Several factors are driving the slowdown, including demand for high quality lubricants in the European markets, shifts in global base oil supply and trade routes, the worldwide recession, and growing usage of alternative lubricant basestocks. However, those aren’t the only factors explaining why some Russian base oil producers have practically frozen announced upgrade projects and why fewer producers openly discuss their plans, according to speakers at the Base Oils and Lubricants in Russia and CIS conference.

For example, Russias lubricants industry has weak oil testing programs, which represents an obstacle to producing high-grade base oils and lubricants, said Oleg Tsvetkov, head of the oils department of All-Russia Research Institute of Oil Refining. Without this, Tsvetkov noted, Russia cant produce high quality base oils.

Currently, 97 percent of Russias total base oil production is API Group I. Group II and Group III base oil production is practically nonexistent in the country, amounting to 2 percent and 1 percent respectively of total output.

According to the LubesnGreases 2009 Guide to Global Base Oil Refining, Russia has 10 base oil plants, with overall capacity of about 3.1 million metric tons per year. Tsvetkov noted that actual utilization in the last five years totaled about 2.5 million t/y. According to the research institute, the countrys total base oil production has seen steady decline from 2.6 million tons in 2005 to 2.3 million tons last year.

Many foreign oil majors have already made substantial capacity upgrades to Group II and Group III base oils. These practices have shown that 25 to 45 percent of the total engine lubes in the West are blended with higher grade base oils, Tsvetkov said.
Russia is gradually implementing the European environment standards for automotive gas emissions, and in the decade ahead we foresee the share of Group II and Group III base oils [meeting] up to 25 percent of the countrys total demand.

Preconditions for such demand growth include new engine oil requirements for stronger engines and the restrictive Euro 5 automotive emissions standards that Russias legislature must introduce by 2015, Vladimir Shuverov, technical director of Moscow- based Oil and Petrochemical Industry Research and Project Management Institute, told a conference panel.

Tsvetkov asserted that the cost effectiveness of Group II and Group III base oils are important. At the moment, the cost advantage of Group I over Group II base oil in Russia is $150 per ton. The cost advantages of Group II over Group III base oil is $350 per ton, while [the difference] between Group III and Group IV is $500 per ton, he noted.

Upcoming Group II and Group III base oil production upgrades in Russia announced by conference speakers include TNK-BPs Yaroslavl plant project, which will use hydrocracking, and LLK Internationals projects in its Nizhniy Novgorod, Perm and Volgograd refineries. The Novgorod project uses hydrotreating technology.

LLKs general director Maxim Donde last year announced a major $400 million investment plan to modernize the companys base oil production in the decade ahead. LLK International is Lukoils lube arm.

Despite the use of Tatarstan oil basins carbon enriched crude with 3.8 percent sulfur content and very high viscosity, Tanekos Niznekamsk base oil plant achieved Group III base oils and comes onstream in 2013 with 100,000 t/y, Shuverov, of the Oil and Petrochemical Industry Research and Project Management Institute, stated.

In addition, some of the base oil plants in the Commonwealth of Independent States countries located on Russias southern flanks have promised to make essential upgrades to their base oil production.

Lack of stock materials, obsolete installations, and poor economical and political situations that have driven Azerbaijan into several wars hindered production at Azerneftyags Baku plant. The company has decreased the plants base oil production from more than 400,000 t/y to around 200,000 t/y over the last two decades, but promised to stream new capacity over the next few years, an Azeri oil refining specialist told Lube Report.

Our Group I base oil plant in Baku is operating mainly for export of industrial oils, such as transformer and turbine oils, said Fazilya Semedova, head of laboratory at Institute of Petrochemical Processes in Baku. Soon we are expecting to launch the production of our new Group II base oil plant.

Turkmenbashi Oil Processings plant in Turkmenistan has produced Group II base oils since 2001. The company has previously announced plans for an expansion that would double capacity to 160,000 t/y though the project had yet to receive final approval. The expansion would stream Group III base oils using more modern selective catalytic wax isomerization process technology licensed from ExxonMobil, Davut Mahmutov, head of the Turkmenbashi Oil Processing refinerys technical department, said at the conference.