Lukoil Focuses on Northwest China

XIAN, China - The lubricant arm of Russian oil giant Lukoil amped up its entry into China last year by catering to an economic project that is extending westward out of China.

During an interview last month, the head of Lukoils lubes subsidiary in China explained that the business is catering to Chinas One Belt, One Road strategy which is working to develop an economic corridor from Northwest China into Central Asia and Eastern Europe. In doing so, Lukoil is focusing at least some of its attention on Northwest China, as opposed to the more developed eastern and southern parts of the country, which draw the interest of most foreign lube marketers.

Lukoil Lubricants China General Manager Alexey Fedorov explained that the subsidiary has two main offices - one in Urumqi, the capital of the Xinjiang Uyghur Autonomous Region, the other in the eastern part of the country.

Our company is building a lubricant manufacturing plant in Kazakhstan, Fedorov said during an Aug. 17 interview at the Muchengyou Lubricant Marketing Forum. Lukoil plans to use that plant to supply China as well as lubricants demanded by One Belt, One Road projects in Kazakhstan and points west.

The market in Northwest China is not as developed [as in East China], so it is not as large. But thanks to One Belt, One Road, this region is in the heart of this growing development, so we have a lot of bright prospects there. There are many construction projects in this region. Most important is that this initiative covers a series of countries along the former Silk Road, including Kazakhstan.

Lukoil is not yet a major player in China, but Fedorov said sales are growing and that the company is benefitting from the friendly attitude that Chinese consumers have toward foreign products - a dynamic with which Lukoil is familiar.

In Russia and China, consumers like imported products because they believe imported products are of higher quality, he said. In China, we have a few advantages. First, our products are 100 percent imported. Another one is, the Lukoil brand is not very widely known here in China for end consumers, but it is still well known among industry specialists.

For the moment, Lukoils finished lubricant business in China is focused on sales of automotive engine oils, though it is also offering some industrial lubes. In the automotive segment, it is offering fighting grade engines oils under its Luxe brand and premium oils under its Genesis brand. Both brands have Chinese names.

The passenger car motor oil market largely follows API standards developed in North America, but Fedorov said he sees ACEA specifications from Europe starting to catch on, too. Lukoil is monitoring efforts to develop Chinas own engine oil standard, and will seek to qualify its products for that specification, too.

Of course we will do our best to obtain these specifications once they are introduced to the market, he said.