Gazprom Plans 6th Blending Plant

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Gazprom plans to buy or build another lube plant in Scandinavia or the Baltic region, and to boost its lubricants business over the next 10 years, driven by the company’s lubricant demand growth in international markets.

Our foreign lubricants sale analyses have shown that there is a great interest for the company’s premium products, Alexandar Truhan, Gazprom Neft-SMs general director, told Lube Report yesterday. Lubricants produced in our production facilities in Bari [Italy] and in Moscow, have been shipped in increased quantities to northern Europe. Gazprom Neft-SM is the lube division of Russian oil major Gazprom Neft.

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In 2012, the Bari lubricant blending plant produced 30,000 metric tons and the Moscow (Fryazino) plant produced more than 30,000 metric tons. Together, the two blending plants shipped 20,000 tons of finished lubricants to Finland last year. [That’s why] the company now eyes any possibility to acquire or build lubricant production assets in Scandinavia or in the Baltic region.

The company’s investment for the 30,000 tons per year plant would range from 30 million to 40 million ($38 to $51 million) according to some local reports in Estonia, but Truhan said its too early to provide the final sum because the company is still investigating the market specifics of owning and operating a production facility in Finland, Estonia or Latvia.

The company also places a priority on expansion in the Middle East markets using its distribution channels in Turkey. For example, last year we managed to start to ship lubricants to Kurdistan [an autonomous region in northern Iraq], and there is an increasing demand there for both the company’s premium finished products and for the base oils, Truhan said.

However, Gazprom is concerned that the current export duty of $300 per ton turns out to be a big burden for every Russian lubricants marketer. Moscow legislators in 2011 introduced a flat export duty for base oils and lubricants, that taxes lubricant exportation similar to the way it taxes crude oil export. The current premium is $100 to $150 per ton of exported product, and this export duty diminishes the economics of supply and gives a very low margin, Truhan told the Itar-Tass state news agency last week.

Together with the other Russian lube producers, Gazprom Neft-SM is holding talks with the Russian government to exempt the lubricants from the new export duty tax code taking effect in 2015. The bill would raise lube export taxes to the same level as that of export taxes for crude oil and other petrochemical products. High export duty was a barrier for our operations in China, and last year we were forced to leave that market because of the negative economics of supply, taking into account the high transportation costs, Truhan said, adding that such export duty only decreases the competitiveness of the national lubricants producers in Russia.

At the moment, Western lube producers have unlimited access to Russias lubricant market, according to Gazprom Neft-SM. Last year Russia produced 2.5 million tons of lubricants and base oils, but consumed only 1.8 million tons, of which 400,000 tons are imported products, he pointed out. The supply-demand imbalance complicates things for the national marketers, he said, while the Russian government is doing little to stimulate the expansion of the domestic lube brands in the international markets.

In the next 10 years the company hopes to increase its share in the Russian lubricants market from the current 14 percent to 18 percent, or from the current 450,000 tons per year of produced lubricants to 630,000 tons per year. The company’s strategy is not aimed at fast expansion on the domestic market, but at an increase of its line of high-tech products and expansion of its production facilities, Truhan told the agency.

Gazprom plans to invest around 503 million for expansion of its lubricant business in the next 10 years. In the last five years it invested 136 million. The company now owns five blending plants, three located in Russia (Omsk, Fryazino and Yaroslavl), one in Italy (Bari) and one in Serbia (Novi Sad).