Synthetic vs Natural Ester Oil Properties
Source: PTR Inc.

From Mineral to Ester: The Shifting Landscape of U.S. Transformer Oils

The U.S. transformer oil market remains dominated by mineral oils, which account for most of the installed base. However, ester-based oils are emerging as a potential niche. Here is a snapshot of the U.S. transformer oil market landscape, showing the dominant role of mineral oils in greenfield projects and the growing niche carved out by natural and synthetic esters.

The U.S. transformer oil market is shaped by its vast, aging fleet and steady need for retrofits, with naphthenic mineral oils still dominating. New greenfield projects, including renewables, data centers, and urban substations, are increasingly specified with esters or low-carbon oils, while brownfield units remain mineral-oil heavy, with selective retro fills emerging.

At the same time, utilities are piloting natural ester transformers for enhanced fire safety and sustainability and expanding recycling programs to support their circular economy goals. For example, Southern California Edison has replaced overhead distribution transformers with ester-filled units in targeted areas. 

Here is a detailed overview of the properties, applications, and market trends in the U.S. for both oil families.

Figure 2: Transformer Oil Applications to Market Trends in the U.S.
Source: PTR Inc.

Supply Side Dynamics: Oils, Players, and Utility Choices

Transformer oils in the US are supplied by a mix of domestic refiners and global producers. Key players include,

• Ergon (with a 50% market share of the USA mineral oil market)

• Calumet (U.S. naphthenic specialists but overshadowed by Ergon)

• Shell (broad mineral oil portfolio holder)

• Nynas (a global naphthenic leader)

• Cargill (a pioneer in natural ester fluids)

• ExxonMobil (supplier of transformer-grade mineral oils)

• Chevron (diverse base oil producer)

Together, these companies cover both the traditional mineral base and the emerging ester segment.

Transformer Oil Playbook

These oil suppliers cover the full spectrum, from mineral oils that dominate the fleet to esters driving new sustainability applications. Here’s a snapshot of who supplies what:

• Naphthenic oils are supplied by Ergon, Nynas, and Calumet as dominant suppliers.

• Paraffinic oils are maintained by Shell, a major player in the market. 

• In the case of esters, Cargill leads the natural ester supply, while M&I Materials and other specialty firms provide synthetic esters for niche applications.

Procurement Power: Utilities Set the Rules

Large utilities such as PG&E, Duke Energy, and TVA play an outsized role in shaping supplier dynamics. Their procurement policies are increasingly weighing ESG goals, fire safety, and lifecycle costs, influencing the adoption of esters in select projects while ensuring that mineral oils remain the volume leader for fleet maintenance.

Where the Oil Market Flows Next

The U.S. transformer oil market is still dominated by mineral oils, especially naphthenic grades that align with the vast legacy fleet. However, the mix is shifting. Esters are carving out space in renewable projects, urban substations, and fire-sensitive sites, backed by financing and sustainability mandates that favor biodegradable fluids. Paraffinic oils are also gaining ground, with iso-paraffinic formulations offering higher stability for demanding environments. 

Supplier competition now hinges on more than price. Reliability of supply and compliance with environmental standards are increasingly decisive. The market’s future will balance entrenched mineral reliance with rising adoption of greener alternatives.

Azhar Fayyaz

Senior Market Analyst at PTR Inc.

Azhar Fayyaz is a Senior Market Analyst at PTR Inc. He is involved in projects on the power grid topics at Power Technology Research gathering data on the network structure of distribution utilities, estimating the installed base of T&D equipment, and analyzing the information to predict future market trends. As a market analyst at PTR, he performs competitive analyses of different companies operating in a region and determines their market share for a specific product. He also has more than 5 years of experience working as a senior shift engineer at Chashma Power Generation Station. Azhar comes from a technical background and has an M.Sc. in Power Engineering.   

About PTR:  

With over a decade of experience in the Power Grid and New Energy sector, PTR Inc. has evolved from a core market research firm into a comprehensive Strategic Growth Partner, empowering clients’ transitions and growth in the renewable energy landscape and E-mobility, particularly within the electrical infrastructure manufacturing space.  
 
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