Can Russia Skip the Imports?


Russias largest lube producers increasingly are trumpeting the new government policy of import substitution, urging users to switch to locally made products as a countermeasure to Western sanctions imposed over the countrys actions in Ukraine.

Since last autumn, many officials from the top three lube makers, Gazprom Neft, Rosneft and Lukoil, have been appealing to large Russian companies in the machine building, metallurgy, oil and gas exploration, refining and agricultural sectors, as well as to regional authorities, all to buy domestic products.

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The industry has been working in this direction in the last few years, Oleg Tsvetkov, head of the oil and lubricants department at All Russia Research Institute for Oil Refining (VNIINP), told Lube Report. They give import substitution a new momentum now because of the uncertainty that stems from further possible sanctions by the West, orchestrated by the United States.

At an oil and gas summit in Moscow last month, Russias Ministries of Energy and Industry and Trade announced concrete steps for import substitution in the countrys energy sector. An interagency meeting on the issue on March 25 was attended by the largest oil and manufacturing companies in the country. Although a major focus is on oil and gas exploration and production activities, lubricants are also expected to do their part in the substitution effort.

The lubricants industry is planning a tentative program that aims to substitute part of the [now-imported] lubricants and additives, including those used since the Soviet times, Tsvetkov said, adding that the goal should be realized through different projects.

Rosneft and Gazprom Neft already have formed special teams within their respective sales and marketing departments to address the import substitution efforts. Since late 2014 Rosneft has sealed numerous lubricant substitution deals, primarily with large players in the countrys machine building, metallurgy, power generation and oil and gas exploration sectors, as well as in agriculture.

For its part, Gazprom Neft has been more visibly active in lobbying regional governments to drop imported products and use Gazproms motor oils and fluids instead, to lubricate the transportation vehicles and equipment used by municipalities, utilities and road building companies.

In all, the government program identified 12 key applications in which Russians should work to substitute imported technologies, according to the Ministry of Industry and Trade. At the top of the list are upstream technologies developed by Western oil companies, such as directional drilling, hydraulic fracturing (fracking), deepwater drilling, production of pump and compressor equipment, as well production of flexible oil-well tubing.

Before the sanctions took effect in September, some of these technologies had been employed by multinational oil majors such as ExxonMobil and Shell in their joint venture projects with Russian companies.

In some oil and gas production areas, the country had been 80 to 90 percent dependent on imported technologies. By 2020 we expect these measures to decrease the imports share in Russias oil and gas engineering sector from a current 60 percent to 43 percent, said Alexander Novak, the Energy minister.

The U.S. and Western European sanctions target quite few Russian energy companies: Rosneft, Transneft and Gazprom Neft are on the E.U. list, and the U.S. list added three more energy giants, Gazprom, Lukoil and Surgutneftegas. All are banned from obtaining debt financing in the international markets. In addition, there is an embargo on Western exports to Russia of energy equipment and technology for deepwater, Arctic and shale oil exploration and production.

In some cases the effort to buy local may qualify for government funds. The Russian research and development sector that works in this areas is eligible to apply for government subsidies following our guidelines. The finances come from a 20 billion rubles [U.S. $370 million] state fund for industrial development, the Industry and Trade Ministry said in a recent press release.

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