LukOil is the leader in every market segment, Maxim Donde, general director of LLK International Lubricants Co., LukOils lubricants arm, told the ICIS World Base Oils & Lubricants Conference here Feb. 24. Our goal is to balance finished lubricants and base oils. By 2017, LukOil will add 240,000 t/y of new Group III capacity at its Volgograd refinery, said Donde, and 350,000 t/y of new Group II and II+ capacity will come on stream at the Perm refinery by 2019.

And LukOil is not alone in anticipating a growing market for high quality lubricants. Rosneft has announced 200,000 t/y of new Group II capacity in Samara and 250,000 t/y in Angarsk, Donde said. Slavneft, a 50-50 joint venture between Gazprom and TNK-BP, also plans 100,000 t/y of new Group III capacity at its plant in Yaroslavl, all projected for 2014.

Growing Market for High-spec Oils

Russian gross domestic product grew nearly 4 percent in 2010 over 2009, following an 8 percent plummet the year earlier. Russias main economic indexes are looking up: In 2010, manufacturing activity rose 12 percent, metallurgy 14 percent, the engineering sector 12 percent, transportation 7 percent, and vehicle production rose 94 percent.

Following a peak of nearly 1.8 million vehicles produced in 2008, said Donde, production fell to 722,000 in 2009, but bounced back to 1.4 million in 2010. And the outlook for passenger car sales is bright, led by sales of foreign brands.

In 2010, 1.2 million foreign-branded passenger cars were sold in Russia (including both imported vehicles and those assembled in Russia), while sales of Russian brands totaled 550,000. By 2015, sales of foreign brands will double, to 2.45 million, as sales of Russian brands slip to just 500,000.

Like the passenger car market, Russias lubricant market is polarized, said Donde, between GOST-technology lubricants and high-spec lubricants. Today, older GOST government standard lubes make up 70 percent of the 1.4 million ton lube market, and higher specification lubes are 30 percent. But by 2015, Donde projects that high-spec oils will account for half the market.

Comparing value, Donde noted that, for example, the metallurgy lube market is about 80 percent GOST by volume, but only 20 percent GOST by value. Overall, he estimated that high-spec lubricants, with 30 percent of the market by volume, account for about 60 percent in monetary terms.

Of Russias 1.4 million ton total lubricant market, 22 percent is imported, and that percent is growing, Donde continued. Of the total domestic market, 57 percent is automotive lubricants and 43 percent is industrial.

Lukoil holds 29 percent of Russias automotive lubricants market, followed by Rosneft (18 percent), TNK-BP (10 percent), ExxonMobil (7 percent), Shell (6 percent), Gazpromneft (5 percent), BP (4 percent), and others with the remaining 21 percent.

Lubes for Today and Tomorrow

Russian base oil production in 2010 totaled 2.4 million tons, about 98 percent Group I. Of this total, 1.1 million tons was consumed domestically, while 1.3 million tons were exported, Donde said. LukOil, which produces half of the base oils in Russia today, supplied 62 percent of the exported base oils.

Neighboring Belarus, Ukraine, Uzbekistan and Turkmenistan together have almost 1.1 million t/y of base oil capacity, including Group II production in Turkmenistan.

Planned capacity upgrades, Donde said, include 1.33 million t/y of new API Group II to IV capacity in Russia.

With over 550 finished lubricants and process oils, LukOil claims strong market leadership in Russia. The company produces 45 percent of all base oils and has 45 percent of the industrial lubricant market, as well as 29 percent of the automotive market, Donde said.

Annual lubricants production by LLK International exceeds 1.2 million metric tons, he noted. The company currently has base oil production and/or additive production plus lubricant blending at four locations: at its Volgograd, Perm and Nizhny Novgorod refineries in Russia and at LLK-Naftan in Belarus. In addition, it blends a total of 127,000 t/y of finished lubricants at LLK-Finland, LLK-Romania, LLK-Eurasia in Turkey, and at its Tuymen blending facility in Russia.

The company claims numerous automaker approvals for its engine oils, and is looking to expand internationally. Sales of lubricants by foreign affiliates totaled 115,000 metric tons in 2010, said Donde. The plan for 2011 is 150,000 tons.

Likewise the LukOil marine lubricants business is expanding, covering over 400 ports in 40 countries as of early 2011.

The name of the game is to move to high-spec lubricants without losing the GOST market, Donde concluded. Competition [in Russia] is tough and growing tougher all the time.