Lukoil Lube, Base Oil Production Falls

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Lukoil Lube, Base Oil Production Falls
Overhead view of an engine room on a large cargo ship. A decline in marine oil sales impacted Lukoil's base oil and finished lubricant production in 2023. © yodi apriyadi_art / shutterstock.com

Lukoil’s base oil and finished lubricant production both fell significantly in 2023, impacted by  a decline in marine oil sales.

The company made significant strides in recent years developing a marine lubes business, but it was hit hard by Western sanctions following Russia’s invasion of Ukraine in 2022.

Lukoil’s base oil production last year fell by 13% to 696,000 tons, down from 797,000 tons in 2022. Its finished lubricant production fell by 21% to 524,000 tons, compared to 661,000 tons produced in 2022, according to Lukoil’s annual report.

The company, headquartered in Moscow, is Russia’s largest lube marketer.

The European Union’s embargo on the import of Russian petroleum products, which took effect in February 2023, effectively shut off the traditionally lucrative market for Russian lube makers. Restrictive measures were also imposed on Russian banks, cutting them off from Western financial institutions.

“Clients in the marine oil business are multinational companies, and they prefer to avoid any sanctions risk by not doing business with Russian entities,” an industry insider, who asked not to be identified, told Lube Report on Tuesday. “Some companies just could not pay Lukoil for providing its goods, due to the bank restrictions.”

In the past, Lukoil invested heavily in the development of its marine lubricants segment.

In 2021 it claimed to have captured at least 10% of the global market.

Global marine oil demand stood at 2.3 million tons in 2018 and was expected to grow slowly in subsequent years, according to consultancy Kline & Co.

Lukoil’s lubricant business has for years followed a strategy of growing by expanding sales in foreign markets – its lube arm’s name, LLK International, is a nod to that idea. But the company turned inward as wartime sanctions hit Russia’s energy and petrochemical industry and many international companies retreated from the country, investing primarily in domestic production.

Aiming to supply its finished lubricant production with its own additives, in 2023 the company opened a lube additive research and development lab for the development of “contemporary additives and premium additive packages,” located at its refinery in Volgograd.

The company stated that it had modernized its lubricant blending plants in Perm and Torzhok by re-equipping the former and expanding the production capacity of the latter. In Torzhok, it also opened a lubricant testing center.

Additionally, Lukoil announced that it had gained approval for use of its products in China, at the headquarters of the Chinese automaker GWM. Lukoil’s motor oils can now be used in the internal combustion engines of GWM’s Haval, Tank and Great Wall models. The company made a similar agreement with Chery, another Chinese car maker.

Lukoil plans to soon unveil a new line of products for new energy vehicles, including fluids for hybrid and fully electric models.

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