Aluminum Nitride (AlN) nanoparticles were synthesized using a Reactive Gas Condensation (RGC) technique in which a mixture of ammonia (NH3) and nitrogen (N-2) gases were used for the nitridation of aluminum. NH3 served as the reactive gas, while N-2 served as both a carrier gas and the inert source for particle condensation. X-ray diffraction (XRD) and X-ray photoelectron spectroscopy (XPS) analyses revealed that at reactive gas compositions greater than 10% NH3 in N-2, samples were composed entirely of hexagonal AlN nanoparticles. Electron diffraction patterns showed single crystal hexagonal AlN structure. The particle size was controlled by varying the pressure of the gas mixture. AlN nanoparticles were dispersed in a liquid matrix to enhance thermal conductivity. Results showed that a minimal addition of AlN increased the thermal conductivity of hydrocarbon pump oil by approximately 27%. The thermal conductivity became constant after reaching a maximum above 0.01 wt% AlN. Temporal stability of AlN was studied by XRID. Samples exposed to air for extended periods of time and analyzed by XRD show no degradation of crystalline AlN nanoparticles.