Russias downstream sector classifies petrochemical products as either light or dark. According to industry experts, the countrys legislation and Russian textbooks, lights are associated with gasoline, diesel and kerosene, while darks are black oil, vacuum gas oil, tar, bitumen and gas turbine fuels. Typically, base oils and lubricants are assigned to the dark petrochemical products group. Because of high crude oil prices globally and resultant good returns on crude oil and fuel products, lights are experiencing a booming market in Russia today.

Major oil companies around the world are investing heavily in the development of high-quality cracking units for crude oil processing. However, the situation is not the same in Russia. Many base oil improvement projects have been delayed or cancelled altogether because investors, and particularly the government, are reluctant to fund the needed development. The main reason for their reticence is that the sophisticated technology involved is very expensive, and according to Vladimir Kapustin, head of VNIPIneft, a Moscow-based oil refining design and engineering institute, the return on investment is very long because base oil and lubricant sales bring relatively smaller returns, compared to fuels.

Russia – Odd Man Out in Europe

The situation in Russia is complicated by the economic slowdown in Europe, where many analysts expect little or no growth in lubricant demand for the foreseeable future. In addition, competition from existing high-quality base oil plants in Asia and the Middle East is fierce. The Middle East alone supplies high-quality base oils from Adnoc in the U.A.E., Bapco in Bahrain and Shell/Qatars gas-to-liquid Pearl plant.

In terms of high quality base oil exports, Russia is becoming the outsider in Europe, which remains the principal destination for our base oils, said Kapustin. Middle Eastern high-quality base oils are flooding the European market, he told WRAs Base Oils and Lubricants meeting in December. To my understanding, because of Qatars heavy competition, LLK International [Russias biggest base oil exporter] is experiencing tough times, and this is changing the landscape of the Russian base oil market.

The majority of Russias existing base oil production facilities are obsolete and inefficient, having been built between the 1950s and 1970s under centralized economic planning. However, despite the desperate condition of the industry, many industry watchers believe that modernization plans will be pushed farther into the future. The [energy] ministry failed to include base oil plants in its program for the development of the countrys petrochemical industry by the year 2020, Kapustin remarked.

Unrealized Programs

VNIPIneft found that a number of plans to modernize Russias base oil capacity have been delayed. These include Rosnefts Angarsk and Novokuibyshevsk plants, Lukoils Volgograd and Perm facilities, Gazprom Nefts Omsk plant and Slavnefts Yarosavl base oil upgrade. All of these companies have delayed the development of higher quality base oil production until later in this decade or beyond. Only Tatneft maintained its original timeline and is ready to stream later this year.

Rosnefts Angarsk 280,000 ton per year upgrade will be based on ExxonMobils technology of hydroisomerization and hydrofinishing. Following the revamp, output at Angarsk will consist of 66,000 t/y of API Group I base oil, 128,000 t/y of Group II base oil and 86,000 t/y of Group III base oil, Kapustin said. The plants commissioning is now slated for 2019.

In Rosnefts Novokuibyshevsk plant, both ExxonMobil and Chevron Lummus technology will be used to provide the largest Group II production output in Russia. The refinery will be a complex configuration, developed in two phases with a vacuum pipe still, raffinate hydroconversion unit, isodewaxing and hydrofinishing. It also will include a hydrogen plant, according to Kapustin. Phase one will be ready during 2015, phase two in 2018. Following the modernization, the plant will be able to produce 400,000 t/y of Group II base oil.

Lukoils Volgograd project is projected to have the largest Group III output. Its modernized unit is estimated to stream 240,000 t/y of Group III base oil, up from the current 30,000 tons, which is currently the only Group III production in Russia. It also will be developed in two phases with the second phase expected to be completed after 2019.

The Volgograd refinery will include deasphalting and solvent extraction units to improve the quality of its Group I base oil. It will also have a new complex with vacuum gas oil hydrocracking, hydrodewaxing and hydrofinishing.

Lukoils second large base oil modernization project is in Perm at its Permneftorgsintez plant. It will license ExxonMobil technology, using raffinate hydrotreating and hydrodewaxing processes. Its commissioning is now planned for after 2020, and it is slated to produce up to 350,000 t/y of Group II base oil, according to VNIPIneft.

Gazprom Neft is planning to revamp its deasphalting and solvent extraction units in Omsk and will construct a new complex that includes hydrodewaxing and hydrofinishing processes. Similar to Perm, planning is in the early stages, and its commissioning is planned for well after 2020. The modernization will improve the production of 280,000 t/y of Group I base oil and will add 150,000 t/y of Group II and 75,000 t/y of Group III base oil production.

Slavnneft, a joint venture between Rosneft and Gazprom Neft, is also slated to produce higher quality base oils. Its Yaroslavl unit for hydrodewaxing and hydrofinishing of fuel hydrocracking residue will have the capacity to produce 100,000 t/y of Group III base oil. It will be operational after 2016.

Only one independent project, Tatnefts Group II and Group III base oil plant in Nizhnekamsk, has survived the ongoing power shifts and political struggles in Moscows powerful oil lobby, headed by Igor Sechin, Rosnefts authoritative chief executive. In contrast to the other Russian Federation republics, the Republic of Tatarstan, home of successful chemical and petrochemical complexes, has always enjoyed some economic independence from the Kremlin.

As a result, Tatnefts Nizhnekamsk refinery is on schedule to open in the next few months. It will feature a complex hydrocracking and hydrodewaxing unit, courtesy of technology from Chevron Lummus and ExxonMobil. In addition, it will include a hydrogen plant based on Haldor Topsoe technology, Kapustin said. The cracker will be used primarily for fuels, naphtha and liquefied gas production, while the vacuum gas oil fed hydrodewaxing unit will stream Group II and III base oils, he added. The plant is now in the testing and precommissioning phase and is projected to produce 103,000 t/y of 4 centiStoke Group III base oil and 87,000 t/y of 2.5 cSt Group II base oil.

Forecasts – Production & Consumption

In 2012 Russian base oil and lubricants output amounted to 2.5 million tons, according to VNIPIneft. Last year, Group I base oils held a 97 percent share of the countrys total base oil output, Group II was negligible, and Group III production held only 3 percent, Kapustin said. Base oil development projects are expected to add 1.0 million t/y of Group II and 600,000 t/y of Group III base oils by the early 2020s.

Forecasted base oil consumption in Russia is expected to be around 591,000 tons by 2015, according to InfoTEK, a Moscow consultancy. The country is expected to consume 380,000 tons of Group I base oils, 18,000 tons of Group II, 150,000 tons of Group III and 43,000 tons of Group IV base oils. By 2020, total base oil consumption is expected to reach 693,000 tons. Of this, 360,000 tons are expected to be Group I base oils, 30,000 tons Group II base oils and 255,000 tons Group III base oils.

By 2020, Russias Group I production is expected to decrease to 1 million t/y, from the current 2.2 million t/y. New Group II capacities will reach 1.1 million tons per year, while current Group III base oil capacities are expected to expand to 492,000 tons per year by 2020, according to InfoTEK.

An important trend in the development and production of base oils around the world is the building of new and upgrading of existing processes. With this projected new capacity, total global production of Group II and III base oils will more than double by 2020, Kapustin concluded. There will also be an increase in the proportion of high viscosity index base oils. Finally, Group I base oil manufacturing will decline, and it will be replaced by Group II.