At its Volgograd refinery, Lukoil will increase API Group III-plus production from the current 24,000 tons per year to 50,000 t/y by 2010, under a licensing agreement with Chevron Lummus Global. A new hydrotreating catalyst was loaded in 2007 and a new vacuum column will be commissioned in the third quarter of this year, allowing the company to upgrade its Group I base oil quality to meet international standards, Donde said. The company is also considering Group II production at Volgograd, although no decision has been made yet.

With its new vacuum column in place, the Volgograd refinery will begin industrial trials of bright stock production. Donde noted that the company is considering production levels of 1,500 to 2,000 tons per month at Volgograd, the same level as Perm. Industry analysts have predicted significant bright stock shortages over the next decade. For example, in late 2006 Kline Vice President Geeta Agashe said that global bright stock supply was about 73,000 barrels per day in 1995, declined to 65,000 b/d by 2005, and would shrink by another 7,000 to 8,000 b/d by 2015, while demand would continue to grow.

Group I quality has also been improved at Lukoils Nizhny Novgorod refinery, said Donde, introducing the solvent neutral 150 specification for export-grade base oils, matching the quality of the Perm refinery.

In another sign of Russias rising lubricant standards, Lukoil is conducting base oil interchange programs in cooperation with Afton Chemical on passenger car motor oils and heavy duty oils blended with Lukoils Group I and III-plus stocks. The passenger car program will be complete in May, said Donde, and the heavy duty program is scheduled to wrap up by October or November.

Russias Lube Market
In 2006, Russia produced 2.6 million tons of lubricants, and imported an additional 238,000 tons. The country consumed 1.74 million tons and exported 1.1 million tons. The trend, said Donde, is for consumption volumes to decrease, while the industry grows in monetary terms as quality rises. Lubes containing no additives currently account for about 19 percent of the market, a share he predictedwould shrink to 14 percent by 2014.

With six blending plants, Lukoil produces 1.2 million tons of finished lubricants per year, fully 45 percent of the countrys production. It claims a 30 percent market share of passenger car motor oils, 43 percent of Russias industrial lubricants market, and 62 percent of the countrys lubricants exports.

Donde sees the passenger car motor oil market swelling at 5 percent per year. The 25 million cars on Russias roads today only work out to 200 cars per thousand people – just half of Germanys car density. The future will bring strong new car sales growth, an increase in the market share of foreign-branded cars in cities, growth in locally produced foreign vehicles, extended oil drains and tougher environmental standards for engines, he said. The demand for higher quality motor oils will continue, rising from less than 100,000 tons in 2000 to more than 260,000 tons in the current year.

On the industrial lubricants side, Donde predicts growth of 1.5 percent or more annually, from 375,000 tons in 2005 to a projected 474,000 tons in 2014. General manufacturing, metal and mining, and the oil and gas industries together consume about 90 percent of Russias industrial lubricants. To compete successfully in this market, said Donde, Lukoil has made considerable investments in R&D and has developed a wide range of high-performance products, including 29 new industrial oils and eight marine engine oils.

Base Oils
Russias total mineral base oil capacity is about 3.6 million tons per year, Donde said. The countrys producers, and their share of that capacity, are:

– Lukoil, 39%
– Neft-Aktiv, 14%
– Slavneft, 13%
– Russneft, 11%
– Bashneft, 10%
– TNK-BP, 8%
– Gazprom Neft, 5%

The key trends affecting Russias base oil market include globalization of the market; introduction of new technical specifications; development of new technologies; stricter environmental requirements for car engines; a greater role for brands (We want the market to know Lukoil base oils are high quality.); and structural changes in the lubricants market, Donde said.

It will be costly to compete successfully in Russia, Donde said. Heavy investments are needed to modernize production facilities, upgrade packaging lines and maintain research and development centers. Major costs will include development and launch of new products, brand development, Russian and international approvals, development and maintenance of sales channels, and product promotion.

Feedstock prices continue to rise and challenge business profitability in Russia as elsewhere, Donde concluded. But the growing vehicle population, upgraded machinery and production facilities have resulted in growing demand for high value lubricants and falling demand for non-additized, cost-led lubricants. Expect growing competition, a growing role for research and development, and a new approach to the lubricants business, he said.