Shell Lubricants said in February that it was nearing completion of its much-delayed mammoth blending plant in Torzhok, Russia. The Anglo-Dutch energy giant sees the plant as a platform for tie-ups with automakers inside the country and for increasing its share of the Russian lube market.
But a skeptical audience believes it will face significant challenges. According to one industry insider, many Russians believe Shells plant will either need new approvals for many products or will pay heavily to import raw materials.
The base oils and additives in this market are clearly different than what they usually work with, said the individual, who spoke on condition of anonymity. One way or another, that will affect the operations of this plant.
The plant is a major undertaking for Shells lubricant business. With capacity to make 180,000 metric tons per year, it will be one of the companys largest blending plants. The 75 million project has encountered multiple delays. Originally scheduled to open by the end of 2010, it now is on track for a June or July start-up.
The project certainly has the attention of Russias lubricant industry – not only because of its size but also because it is slated to be the countrys first foreign-owned blending plant. While acknowledging it as a potential force, some Russians in the industry believe Shell will have difficulty replicating its lubricant business there.
Everyone knows that the vast majority of Russian base oils are not SN-grade base stocks, said the source, who has dealt both in base oils and additives and who has extensive industry contacts. API-SN is the latest passenger car motor oil specification in North America. SN engine oils require at least some API Group III base stock and for practical purposes cannot be formulated with only Group I base stock. This is true even of Western Group I stocks, which are widely recognized as superior to Russian Group Is.
If the new plant is going to use domestic base oils, that means Shell will need new approvals for the lubricants it produces. That would be expensive and time-consuming, because Shell has such a wide range of lubricants.
Not surprisingly, Shell has not disclosed details of its procurement plans. When announcing its intention to build the plant in 2009, the company said it would import base stocks and additives as needed. Of course, importing large volumes of base oils and additives could raise costs at Torzhok.
When questioned for this article, Shell said it would not discuss the plant before it opened. Still, its lubricant business is a leading supplier in markets around the world, so there is reason to expect it to cope in Russia. Its upstream oil and gas business already has extensive operations in Russia, providing experience in how to do business there.
The industry may never have direct evidence of where Shell gets base oils for the Torzhok plant. Still, the companys market share in Russia (8 percent in 2011) should provide an indicator of the projects success.