So why is this news in a column devoted to marketing? To underscore the contribution that capital investments can make to marketing strategies.

The past several years have been a time for alarm bells in Russias lubricant industry. Like the countrys automobiles, domestic engine oils lagged significantly far behind products in the West and Japan. The gap actually began developing before the break-up of the Soviet Union, but it didnt cause a lot of pain until the middle of the 2000s. Until then, Russian lube suppliers managed to dominate the domestic engine oil market, because the vast majority of the nations cars and trucks were Russian models which did not need advanced oils. The only downside was low margins for this business.

Since then, however, foreign automakers have grabbed a steadily growing share of the countrys new vehicle sales. Those vehicles needed more advanced crankcase lubes, and that demand was filled by foreign oil companies. At first, the main impact on Russian suppliers was that they missed out on the high margin part of the industry. More recently their concern has grown as their sales volumes eroded.

To their credit, Russians havent ignored the situation. For several years individuals throughout the industry have publicly bemoaned the uncompetitiveness of Russian oils. They also laid blame on a variety of issues, from out of date standards to a gap in formulary technology, a lack of modern test facilities and a dearth of quality base stocks and additives.

A number of lube suppliers also took what seemed to be good steps to shore up their products. Led by Lukoil, several companies turned their lubricant operations into subsidiaries to allow greater focus on that business. Gazprom was among those companies, forming Gazprom Neft-SM as its lubes arm in 2007. Lukoil joined ATIEL (the Technical Association of the European Lubricants Industry), to gain a seat in the development of European engine oil standards. Gazprom bought Chevrons lubes business in Italy, including rights to formulas and sales accounts. Some companies introduced higher grade products and increased expenditures on marketing as part of an effort to improve the reputations of their brands.

Most of these actions could be counted as soft investments – steps that improve products or the image of them. The benefits of such steps have been well proven by leading and successful lubricant companies. With the opening of its Omsk plant, however, Gazprom said it was also supporting its strategy with investments in brick and machinery.

The Omsk refinery already included a 50,000 t/y blending plant, but officials said the new facilities will help the company improve the quality of its lubes.

Increasing the quality of finished products is among the highest priorities of our companys strategy development, Alexey Miller, Gazproms president, said during a ceremony to unveil the plant. The new [lubes] production complex at Omsk refinery could only benefit the modern lubricants production in Russia.

There is no question that good manufacturing facilities are another vital aspect of lubricants businesses. The best formulas will be of little use if products cant be made efficiently or with consistent quality.

The Omsk complex includes filling lines and storage for feedstocks and finished products, as well as a facility to manufacture lubricant packaging. The system has the potential to automatically fill more than 350 different types of products, and the finished products warehouse has 10,000 tons of storage capacity, the company said.

Once the second phase of the project is completed, the Omsk plant will be a large lubes producer. For example, at 180,000 t/y, it will match the designed capacity of the large plant that Shell plans to open this year in Torzhok, Russia. Plants of that size should have economies of scale that help reduce the costs of production. State-of-the-art equipment should allow the quality of those products to become more consistent.

Gazprom and some other Russian oil companies are also making bigger capital investments to upgrade the quality of base oils they produce. By 2014 several companies plan to complete projects that will allow them to produce API Group II and Group III base stocks. Currently all of Russias mineral base oil capacity is Group I except for 30,000 t/y capacity of Group III at Lukoils Volgograd plant.

It is too early to tell whether Gazprom or other Russian lube suppliers will succeed in their efforts to better compete with foreigners. But it is safe to say that a well-rounded approach – one that includes both soft and hard investments – improves their chances.