By 2017, LukOil will add 240,000 t/y of new Group III capacity at its Volgograd refinery, said Donde, and 350,000 t/y of new Group II and II+ capacity will come on stream at the Perm refinery by 2019.

And LukOil is not alone in anticipating a growing market for high quality lubricants. Rosneft has announced 200,000 t/y of new Group II capacity in Samara and 250,000 t/y in Angarsk, Donde said, while Slavneft also plans 100,000 t/y of new Group III capacity in Yaroslavl, all projected for 2014.

Growing Markets
Russian GDP grew nearly 4 percent in 2010 over 2009, following an 8 percent plummet the year earlier. Russias main economic indexes are looking up: in 2010, manufacturing activity rose 12 percent, metallurgy 14 percent, the engineering sector12 percent, transportation 7 percent, and vehicle production rose 94 percent.

Following a peak of nearly 1.8 million vehicles produced in 2008, said Donde, production fell to 722,000 in 2009, but bounced back to 1.4 million in 2010. And the outlook for passenger car sales is bright, led by sales of foreign brands.

In 2010, 1.2 million foreign-branded passenger cars were sold in Russia (including both imported vehicles and those assembled in Russia), while sales of Russian brands totaled 550,000. By 2015, sales of foreign brands will double, to 2.45 million, as sales of Russian brands slip to just 500,000.

Like the passenger car market, Russias lubricant market is polarized, said Donde, between GOST-technology lubricants and high-spec lubricants. Today, older GOST-technology lubes make up 70 percent of the 1.4 million ton lube market, and higher specification lubes are 30 percent. But by 2015, Donde projects that high-spec oils will account for half the market.

Comparing value, Donde noted that, for example, the metallurgy lube market is about 80 percent GOST by volume, but only 20 percent GOST by value. Overall, he estimated that high-spec lubricants, with 30 percent of the market by volume, account for about 60 percent in monetary terms.

Of Russias 1.4 million ton total lubricant market, 22 percent is imported, and that percent is growing, Donde continued. Of the total domestic market, 57 percent is automotive lubricants and 43 percent is industrial.

Lukoil holds 29 percent of Russias automotive lubricants market, followed by Rosneft (18 percent), TNK (10 percent), ExxonMobil (7 percent), Shell (6 percent), Gazpromneft (5 percent), BP (4 percent), and others with the remaining 21 percent.

As in Russia, the economies and vehicle fleets in Ukraine and Kazakhstan are growing. Ukraine is a 450,000 t/y lubricant market, and Kazakhstan consumes 160,000 t/y.

Lubes for Today and Tomorrow
Russian base oil production in 2010 totaled 2.4 million tons, about 98 percent Group I. Of this total, 1.1 million tons was consumed domestically, while 1.3 million tons were exported, Donde said. LukOil, which produces half of the base oils in Russia today, supplied 62 percent of the exported base oils.

Neighboring Belarus, Ukraine, Uzbekistan and Turkmenistan together have almost 1.1 million t/y of base oil capacity, including Group II production in Turkmenistan.

*API Group IV: polyalphaolefins
Source: LLK International

Planned capacity upgrades, Donde said, include 1.33 million t/y of new API Group II to IV capacity in Russia.

With over 550 finished lubricants and process oils, LukOil claims strong market leadership in Russia. The company produces 45 percent of all base oils and has 45 percent of the industrial lubricant market, as well as 29 percent of the automotive market, Donde said.

The name of the game is to move to high-spec lubricants without losing the GOST market, Donde concluded. Competition [in Russa] is tough and growing tougher all the time.