Lukoil will not comment on its plans for Iran, but industry observers said the company faces a challenging operating environment. It [will be] difficult to compete as a Russian brand … especially when the market is over supplied and they have no distribution channel and no local production, said Majid Safdari, commercial director at Tehran-based Vista Energie. Nevertheless, Lukoils upstream division said in January that it was in wide-ranging talks with the National Iranian Oil Co.

From Marine to Auto Lubes

When Lukoil launched in the Middle East, the initial emphasis was on marine lubricants, a market where it has a global footprint. Lukoils marine business has captured 10 percent of the global market and is the fifth largest marine lubricant business in the world, the company said.

In 2015, it signed an agreement with United Arab Shipping Company to supply iCOlube, an intelligent cylinder oil lubrication unit that optimizes both performance and overall efficiency of vessel engines. The agreement also provides lubricant solutions for vessels in UASCs newbuilding program.

Prior to its decision to enter the Middle East automotive sector, Lukoil Marine supplied internationally contracted marine customers and local customers through local supply associates, distributors and resellers. According to Lukoil, its key markets in the Middle East are UAE, Kuwait, Qatar, Oman, Saudi Arabia, Bahrain and Egypt.

In 2015, Lukoil decided to enter the regional automotive finished lubricants market despite an intensely competitive operating environment. It claims to be active in five of the six Gulf Cooperation Council automotive markets through a network of in-country based distributors. The company blends products in the UAE and Saudi Arabia and currently markets lubricants under the Lukoil Luxe brand, a semisynthetic motor oil in SAE 5W-30, 5W-40, 10W-30, 10W-40 grades that conform to API SL and CF.

The company claims to have captured 8 percent of the automotive market in Qatar and 2 percent in Bahrain, UAE and Oman. This year, Lukoil expects to launch the Genesis brand of motor oils, which it describes as a new synthetic product range. This motor oil is already firmly established in Europe

Recently. Lukoil introduced Genesis Advanced that uses Lukoils own API Group III+ synthetic base oil, produced at the refiners Volgograd plant. The project was a collaboration with Infineum, which developed an additives package that underwent a full cycle of testing for compliance with API and ACEA specifications as well as gaining Mercedes approval MB 229.3. Lukoil claims some impressive results against a number of measures.

A strong position in Europe is no guarantee of success in the Middle East. I dont know how they will fare. They have done well in Europe, but they are late in this part of the world, said an executive in the lubricants division of a national oil company, who asked not to be identified because he is not authorized to speak to the media.

As awareness in the automotive sector grows, Lukoil is attempting to build capacity among distributors through customized training and development programs. This effort is crucial if the company is to gain headway against entrenched local and international marketers such as Enoc and Total lubricants. For years, these companies have spent heavily on marketing and consumer education programs, which will be hard for Lukoil to replicate in the short term.

Nevertheless, Lukoil believes the region is vital for development. The Middle East is extremely strategic and important for Lukoil to be present in, being the gateway to a majority of the worlds oil reserves and production as well as being a fast developing market, a Lukoil spokesperson told LubesnGreases.

Marine Lubes Sustain Growth

Lukoil Marines UAE office supports Asia as well, and marine lubricants remain the bedrock of the companys Middle East business. Last year, the marine sector won a tender from the Shipping Corporation of India, and now supplies 40 percent of SCIs total requirements.

Lukoil has also made significant inroads in Japans complex marine market, most notably with NYK, K-Line and Shoie Kisan. That caps similar wins in Europe with CMA CGMs fleet and Carnival Cruise Lines. Lukoil Marine use base oils from within the company and additives of the LLK-Naftan joint venture.

Stringent new regulations that stipulate Emission Control Areas prompted Lukoil Marine to launch Navigo MCL Ultra, a lubricant specifically designed for vessels operating on ultralow sulfur fuels. The lubricant is approved by engine manufacturers MAN and Wrtsil.

In 2010, Lukoil was the first marine lubricant supplier to introduce a 100 BN cylinder oil in reaction to changing engine designs and operating procedures. Sales volumes of Navigo 100 MCL have continued to grow as fleets upgrade to 100 BN cylinder oils from 70 BN oil to optimize lubrication and reduce costs by preventing cold corrosion.

Similarly, Lukoil Marines Environmentally Acceptable Lubricant range is currently the only fully saturated EAL product with proven performance in the market. The company claims all EAL products that it supplies have been designed to ensure failure-free operation. Lukoil cites several customers, including KOTC, that have reconfigured their fleet to EAL products. Last year, Lukoil Marine expanded its supply infrastructure to meet supply demands by launching a new barge in Singapore, the third in a fleet based in Singapore.

Despite Lukoils strong global position, there is no escaping the risky state of the shipping industry worldwide, exemplified by the collapse of South Koreas Hanjin last year. The dual impact of the move by operators to ultralarge container ships and low demand growth makes for unpredictable conventional and container markets. However, the tanker segment remains robust, and Lukoil Marines Dubai office looks well positioned to take advantage not just of the local market but also of Irans return to oil markets.

Innovation & Security

Driven by overwhelming environmental pressures, research and development remain the lifeblood of all lubricant marketers, and Lukoil is no exception. It recently developed Avantgarde Ultra M-3 SAE 15W-40 oil viscosity grade, a special lubricant with improved detergent properties for use in the mining industry. Lukoil said it is the only oil with this viscosity grade that has a MTU Type 3 approval.

Elsewhere, it has formulated Tornado M-46, a turbine oil produced from a hydrocracked synthetic base oil that yields longer service life and better antioxidant properties. It is also actively developing fireproof hydraulic oils for use in mining machinery and evaluating the market for white oils.

Counterfeiting has become a major issue for lubricant marketers and is particularly prevalent in the Middle East. Lukoil took steps to tackle the problem several years ago. Prior to 2008, numerous incidents involving counterfeit batches of lubricants motivated Lukoil to redesign its packaging to incorporate several security features and enhancements. It says it was the first in the world to produce an oil can with an in-mold label.

The reconfigured packaging also includes multiple layers of protection: triple-coated walls, two-component lid and a nozzle soldered by aluminum foil. In addition, each can bears an individual number. Almost overnight, the economics of reproducing Lukoils new packaging became prohibitive for would-be counterfeiters. Although the companys security department continues to keep a watchful eye on global operations, Lukoil said in a report last September that it has not experienced a single case of fake products packaged in original Lukoil cans in the previous eight years.

Lukoil is not alone in having access to high quality base oils, but its sheer size and early successes in the marine lubricants market make for a compelling case in the Middle East. Hampering further achievements are increasingly unpredictable energy markets and evidence of growing trade protectionism. Despite these issues, Lukoil has more experience than most in managing difficulties.