Lukoil Launches Aggressive Growth Plan


Fresh from upgrading two of its base oil refineries, Russian petroleum giant Lukoil has adopted a 6 billion ruble (U.S. $188 million) plan to grow its lubricants business up to 10 percent annually through 2010.

History suggests that a significant amount of the increased production will be marketed in nearby countries, although management says it will consider building blending plants in neighboring and faraway countries.

Lukoil is Russias biggest oil refiner, as well as its biggest lubricant producer. In 2001, its Russian operations manufactured one third of the 2.8 million metric tons of lubes made in the country. Including its subsidiaries, the company produced 1.1 billion metric tons of base oils and finished lubes that year.

Earlier this year, Lukoil completed upgrades of its base oil refineries in Volgograd and Perm. At Volgograd, the company installed units for vacuum fractionation of dewaxed oils, making it the first plant in Russia to produce Group III base oils.

Processes are still being adjusted, but the plant can now produce stocks with viscosity indices of 125-145, Noack volatility of less than 15 percent, flash points of 210-220 degrees C, and pour points no higher than minus 15 C. Initially, Lukoil expects the refinery to produce 25,000 metric tons of Group III oils per year, primarily for internal use.

At Perm, a series of measures raised the viscosity indices and improved the stability of its Group I stocks. Management says the company was doubly motivated to make the upgrades.

First of all, we want our base oil to be more attractive on the base oil market, said an official, who spoke on condition that he not be identified. Secondly, if we have better base oils, it will allow us to make better finished lubricants. These upgrades place us above our Russian competitors.

Last month, the company announced the 6 billion ruble growth plan. Vice President Vladislav Bazhenov said the company intends to increase production 8 percent to 10 percent per year for the next eight years. The plan includes an initiative to produce more additives in-house, both to save money and to improve the quality of additives used. Management also said it will consider establishing blending and packaging plants in other countries – even far abroad – although base oils will continue to be refined domestically.

Officials declined to discuss where the new tons might be marketed, but history suggests that a significant amount may be exported to neighboring countries. Lukoil exported 280,000 metric tons of base oils and finished lubes in 2001, 42 percent of the total exported from Russia that year. Its exports flow mostly to former Soviet republics and the Baltic region.

The amount of base oil exported by the company has actually fallen since 2000, but exports of finished lubes swelled 150 percent last year and are projected to grow by another third this year. Total exports are projected to hit 340,000 tons this year.

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