According to InfoTek, Russia is the worlds third largest base oil producer; in 2011 it supplied 8 percent of the worlds total base oil production. It follows the United States (25 percent) and South Korea (9 percent).

There are 10 base oil producers in Russia today, Kandelaki said. Only two enterprises produce [both] Group I and Group III base oils. They are Rosnefts base oil plant in Angarsk, and Lukoils base oil plant in Volgograd. The rest are Group I base oil plants.

In 2010 TNK-BP discontinued Group I base oil production at its Ryazan refinery. In 2011, due to reconstruction, Tatneft-Nizhnekamskneftekhim-Oil halted Group IV base oil production at its plant in Nizhnekamsk.

In 2011 Russia produced 2.35 million tons of base oils, almost 6 percent less than the year before. Lukoil continues to be the largest producer. In 2011 it produced 1.14 million tons – nearly half of the countrys total.

Rosneft is second with production of 468,000 tons of base oils and a 20 percent share, followed by Gazpromneft (253,000 tons), Slavneft (248,000 tons; the Slavneft base oil plant is jointly owned by TNK-BP and Gazpromneft), and Bashneft (185,000 tons).

The rest is controlled by Cyprus-based FortInvest, Kandelaki said. In 2011 FortInvest acquired Russnefts Orsk refinery, along with its Group I base oil capacity.

Imports, Exports, Domestic Demand
The Achilles heel of the Russian base oil market is the countrys high level of base oil imports, Kandelaki continued. Imports last year increased by almost 190 percent over 2010.

According to our estimates there were around 90,000 to 110,000 tons of premium Group I, II and III base oils imported into Russia last year, she said. In 2011, 42 percent of total base oil imports was Group I, 29 percent share was Group II, and 17 percent was Group III.

The biggest importer in 2011 was oil major Royal Dutch Shell, accounting for almost 50 percent of Russias total base oil imports. It is followed by Turkmenistans Turkmenbashi refinery (17 percent), Malaysias Petronas (10 percent) and Swedish Nynas (5 percent).

Russian base oil exports in 2011 declined 5.5 percent from 2010, reflecting lower base oil production. Last year Russia exported around 921,000 tons of base oils, of which 99.5 percent was Group I and 0.5 percent was Group III, Kandelaki said.

Last year Greece was the biggest consumer of Russian base oils, accounting for 19 percent of exports. It was followed by Belgium (16 percent), China (14 percent) and Turkey (12 percent).

In 2011 Russias base oil demand was 1.45 million tons, down by almost 5 percent compared to the year before, Kandelaki said. The use of higher quality equipment in Russia is the primary reason for lower demand. The second reason for the decreased base oil consumption last year was the higher margin of processing fuels, and the competition between fuel producers and base oil producers for the vacuum gas oil feedstock.

In 2011 around 95 percent of total demand was for Group I base oils and around 4 percent for Group III.

Looking Forward
InfoTek predicts that by 2020 Russian production will total 3.1 million tons. Group I base oil production in the country will decrease to 1.4 million tons or 45 percent of the total base oil production. Group II base oil production is expected to increase to 1.2 million tons or around 39 percent. Group III production is expected to rise to 500,000 tons or 16 percent. This forecast is based on last years level of capacity utilization and on realization of the planned Group II and Group III base oil projects by 2015 to 2020, Kandelaki noted.

The most ambitious plans for upgrades and new projects have come from Russian oil majors Taneko, LLK-International (Lukoils lubricants arm) and Rosneft.

By 2020 Russias Group I base oil demand will be met by domestic production. From 2014 on Russias Group II base oils demand will be supplied by the countrys Group II production. Group I base oils used in many finished products will be replaced with Group II, said Kandelaki, because of its higher quality and lower additive costs in the formulations.

InfoTek predicts that countrys Group III base oil demand will also be supplied by domestic production from 2014, and that surplus Group III will be exported to the markets of Ukraine, Belarus, Europe and China. There are going to be even greater demand for Group III base oils after the introduction of Euro 6, as well as stringent environmental demands in India, China and elsewhere, Kandelaki said.

Group IV will remain in deficit in Russia because there are no plans for new capacity, and a similar situation is expected with Group V synthetic base oils, she concluded.