Look beyond those numbers, however, and its clear the giant is struggling. Poor economics, low margins and feedstock supply issues have caused some plants to close and others to sharply cut production. Exports, an important part of the business, have fallen significantly. Finally, plant upgrades, which could improve the position of refiners, mostly remain a few years from fruition.

Shrinking Capacity

CIS countries may have a lot of base oil capacity, but that capacity has been decreasing in recent years.

There have been a number of plant shutdowns due to poor economics and feedstock supply issues, Alina Kim, a trader at SVL Commodities in Moscow, said at the Argus European Base Oil Markets conference in Istanbul in March.

Oil major TNK-BP, which was recently acquired by Russian oil giant Rosneft, halted base oil production at its refinery in Ryazan, Russia, in 2010. Initially the company started to build a new plant in its place, but it later demolished the facility after deciding it was obsolete. A TNK-BP (now Rosneft) lubricant blending plant in Ryazan still operates but sources base oil from a Slavneft plant in Yaroslavl, Kim said. Slavneft is a joint venture between state-owned Rosneft and Gazprom Neft.

At the start of this year, ForteIn-vest closed a 400,000 t/y plant at its refinery in Orsk, Russia. A Cyprus-based hedge fund, ForteInvest bought the refinery from Russneft in 2011 and, according to Kim, decided base oils did not fit its strategy. The refinery management focuses on vacuum gasoil exports, she said.

Ukrtatnaftas plant in Kremenchug, Ukraine, has not produced base oil since December, but the company says it intends to resume operations. The facility has capacity of 300,000 t/y but has made only small volumes the past few years, opting instead to direct its feedstock to fuels because of unfavorable base oil economics. Kim predicted that the plant will not reopen under current management, but Ukrtatnafta Head of Production Victor Oger told LubesnGreases in May that production was expected to resume within a couple months, after maintenance is completed.

The regions only polyalphaolefin plant has not operated since 2011, but its owner also describes that shut-down as temporary. Tatnefts 10,000 t/y plant in Nizhnekamsk, Russia, stopped producing because of inability to obtain alpha olefin feedstock, but management has said it hopes to resolve the problem.

Uzbekneftegazs plant in Fergana, Uzbekistan, is operating but apparently at much less than capacity. According to Kim, the refinery halted exports of all materials in the summer of 2012 due to changes in top management and investigations for mismanagement. Base oil exports resumed at the end of last year, Kim said, but at lower volumes than in the past. The situation is further complicated by political instability in neighboring Tajikistan that is seen by Uzbekneftegaz as a threat to the security of the normal travel route for its base oil exports. The company is now using an alternate route, she said, and the base oil plant is running at only half of its 484,000 t/y capacity.

Azerneftyags plant in Baku, Azerbaijan, seems to continue losing capacity. At one time, the company claimed that the facility was the largest base oil plant in the world, with capacity of 1.6 million t/y, but outside sources agree that the number declined sharply over the years. The company has on numerous occasions not responded to questions from LubesnGreases about capacity, but Fazilya Samedova, of the Institute of Petrochemical Processes in Baku, said in May that the plants capacity is 150,000 t/y. Samedova heads the Laboratory of Research of Petroleum and Technology of Oils Production at the institute, which is part of the Azerbaijan National Academy of Sciences.

Exports Slow

Exports have for years been a key part of the business strategies of CIS base oil suppliers. Refiners sell large portions of their output to Western and Central Europe and other foreign markets, often at relatively good prices. For CIS suppliers as a group, however, that business has tailed off the past couple years. Citing statistics provided by Argus Media, Kim said Russian base oil exports fell 26 percent from 2010 to 2012.

Some of the decrease was due to shutdowns, but Kim noted that shipments also fell from all but two of the Russian plants that remain open. For example, Bashnefts plant in Novo-Ufa exported around 70,000 tons in 2011 but only 25,000 tons last year. Overseas sales from Slavnefts Yaroslvl facility slipped from 80,000 tons to just 50,000 tons over the same period.

The two exceptions were Lukoils plant in Volgograd and Gazprom Nefts facility in Omsk, both of which saw moderate increases in 2012. Omsk took advantage of the Central Asian markets, Kim said. For example, last year it supplied Kazakhstan with around 76 percent of its base oil consumption, or 105,000 tons. And the good location of Lukoils… plant in Volgograd makes it convenient to export base oils to Turkey and to Mediterranean markets.

Some ports have seen more of a drop-off than others. Exports through Baltic ports slumped almost 200,000 t/y from 2010 to 2012. Lower supplies from Fergana and Kremenchug affect this route, Kim said. Russian supplies to China decreased as well, due to weaker demand and higher domestic production in China. In contrast, shipments through Black Sea ports rose from 311,000 tons in 2010 to 379,000 tons last year. Lukoils Volgograd plant accounted for around 90 percent of exports through the Black Sea ports, Kim said.

Turkey has been a big destination for Russian base oil exports, but volumes fell 43 percent in 2012, Kim said, citing Argus data. Last year exports from Russia to Turkey fell to just 120,000 tons, compared to 220,000 in 2011, she said. Weather was part of the reason, she explained, as heavy frost and strong winds on the Black Sea in January 2012 limited loadings from Russia and Ukraine. Also, changes in Turkeys regulations on exports and imports of base oils caused a drop in overall base oil imports to Turkey, regardless of country of origin, after June of 2012.

Where to Find Relief

Domestic lubricant consumption has the potential to soak up at least some of the decrease in export volume. SVL contends that strong car sales in Russia and the countrys growing industrial sector could lead to a rise in domestic lubricants sales. It is becoming more important [for Russian refiners] to accommodate base oil demand in the internal market rather than exporting to any other foreign country, Kim said.

Some believe CIS refiners could better the position of their base oil businesses by upgrading their product. A significant portion of global base oil consumption has shifted from API Group I to Group II and III, but 97 percent of capacity in CIS countries is still Group I. Several CIS refiners have announced plans to upgrade, but few of the projects have come online, and several have been delayed.

Russian refiners have ambitions to produce more than one million [t/y] of Group II and III, Kim said. But no one is near to achieving their goal except for Tanecos base oil complex in Nizhnekamsk. Taneco, a subsidiary of Tatneft, has been building a 100,000 t/y Group II and III plant that was scheduled to open this year.

Rosneft has announced plans for Group II and III upgrades at its plants in Angarsk and Novo Kuibyshev, and those projects are scheduled to be completed in 2015 and 2017, respectfully. A Group II upgrade of Slavnefts Yaroslavl plant is scheduled to open in 2015. Lukoils Volgograd plant already has capacity to make a small amount of Group III – 30,000 t/y – but a project to increase that volume by 230,000 t/y is due to be completed in 2016.

Turkmenistans Turkmenbashi Oil Processing Co. is the only other plant in the CIS region making Group II or III stocks. The facility is small – capacity is just 80,000 t/y, including 70,000 t/y of Group II – but Kim held it up as example of what an upgraded facility can accomplish. Base stocks from the Turkmenbashi plant are higher quality than most of those produced elsewhere in the CIS, she said, and they have a wider range of uses. In addition to higher performance lubricants, Turkmenbashi Group II is being used for applications such as medicinal substances, cosmetics and as an ingredient in white oils.

The Turkmenbashi refinery is now very well equipped with new technology and good infrastructure, making it possible to produce higher quality products, Kim concluded.

Other CIS base oil producers hope to derive similar benefits upon completion of their own upgrades. In the meantime, at least some of them are experiencing lean times.