Rosneft Pushes Hard Against Western Sanctions
Russian lubricant companies like Rosneft step up domestic production to meet import substitution goals. But will it bear fruit in the long run? Boris Kamchev provides a snapshot of the companys operations.
Russian oil major Rosneft is upgrading its petrochemicals output, which includes developing or starting manufacture of numerous specialty products, new lubricant formulations and technologies for the production of base oils. The company hopes the effort will secure it a leading position in the government-driven import substitution program.
The import substitution program is the Kremlins attempt to reduce reliance on a range of imported goods, from foodstuffs to pharmaceuticals and petrochemicals, by boosting domestic output of key products. The scheme has had varying degrees of success to date, depending on the economic sector.
The intense pace of Rosnefts modernization program gives it a main role in the states protectionist policy, which is a push-back against Western sanctions and a way to adapt Russias economy to an ongoing slowdown since a recession in 2014 and 2015.
When asked if the company benefited from being a driving force in the import replacement push, Tibor Leimeter, RN-Lubricants deputy general director for product development and quality control, told LubesnGreases, Absolutely. RN-Lubricants is Rosnefts lubricants division.
Sanctions were first imposed by the United States and European Union in 2014 following Russias invasion and annexation of Crimea in Ukraine. They were expanded in several waves that targeted highly positioned business and government officials, as well as entities such as banks, oil producers and defense contractors. Rosnefts upstream activities are targeted by the sanctions, and Western oil companies and banks are not allowed to participate in equipment supply, exploration projects, technical knowledge sharing and forming joint ventures.
Rosnefts 2018 annual results show an increase of its combined domestic base oil and lubricant production, which jumped 36 percent to approximately 1 million metric tons per year in both 2017 and 2018, compared with 2016 volumes. This increase was primarily due to the acquisition of fellow Russian oil major Bashneft, of which Rosneft took a 57 percent stake in the company in October 2016. Bashneft continues to operate as a separate entity, however, and has a base oil unit at its Novo-Ufa refinery in Ufa, Bashkortostan.
In the first quarter of 2017, Slavneft, Rosnefts 50-50 joint venture with Gazprom Neft, opened a 100,000 t/y API Group III base oil plant at its refinery in Yaroslavl, northeast of Moscow.
Russias domestic market consumed 65 percent of Rosnefts total production volumes in 2018, while it accounted for 63 percent in 2017. The companys sales of what it refers to as premium lubricants rose by 21 percent to 84,000 tons in 2018, thanks to stepped-up marketing in the [business-to-business] and retail segments, Rosneft said in its annual report.
The company is set on a path to accomplish maximum import … replacement and manufacturing localization. This is one of our main strategic goals in achieving more efficiency, sustainable development, transparency, social responsibility and technological independence, the report said.
Last year, the company also increased its petrochemical product exports by 3 percent and continued shipments to destinations such as Cuba. In accordance with the government agreements between the Russian Federation and the Republic of Cuba, we shipped more volumes of diesel fuel and base oils to the Caribbean island, Rosneft said.
The company began to ship petrochemicals to Cuba in 2017 after Venezuelas national oil company, Petroleos de Venezuela S.A., which regularly supplied Cuba, faced near bankruptcy following another set of U.S. sanctions, which were enforced against a backdrop of prolonged economic and political crisis in Venezuela.
As a result of import replacement and the drive for localized production, foreign companies working in Russias lubricant industry lost significant market share since 2014. Imports of finished lubricants into Russia have decreased by 30 percent since 2014, according to B2X, a Moscow-based consultancy. B2X also found that Russia imported 431,000 tons of finished lubricants in 2014, while this number dropped to 303,000 tons in 2018.
The exception are base oils imports that have been growing steadily since 2014, driven by the development of local production of foreign lubricant marketers and Group III base oil demand from … Russian manufacturers, Olga Poltavskaya, the consultancys managing partner, told GBCs Base Oils and Lubricants conference, held in Moscow in May.
In 2014, Russia imported 63,000 tons of base oils, while this number was 82,000 tons in 2018. Three foreign oil majors who operate lubricants blending plants in Russia are Shell, Fuchs Petrolub and Total. Anglo-Dutch energy giant Shell operates a 180,000 t/y plant in Torzhok, Tver Oblast. Independent German blender Fuchs operates a 40,000 t/y facility in Kaluga, Kaluga Oblast. In October 2018, French oil major Total opened a 40,000 t/y blending plant in Vorsoino, Kaluga Oblast. (Despite being produced by foreign operators, output from these blenders is considered to be made in Russia as far as official statistics are concerned.)
Last year, Rosneft introduced a new line of lubricants for use in the cold of the countrys far northern regions that secures reliable operation of machines in extremely low temperatures.
Rosnefts research and development team also revived the formulation of a Soviet-era fire-resistant oil used for steam turbines found in nuclear energy power generators, produced under the Omti brand. The formulation chemistry was lost during the 1990s and since then had been imported from the U.S.
Omti turbine oil is formulated with trixylenyl phosphate, an anti-wear additive used in applications where high temperatures could ignite mineral base fluids. Fire-resistant oils such as Omti are difficult to ignite and inherently self-extinguishing. Besides its high oxidative and thermal stability, these oils have good hydrolytic stability. They are also reliable in the electrical systems of high-power nuclear reactor turbines, according to the company.
Another product that the company is developing in an effort to replace imported equivalents is a white oil for the production of animal vaccines. The product is being formulated in the former Russian oil giant Yukos research and development center in Moscow, now operated by Rosneft. Russia has an estimated 18.7 million head of cattle, 23.8 million pigs and 548 million poultry birds, offering a significant local market for vaccines made with its white oil.
This project is in the development phase. White oils are used in the production of food and medicines, and those used in the Russian pharmaceutical industry are only imports, said Yuri Noskov, deputy head of the carbonylation lab at the center. (Carbonylation is the reaction of carbon monoxide with organic and inorganic substances.) Rosnefts white oils will be produced in small batches in the companys Novokuibyshevsk oils and additives plant starting in 2021, Noskov added.
Rosneft is also expanding its presence in the synthetic base oil space by producing a polyalphaolefin.
We are also developing a catalytic synthesis technology for production of high-viscosity polyalphaolefins. Currently they are being produced here on a laboratory scale. Their commercial production is planned in the coming years and will also be realized in the Novokuibyshevsk plant, Noskov said.
The company is also developing oils for rocketry and aerospace technology and additive packages for all-season, energy-efficient hydraulic oils.
In accordance with the assigned plans for the realization of innovation-targeted projects, we are also developing a technology for production of high-viscosity, low pour-point base oils, the company said.
2022 is the due date for serial production of all the products Rosneft is currently developing, according to the company.
I call for a higher awareness for the strategic priorities of our company and their execution in accordance with the strategy Rosneft-2022, Gerhard Schroeder, the former German chancellor who now heads Rosnefts board of directors, said in a letter to the companys shareholders and investors.
Schroeder added that the strategic aim is the active rolout of new technologies in crude oil exploration and production and in petrochemical manufacturing and sales.