Since last autumn, officials from the top three lube makers, Gazprom Neft, Rosneft and Lukoil, have appealed to large Russian companies in the machine building, metallurgy, oil and gas exploration, refining and agricultural sectors, as well as to regional authorities, to buy domestic products. All these enterprises hope to tap into the vast subvention funds aimed at substituting for imported technologies and products while the country is ravaged by unfavorable economic conditions caused by the sanctions. Some industry people justify this policy.

Lubes To Do Their Part

The industry has been moving in this direction over the last few years, Oleg Tsvetkov, head of the oil and lubricants department at All Russia Research Institute for Oil Refining (VNIINP), told LubesnGreases in an interview. Import substitution has been given new momentum because of the uncertainty that stems from the possibility of further sanctions by the West, orchestrated by the United States.

At an oil and gas summit in Moscow in March, Russias Ministries of Energy and Industry and Trade announced concrete steps for import substitution in the countrys energy sector. An interagency meeting on the issue on March 25 was attended by the largest oil and manufacturing companies in the country. Although a major focus is on oil and gas exploration and production activities, lubricants are also expected to do their part in the import replacement effort.

The lubricants industry is planning a tentative program that aims at substituting part of the [now-imported] lubricants and additives, including those used since Soviet times, Tsvetkov said, adding that the goal would be realized through different projects. All cards are now in the hands of the ministries and company officials, he said.

Suppliers like Rosneft, Gazprom and Lukoil claim it is a win-win situation for them, because they can use the state funds for a wide variety of projects ranging from marketing to research and development. Furthermore, they are now becoming more price competitive because of the rubles devaluation. When the rates of all major [convertible] currencies are peaking against the ruble, it a competitive price advantage for us because our production expenses are paid only in rubles, Alexander Dybal, Gazprom Nefts management board member and CEO for corporate communications, said in a recent press release.

Rosneft and Gazprom Neft already have formed special teams within their sales and marketing departments to address import substitution efforts. Since late 2014, Rosneft has sealed numerous lubricant substitution deals, primarily with large players in the countrys machine building, metallurgy, power generation and oil and gas exploration sectors, as well as in agriculture. Gazprom Neft has been more visibly active in lobbying regional governments to drop imported products and use Gazproms motor oils and fluids instead to lubricate the transportation vehicles and equipment used by municipalities, utilities and road building companies.

Two-Way Process

The effort is a two-way process. According to Gazprom Neft, its technological partnership and import substitution department is actively engaged in monitoring the Russian market for goods and materials, searching for possibilities to replace imported products with domestic analogs.

The company will work closely with other Russian companies that can create new materials and products used in our activities and processes. Our partners can expand their line of products in relation to our specific projects in oil and petrochemicals production, the company said, adding its policy to replace imported products has been active for some time. Around 90 percent of the funds allotted for Gazprom Nefts external purchases are used for supplies that come from our Russian partners, Abdula Karaev, head of the companys purchase and building department, said in a recent press release.

Lukoil is Russias largest lube maker, and its lubricants subdivision is lobbying companies in the automotive and industrial sectors that operate imported vehicles and machinery to switch to Lukoil lubricants. The company also said the import displacement policy has been on its corporate agenda for some time. I assume that the economic situation will prompt end users to review their positions [toward imported products]. In the last few years, our efforts have been aimed at displacing imported production. Now, these efforts should only accelerate, Maxim Donde, head of LLK International, told LubesnGreases.

The import replacement mobilization is an ambitious state-sponsored policy that resembles the old socialist method of economic planning. Russia consumes around 1.7 million tons of lubricants annually. In 2014, consumption dropped to 1.5 million tons because of the economic slowdown. LubesnGreases asked LLK and Gazprom Neft Lubricants, the energy giants lube arm, if they really can satisfy the huge demand of the countrys numerous industry sectors.

We are ready to give our best effort, Donde said. The company covers 45 percent of the countrys lubricant production. Concerning the economic situation [sanctions] and its effects, this year we expect multiple increases in demand for our high-performance line of industrial oils.

Gazprom boasted that in the last year it increased its sales to Russias mining sector. At the moment, we have a lot of partners from the countrys industrial sector, said Alexander Trukhan, Gazprom Neft Lubricants general director. To my knowledge, around 60 percent of the enterprises working in the countrys mining industry use our products. All these companies switched their lube supply from imported products to Gazproms lubricants.

Refining Not a Priority

In all, the government program identified 12 key applications where the Russian scientific community should work to substitute imported technologies, according to the Ministry of Industry and Trade. At the top of the list are upstream technologies developed by Western oil companies, such as directional drilling, hydraulic fracturing (fracking), deep-water drilling, production of pump and compressor equipment, as well production of flexible oil-well tubing.

Refining technologies are not a priority because the downstream sector has not been affected by the sanctions. Rosneft and Gazprom Neft are developing hydrocracking and hydrocatalytic processes for base oil production, using ExxonMobil and Chevron Lummus technologies. Both oil majors confirmed their plans to start API] Group II and III base oil production in different refineries by 2019, the first to go on stream in Novokuibyshevsk by the years end.

In some oil and gas production areas, the country had been 80 to 90 percent dependent on imported technologies. By 2020, we expect these measures to decrease the imports share of Russias oil and gas engineering sector from a 60 percent to 43 percent, said Energy Minister Alexander Novak.

The United States and Western European sanctions took full effect in September 2014. They target quite a few Russian energy companies. Rosneft, Transneft and Gazprom Neft are on the EU list. The U.S. list added three more energy giants: Gazprom, Lukoil and Surgutneftegas. All are banned from obtaining debt financing in international markets. In addition, there is an embargo on Western exports to Russia of energy equipment and technology for deep-water, Arctic and shale oil exploration and production.