MOSCOW – Russian lubricant and base oil demand combined fell around 6 percent to 1.6 million metric tons in 2014, and it is highly likely to continue falling due to dwindling consumer spending and burdensome taxes, a Moscow-based consultancy said.
We entered into the second year of the crisis, but we learned how to live and adjust in an environment of low crude oil prices, Tamara Kandelaki, head of InfoTek, told RPIs Lubricants Russia conference held here last week. The [lubricants] demand drop is registered in many industries, while in some we have seen slight growth, she said.
The consultancy is optimistic and expects the country to exit from the crisis in 2018, with lubricant demand rebounding to 1.7 million tons in 2017, the same volume as in 2013. The strategy of import substitution and the campaign to buy local has reaped some fruits. Crimeas accession into Russian territory and the creation of the Eurasian Economic Union gives new possibilities for the industry players in the ruble zone, Kandelaki said, adding that import substitution is spread into three main categories – passenger car and heavy-duty motor oils, and oils for Russian industries.
Finished lubricants
In 2014, the three largest Russian lube players – Lukoil, Rosneft and Gazpromneft Lubricants – produced around 120,000 tons of automotive oils in the premium segment, including motor oil, transmission oil and hydraulic lubes, according to InfoTek.
Last year, Lukoil produced 25,000 tons of premium heavy-duty motor oils and 12,000 tons of passenger car engine oil. It also produced 9,600 tons of transmission oils and 10,600 tons of hydraulic oils. Gazprom Neft produced 13,000 tons of heavy-duty motor oils and 3,100 tons of passenger car motor oils. It also produced 5,600 tons of transmission oils and 11,500 tons of hydraulic oils. Rosneft produced 11,000 tons of heavy-duty motor oils and 6,500 tons of passenger car motor oils, as well as 6,800 tons of transmission oils and 7,300 tons of hydraulic oils.
Base oils
Russian Group II base oil production capacity is expected to rise from 90,000 t/y this year to 630,000 t/y in 2020, and the countrys Group III capacity is expected to rise from 135,000 t/y to 517,000 t/y over that same period of time. This is a result of the successful start of the Tanecos Group II/III base oil capacity in Nizhnekamsk in December. Also, Rosneft and Gazprom Neft announced base oil modernization plans at their refineries in Yaroslavl and Omsk, Kandelaki said.
Russian Group I base oil production capacity is expected to diminish from 2.4 million tons this year to around 1.4 million tons in 2020, according to InfoTek. Compared to this year, Russia will have similar total base oil production capacity in 2020, but the product mix then will be drastically different, Kandelaki said.
In the past few years, the national government introduced a series of export taxes on oil products – collectively referred to as the tax maneuver, and InfoTek contends that these overburden the petrochemical industry and erode profit margins. It altered the preliminary plans and conditions for realization of many refinery project modernizations. In an odd way, lubricants are listed in the same export tax category as that of fuel oils and other heavy petroleum products, Kandelaki said. A new petrochemical industry taxation rule, which became effective Jan. 1, envisions monthly indexation of the export duty, tied to crude oil price fluctuations on international markets.
In the backdrop of the countrys price inflation and low consumer spending, 90 percent of the customers are driven by the price factor when they decide to buy. I appeal to all lube industry players – dont hike the finished product prices. The consumers will be thankful to you and stay to do business with you in a long run, Kandelaki concluded.