Lukoil said it will halt construction of its blending plant in Kazakhstan due to the countrys restrictions on base oil imports and lubricant exports.
In a meeting between Lukoils head, Vagit Alekperov, and Kazakhs president, Nursultan Nazarbaev, in early 2013, the oil major announced plans for a 100,000 tons per year blending plant in an undisclosed location in Kazakhstan that it expected to start streaming by 2016.
Lukoil has postponed the $100 million project because the company faces impending short supplies of Russian base oil. Earlier this year, Kazakhstan and Russia signed a bilateral petrochemicals import ban that includes base oil. An additional export ban of lubes from Kazakhstan outside of the custom union with Russia and Belarus was introduced in June.
The inability to export our production to the premium Chinese and Asian market segments shrinks the lubricant market to the limits of the custom union of the three countries, a Lukoil spokesperson told Lube Report recently. This will put under question the profitability and returns for such a big investment project.
The petrochemicals import ban from Russia to Kazakhstan was signed by the energy ministers of both countries in January, and was set to expire in one year. In May, however, as a result of the Eurasian Economic Unions creation of common energy policies, the ban was extended until January 2019.
Such restriction basically encourages purchase of base oils and finished lubricants from companies located beyond the states of the custom union, which is contradictory to the [goals of the] import substitution policy, the Lukoil spokesperson added.
Lukoil sent a written request to the Eurasian Union Commission to request that both countries lift the restriction, which the oil major said would allow it to revive its plans for lubricant production in Kazakhstan.
The oil major appealed to Kazakhstans Ministry of Oil and Gas as well, asking it to lift the export-import restriction. In response, the Ministry claimed that the initiative for lifting the restriction should first come from Russia, according to reports in local media.
Kazakhstan has only one modern blending plant located in the south of the country, with 70,000 t/y capacity. Last year it produced 50,000 tons of finished products, half of which were meant for export, according to Hill Corp., the plants operator. The country has no base oil production.
Before the import ban, Russian base oil exports to Kazakhstan amounted to 85,000 t/y. Almost half of these supplies came from Gazprom Nefts refinery in Omsk. Gazprom Neft is the largest finished lube supplier in Kazakhstan and in 2013 it held a 40 percent share of its lubricants market.