Low Demand Doomed Lukoil Plant


In its first public comments about the decision to close its Nizhny Novgorod base oil plant, Lukoil said it shut the facility because of dwindling demand for its solvent neutral 150 stock.

While it is the third Russian [API] Group I base oil plant shutdown since 2011, industry insiders said they know of no existing plans to close additional facilities.

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Lukoil cut its base oil exports, and it is likely that its product offerings are balanced now, Denis Varaksin, base oil trader of Berlin, Germany-based MOGoil, told Lube Report. This plant was primarily exporting light-grade SN 150 product, for which prices have seen steady decreases in the European market.

Varaksin confirmed that Russian SN 150 has been losing market share in Europe and in neighboring markets due to competition with rerefined base oil and virgin base oil from Group II and Group III producers.

Moreover, the Russian base oil market is oversupplied, and it leads to price pressure, according to Oleg Tsvetkov, head of the lubricants department at VNIINP, the All Russia Research Institute for Oil Refining.

The institute found that if a Russian refinery has available or extra volumes of vacuum gasoil it is likely to use it for processing of fuels. It is the reason why two other base oil plants closed in Russia, Tsvetkov said, referring to a 190,000 t/y Group I Russneft facility in Orsk that closed in 2013 and a TNK-BP 275,000 t/y Group I plant in Ryazan that closed in 2010.

Lukoil has two large base oil units, a 520,000 t/y Group I plant in Volgograd and a 480,000 t/y Group I plant in Perm. At its Volgograd site, Lukoil also has 30,000 t/y Group III production capacity.

These facilities are enough for the company to guard its position as the largest lubricant marketer in Russia, Varaksin and Tsvetkov agreed.

As reported recently by Russian news agencies, Lukoil closed the base oil and lubricant production in its refinery based in Kstovo, Nizhny Novgorod oblast in the beginning of April.

It was due to unprofitability and the [changing] economic situation in the country, Alexey Kovalenko, the refinerys general director, told the state news agency Tass June 26. The feedstock previously used for production of base oils is now rerouted to the second vacuum gasoil hydrocracking unit for production of high-octane Euro 5 standard gasoline, he told the agency.

Kovalneko added, At the moment the unit is in test mode, and its commissioning is expected during July.

LLK-International and Lukoil declinedto confirm the plant closure to Lube Report.

The dynamics of the refinerys lubricant production have been gradually decreasing in the last few years, and the [parent] company decided to finally close it, Kovalneko said.

The institute doesnt expect any additional base oil plant closures in the country in the future.

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