MOSCOW – The Kremlins hefty spending on Russias defense industry and heavy investments in infrastructural and security projects ahead of the 2014 Winter Olympics in Sochi contracted the countrys economic growth and caused lower lubricants production in 2012.

Because of the weak economy projected at 1.5 percent growth in 2013 and influenced by the economic slowdown in Europe, a market observer expects poor results in the countrys lubes supply and demand balance sheet by 2015.

The recovery could start only after that, with significant increase of lubricant production forecasted to 2.7 million [metric tons per year] in 2016, Tamara Kandelaki, general director of InfoTEK consultancy, told RPIs Lubricants Russia summit held here in November. In 2012 base oil and lubricant production amounted to 2.3 million tons [down from 2.45 million tons in 2011]. Last year lubricant export dropped to 1.16 million tons [down from 1.36 million tons in 2011], and is expected to stay the same by 2014.

The state spending cuts in education, health and housing sectors, investment cuts in the downstream sector and elsewhere except in the Olympic city of Sochi, southwest Russia, as well as the high percentage of government expenditures put under state secret all pulled down the countrys lubricants production, she said. However, as a result of the massive developmental projects in Sochi, the lubricants demand has shown a slight increase in 2012, according to InfoTEK. Last year the country consumed 1.64 million tons of lubricants compared to 1.55 million tons in 2011, said Kandelaki.

Consumption is expected to be sluggish at 1.7 million tons per year in the next five years. The best results we expect only at the exports side. The exports from Russia could increase from 1.2 million tons in 2012 to 1.6 million tons by 2018, Kandelaki said. Imports of base oils and lubricants into the country would stay at 500,000 tons per year during this decade.

Lukoil is Russias biggest lubricants marketer and produced 1.1 million tons of base oil and lubricants, holding a 49 percent share of the market in 2012, according to InfoTEK. The second biggest lubricants producer is Rosneft, the state oil giant that produced 460,000 tons of base oil and lubricants and held a 20 percent share. It was followed by Gazprom Neft, another state oil major, that produced 400,000 tons and held a 17 percent market share. Other smaller lubricant producers are Bashneft (150,000 tons, with a 7 percent market share), TNK-BP (120,000 tons, 5 percent share) and ForteInvest (40,000 tons, 2 percent share).

InfoTEK also found that on the supply side by company, Lukoil is Russias biggest lubricants exporter. In 2012 it marketed 430,000 tons of lubricants and base oils within Russia while it exported 710,000 tons. Gazprom Neft marketed 220,000 tons in the country while it sold 180,000 tons of lubricants abroad. Rosneft sold 360,000 tons of lubricants in the country and exported 100,000 tons. TNK-BP sold only 70,000 tons of lubricants in Russia, and it exported only 50,000 tons. Bashneft and Forte Invest exported 50,000 and 20,000 tons, respectively, and sold within Russia 70,000 and 20,000 tons, respectively.

In 2012 Russias lubricants demand in the general automotive and industry sectors stood at 500,000 tons and 1.2 million tons, respectively, up slightly from 450,000 tons and 1.1 million tons, in 2011. The consultancy expects these volumes to remain at 1.2 million (industrial demand) and a little less than 500,000 tons (automotive) through 2018.