LukOil: A Look at Lubes in Russia


LONDON – LLK-International, the company created Jan. 1 to produce and market LukOils lubricants, offered a look at Russias 1.9 million metric ton lubricant market. While just 10 percent of Russias motor oil market meets or exceeds API SF/CC standards, quality is rising. LukOil plans to introduce polyalphaolefins this year, to double its Group III production in 2007, and to open a new Group II-plus and Group III facility in 2010.

Mikhail Chekov, head of marketing and business development at LLK-International LukOil Lubricants Co. in Moscow, told the ICIS World Base Oils Conference here Feb. 17 that Russia is a very attractive lubricant market, very big and growing. And LukOil, already the countrys dominant lube supplier, aims to displace its domestic and international competitors as Russias value and brand leader in high quality lubes.

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Russia, with a population of 147 million, spans 11 time zones across 17 million square kilometers. GDP growth in 2005 was 6.4 percent, Chekov said, while inflation last year was 10.9 percent. The country counted over 25 million passenger cars, up from 16 million a decade ago.

LukOil, the largest private oil company in Russia, controls 19 percent of the countrys oil production and 19 percent of its oil refining. LukOil has seven lubricant blending plants, conducts its lubricant business in 17 countries, and sells base oils across the globe, said Chekov.

Russias total 2005 finished lubricant consumption was 1.859 million metric tons, said Chekov. Of this total, industry consumed 57 percent, transport 31 percent, and consumers 12 percent. Just 10 percent of lubes in the industry and transport segments met international standards, while about a third of the consumer lubricants were below API SF/CC levels. There is a significant gap in pricing between domestic and imported lubes, but the market for quality lubes is growing.

In 2005, combining both base oils and finished lubricants, LukOil supplied 41 percent of Russias total demand, Yukos 16 percent, Slavneft 13 percent, TNK-BP 12 percent, Sibneft 8 percent, Bashneftekhim 5 percent, and imports 5 percent.

The motor oil market (passenger car and heavy duty together) totaled 893,663 tons in 2005, said Chekov. Just 10 percent of that total volume was quality lubes, including both domestic and imported lubricants that meet or exceed API SF/CC levels. Eighty-three percent was low-spec domestic lubes, below API SF/CC and GOST, and the remaining 7 percent from local independent blenders was of unidentified quality.

Industrial lube production in 2005 totaled 1.78 million tons; nearly half of that volume was exported, Chekov said. LukOil controlled 43 percent of industrial lube production, Yukos had 17 percent of the market, TNK-BP 16 percent, Slavneft 14 percent.

The transport oil market totaled 838,000 tons, of which 156,000 was exported. Again LukOil dominated, with 44 percent of the market, followed by Yukos with 17 percent, Sibneft with 16 percent and Slavneft with 13 percent.

Russia exported more than 700,000 tons of base oils in 2005, Chekov continued, with LukOil supplying 68 percent of the total, including both Group I and III products. Yukos supplied 22 percent, and TNK-BP and Slavneft each supplied 5 percent, all Group I.

Chekov noted that LukOil will begin to supply PAO through a joint project with another company this year. It plans to double Group III production in 2007, from the current level of 8,000 tons per year. And a new facility for Group II-plus and Group III base stocks is on the drawing board for 2010.

The average car age is over 10 years in Russia, Chekov said, and do-it-yourselfers use cheap, minimum [quality] oils. But the consumer market is gradually evolving from DIY to do-it-for-me oil changes. Our goal is to enhance the strong LukOil position in DIY channels and build a solid platform for aggressive growth in DIFM, said Chekov.

LukOils strategic challenges are two-fold, Chekov concluded. The company aims to keep its leading position in the local lubricants market, while becoming a strong international player in the global lubricants business. Today LukOil is price leader in its domestic market. The next step, through increased investment in new technologies, products and services, is to assure its place as value leader, he said. The long-term goal is to displace imported lubes as brand leader in the high-quality segment.

The vision, Chekov said, is to become the most professional and fastest growing lubricants organization, a Russian company with strong local production and expanding overseas business, recognized as an international brand.

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