Shell to Build Lubes Plant in Russia


Royal Dutch Shell plc on Monday said it plans to build a lubricant blending plant in northwestern Russia. It would be the first Russian blending plant operated by an international oil company. Separately, the company said last week that it will close a Vicksburg, Miss., plant by the start of December.

The Russian plant will be built in Torzhok, northwest of Moscow, and will have capacity to produce 180,000 metric tons per year. It will cost $100 million and is scheduled to open by the end of 2010.

Officials said the project represents Shells commitment to expand in a country that is one of the worlds largest lubricant markets yet widely seen as still developing.

Russia is the third largest lubricants market in the world and it is vital that Shell, as the leading global lubricants supplier has a significant presence here, Executive Vice President for Lubricants David Pirret said in a written statement.

Citing data from U.S. consultancy Kline and Company, Shell claims 5.1 percent of Russias lube market, which consumed 1.8 million tons in 2008. Shells sales in the country grew 6 percent last year, despite a 10 percent decline in overall demand. The company said its lubricants business has seen seven consecutive years of profitable growth in Russia.

Demand for foreign-branded lubes has risen rapidly in Russia, but foreign marketers have yet to build plants in-country. Shell currently imports its lubricants from plants in Finland, Austria and Germany, amongst other countries.

Officials said the Torzhok plant will allow the company to produce closer to customers, though it may still import raw materials. Shell said the plant will produce high quality automotive and industrial lubricants, but it did not elaborate on that description. Much of the lubricants consumed in Russia consist of products that would be considered low quality or obsolete in more developed countries. To make lubes that would be considered high quality in the West, Shell would presumably need highly refined base stocks and modern additives. Russia produces only scant volumes of those ingredients, so the plant might have to import them.

The planning for the project has been underway for at least two years, according to Shell spokesman Rainer Winzenried.

We chose the Tver region because of its unique economic and geographic location, availability of skilled labour and an investment climate that encourages international investors, he said. Shell Neft and [regional administrators] signed an investment agreement in the end of 2007. Since then we obtained all necessary regulatory approvals, contracted a general contractor and made other preparations to start construction.

The Torzhok plant will be one of the largest blending facilities in Shells portfolio. The company said it will employ 150 people and may in the future make products for sale in neighboring countries.

The Vicksburg plant is being closed to optimize operations in North America, officials said. It has 24 employees and is scheduled to close Dec. 1.

After a thorough review, we have determined that we can effectively produce the volumes manufactured at our Vicksburg blending plant through other facilities in our network, the company stated last week. Fulfilling our customers needs more efficiently will enable us to sustain our competitive cost structure and maintain our leadership in the lubricants industry. The streamlining of our business will have no impact on our ability to provide customers with the products they need.

At Vicksburg, we manufacture transport lubes only, in bulk and quart containers, Shell Lubricants spokeswoman Courtneye Barrett told Lube Report. The lubricants are for the commercial transport industries, including fleet, bus and coach, construction, agriculture, trucking and railroad. She said the company does not disclose the Vicksburg plants capacity because it is considered proprietary information.

According to Barrett, Quaker State began operating the Vicksburg facility in 1979, and Pennzoil-Quaker State Co. then operated it following their merger in 1998. Shell has operated the Vicksburg blending plant since its acquisition of Pennzoil-Quaker State Co. in 2002.

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