That stark landscape has not discouraged two companies from making another investment in the industry. Intesmo, a joint venture by oil and gas giant Lukoil and the countrys national railroad operator, is scheduled to open a large grease plant in Volgograd in the coming months. The companies have ambitious goals for the project, saying they aim to account for 40 per- cent of the domestic grease market within three years.

Supplier Shuffle

Russia consumed approximately 58,000 tons of grease in 2011, according to estimates by Intesmo, which Lukoil formed with Russian Railways in 2009. This was down from a peak of 71,000 tons in 2008.

The steep slump in [grease demand] by Russia had begun by the end of 2009, Intesmo General Director Oleg Paramonov said in November during a speech here at RPIs Lubricants Russia Conference. The recovery appears likely to be much flatter, he added.

Approximately 50 companies produce grease in Russia today, Paramonov said. Most are small manufacturers with annual output of a few thousand tons or less. The supplier base has undergone large shifts the past few years. In 2008, the largest Russian grease producer was Rovel, an independent company based in Perm, which claimed 22 percent of domestic production, according to Intesmo estimates. By 2010, it accounted for just 8 percent. (Rovel did not respond to questions from LubesnGreases.) Another independent, Rostov Engineering Lubricants Producer, or Rikos, ranked second in 2008 with a share of nearly 17 percent. By 2010, the company, which is based in Rostovon-Don, was making less than 8 percent of Russian greases.

Neftemaslozavod, an Orenburg subsidiary of oil major Russneft, saw its share fall in half over the same period, from 8.2 percent to 4.1 percent. Moscow-based Kuzkovskiy Plant for Consistent Greases, or Kuzaks, held its ground with a share of approximately 8 percent. Kuzaks mainly supplies greases to Russian Railways (RZhD).

In contrast, some suppliers improved their standing. Gazproms plant in Omsk accounted for 5 percent of domestic production in 2008, but its share doubled in two years. Moscow NMZ, which is located in the capital, jumped from 6 percent to 11 percent. A group of six smaller manufacturers also made progress. In 2008 they accounted for 22 percent of domestic production, but by 2010 their share had swelled to 41 percent.

According to industry sources, Russian grease producers were anticipating a much brighter future for the market before the recession. After a rocky decade during the 1990s, domestic grease demand increased steadily from 2000 to 2007. Several companies invested to expand their capacity, anticipating that the growth would continue. The recession dashed those expectations.

Grease production in Russia began a steep slump by the end of 2009, Paramonov said. It began with end-users of all types of industry, and by 2010 the consumer segment was also affected.

An End-user as Producer

Into this scene comes Intesmo with a strategy to supply one of its parent companies, which happens to be the countrys largest grease consumer. Lukoil and RZhD are investing around 1 billion rubles (25 million) in a plant scheduled to come onstream in June of this year. It will be located near Lukoils Volgograd refinery. Lukoil holds a 75 percent stake of the joint venture and RZhD the remaining 25 percent. Officials say the plant will have capacity of 30,000 t/y.

Intesmo is the first joint venture in Russia to involve an end user in production of greases. Rail transport accounts for 28 percent of grease consumption in the country, and RZhD, which has a monopoly on rail operation, is responsible for nearly all of that. The metallurgical industry consumes 36 percent. Oil exploration and production consume 13 percent, followed by machine building and metals processing, which claim a combined 11 percent.

Intesmos first task will be to supply RzhD.

First of all, we will produce greases for rail transportation, Intesmos Paramonov said. We also expect our customers to come from oil exploration and production, metallurgy and the machine building industry.

By 2015 Intesmo aims to supply up to 40 percent of Russias total grease demand and up to 50 percent of demand in the Commonwealth of Independent States. Sixty to 70 percent of the plants production is meant for the Russian Railways, while 30 to 40 percent of the plants production will go into other industries, Paramonov said.

Most of the latter portion will be exported to the CIS and other countries where Lukoils lubricant arm, LLK-International, has its distribution networks. Part of Intesmos output will go to LLK-Internationals distributor network, supplementing the companys existing stable of grease products.

Paramonov observed that the new plant will compete not only with Russian companies but also with the imported greases, which now account for 30 percent of the market. The most prominent grease importers into Russia are Castrol, Chevron, ExxonMobil, Agrinol, Azmol and Shell.

A New Competitor

Intesmos new business could be aided by the fact that grease demand in Russia appears to be rising again. Paramonov said grease demand in Russian grew in 2011, especially in the automotive sector, metallurgy and oil and gas production. These industries are particularly hungry for high-quality automotive greases, high-temperature greases for metallurgical equipment and greases that the oil industry uses to for steel reinforcement and to lubricate threads.

Paramonov said the Russian grease market is also diversifying. Intesmo counts 150 products in the market and says that the number is rising. A large portion of the market consists of relatively low-grade products made with lithium soap thickeners. But more ambitious producers are beginning to make products with lithium- and calcium-complex thickeners and polyurea greases.

Intesmo is already operating the grease plant at Lukoils Volgograd refinery and has produced 5,000 tons of product to date. Much of that volume has gone to RzhD.

Around 700 tons of it was exported, Paramonov noted. Intesmo also has plans to become a member of the European Lubricating Grease Institute.

Houston-based FMC Technologies Inc. has worked with Lukoil to design and build the new Volgograd plant. In cooperation with LLK-International and the Russian Railway Research Institute, Intesmo will form a research team that will work on development of high-quality greases, Intesmo said.

Despite the countrys overhang of capacity, the joint venture argues that Russia needs a plant like Intesmos. Paramonov contended that a number of new suppliers are producing low-quality greases. In addition, he said, the decline of traditional market leaders, combined with the downturn in demand, has made the market unbalanced.

The countrys consumers, especially the metallurgy and machine building sectors, would benefit from a strong and sustainable player that will work to stabilize of the market, Paramonov concluded.

If the new plant is completed on schedule, the Russian market can spend the second half of this year assessing the impact of a large, new player.