For several years the Russian energy giant had said it intended to expand and upgrade at least two of its three base oil plants in Russia. As recently as last year, the company said it would increase Group III capacity at its Volgograd plant by 240,000 metric tons per year by 2017. The company had also said it intended to introduce 350,000 t/y of Group II and II+ capacity to its Perm plant by 2019.

The company rethought those plans in light of the current excess of Group II and III base oils. A large number of large Group II and III projects have come online the past several years, and more are in the works. Analysts and suppliers agree that demand for those grades will eventually catch up, but prices have taken a hit, and most agree that the surplus will persist for a number of years.

Donde said Lukoil believes it can turn that situation to its advantage. The company will need Group II and III oils to make its finished lubricants, but is willing to buy them from others.

Better to be a buyer in a buyers market, he said.

Lukoils Volgograd plant currently has capacity to make 30,000 t/y of Group III. It is the only Russian base oil plant capable of making anything other than Group I oils, although upgrades are currently in the works at multiple plants.