Russian Base Oil Exports Stabilize

ROTTERDAM, the Netherlands - Russian base oil export volumes are off an estimated 1 percent this year after an unusually large amount of maintenance work caused a 12 percent decline in 2018, an industry insider estimates. An official from chemicals trader DYM Resources told a recent conference here that volumes could rebound thanks to improving economics and capacity expansions.

After surging in 2016 and 2017, base oil exports from Russia slid to 1.11 million metric tons last year and are on pace for 1.1 million tons this year, DYM Resources Director of Base Oils and Waxes Denis Veraksin told ACIs European Base Oils and Lubricants conference held here Nov 20.

The government now hopes to reverse this trend [through] lower base oil export duties. For comparison, Russia decreased the base oil export duties to the level of U.S. $31.50 per ton in December 2017, compared to $250/t three years prior, he said.

DYM Resources is a trading company focused on base oils, waxes and other petrochemicals products from refineries in Russia, Turkmenistan and Uzbekistan.

Export levels have stabilized this year and could rebound because of depreciation of the ruble currency and a further reduction in the export duties, he added.

In Russia, railway is the most affordable means of transportation for shipping base oils long distance.

Russian major oil companies refineries located in the European and Asian parts of the country have an average distance of 2,500 kilometers to the main ports. With the countrys currency depreciation of over 50 percent since 2014 and rail tariffs paid in Russian rubles, rail transportation costs in hard currency terms became at least about 50 percent cheaper, so this, along with further decrease of the base oil export duties, will lead to improved economics and stabilization of the export shipments in 2020, Varaksin observed.

Lukoil is the largest base oil exporter, responsible for 51 percent of volumes in 2018, followed by Rosneft with 25 percent, Tatneft with 13 percent and Gazprom Neft with 11 percent.

The Baltic Sea is the largest export hub for Russian base oils, and the exports ship mainly through Riga and Liepaja, ports in Latvia, and Svetly port in the Russian enclave of Kaliningrad. These Baltic hubs hold around 47 percent of the total base oil exports from the country.

Last year 520,000 tons of base oils were shipped from these ports to such countries as the Netherlands, Belgium, Germany, the United Kingdom and West Africa, Varaksin said. The second largest hub is the Black Sea port of Novorossiysk, conduit for 193,000 tons last year.

A total of 159,000 tons was transported by land into Ukraine and another 36,000 tons into China, according to DYM.

Riga and Novorossiysk handle flexi containers, Veraksin said. Russian Railways reduced loadings to Latvia ports, due to political reasons. Southbound export destinations include Turkey, Bulgaria and Israel. Russian Railways is a state-owned monopoly.

Several Russian oil majors have stated plans to carry out major upgrades of base oil plants. If completed, those projects would add at least 500,000 tons of new Group II and Group III base oil capacity within the next three to four years, according to DYM.

Lukoil has said it will boost Group II and III capacity at its Volgograd refinery from 40,000 t/y to as much as 250,000 t/y by 2021. Gazprom Neft intends to stream 220,000 t/y of Group II and Group III at its Omsk refinery by 2022, and Rosneft plans a 250,000 t/y of Group II expansion at its Novokuibyshevsk refinery by 2023.

All these are Europe-oriented refineries that invest in new units and expect their exports to grow by obtaining more approvals and building product image, Varaksin said. An additional factor for investing in new capacities is the domestic consumers switch to higher quality lubricants, while the government pushes for modernization of the countrys oil industry.

For example, Gazprom Neft is preparing to launch G-Base base oils very soon, after it finishes obtaining approvals from the major additive and original equipment manufacturers.

base oil tanker in Russia

Maxim Tupikov/Shutterstock