Russia: More Cars, More Lubes


MOSCOW – Russias 2.5 million tons per year of base oil production will grow 20 percent by 2015 and 34 percent by 2020, reflecting changes in the countrys economic, environmental and technical progress, a market observer said.

Speaking at the World Refining Associations Base Oil and Lubricants in Russia and the CIS conference here on April 6, InfoTeks general director Tamara Kandelaki said that in spite of a predicteddecline in the working-age population, growth in gross domestic product will push up the number of vehicles per capita by 2020.

According to Rosstat [Russias state statistical department], the countrys population by 2020 will be the same as now, 142 million, she said.

However, economic development will be promising, and by 2020 the countrys GDP will grow more than two times compared to the level of 2010, while peoples real income by 2020 could grow almost three times over the current level, according to the government, Kandelaki observed. Russias GDP grew nearly 4 percent last year, compared to 2009.

This will result in higher demand for automobiles, according to estimates by the Russian ministry of industry and trade, she continued. The vehicle fleet by 2020 will reach 364 units per 1,000 people, and the fleet will become younger. (Currently there are 233 vehicles per 1,000 people in Russia, according to Autostat, another Russian market research firm, and 27 percent of Russias total vehicle fleet is older than 10 years, while 23 percent of the fleet is older than 20 years.)

Around 50 percent of countrys vehicle fleet is ancient, more than 10 years old, InfoTeks Kandelaki agreed. Consequently, there is considerable demand for old GOST-specification oils in the former Soviet Union, in spite of the fact that lubricants demand has returned to 2007 levels.

Globalization of cutting-edge technologies is under way, and Moscow-based InfoTek expects Russia to see innovative new technologies. The development of electric cars is part of this progress. OEM requirements will play a great role in production of new technologies and components, Kandelaki noted. Russias demand for automobiles, machines and equipment with greater power and for use in extreme climate conditions will lead to higher quality oils and longer drain intervals. This could lead to a partial or overall drop in lube demand in Russia and in the developed countries.

The introduction of Euro 4 requirements in the country in the near future will lead to changes in Russias automobile systems to reduce nitrogen oxide exhaust fumes. Adoption of Euro 5 will require even more changes and more rigorous requirements for the lubricants, she said, noting that Russian environmental rules and procedures lag significantly behind Europes.

On the global level the consultancy observes closing of API Group I base oil capacities, expansions and new production of higher base oil grades, as well as market competition between Groups II and III, and to a smaller degree, between Groups III and IV. Many of these industry breakthroughs are taking place in the developing countries where environmental regulations and OEMs requirements are getting more rigorous, said Kandelaki.

United States is still the biggest base oil producer and consumer, she went on. The U.S. holds a 30 percent share of total global production, followed by Russia and CIS (13 percent) and South Korea (7 percent). The rest of the world accounts for the other half of global base oil production.

Base oil producers in Russia are export oriented, and their success is intertwined with demand fluctuations. Around 1.5 million tons of base oil, primarily Group I, is exported from Russia annually, Kandelaki said. At the moment Russia utilizes about 69 percent of its total base oil capacity.

Almost all vertically integrated oil companies in Russia have their own blending facilities, plus there are independent blenders. Market leaders are independently owned refiner LukOil, and the state owned oil giants Rosneft and Gazprom Neft. All of them have ambitious plans for [base oil] capacity expansions. Other market players are working on their base oil production development programs as well, said Kandelaki, as they announce plans to decrease Group I offerings and to increase Group II and Group III production. At the moment LukOil is the only domestic Group III base stock producer, with its 25,000 t/y plant in Volgograd.

The biggest risks are high crude oil prices on the global marketplace, she noted.

InfoTek predicts that Russias total base oil production will grow 20 percent by 2015 compared to 2010, and more than 34 percent by 2020. Domestic Group II, II+ and Group III base oil production will grow 13 times more compared to 2010, while Group I production will decrease to around 25 percent compared to 2010 volume, Kandelaki concluded.

Related Topics

Market Topics