Black Sea base oil exports have been severely curtailed by the undeclared war between Russia and Turkey after Turkey shot down a Russian military jet last November. This situation illustrates a classic toxic combination of bad politics, poor diplomacy and fiery propaganda threatening both business and each countrys economy.
However, due to the animosity and failed trust, difficulties arose in making money transfers and dealing with Turkish companies, said Denis Varaksin, base oils and slack wax project manager at Berlin-based DYM Resources GmbH, in a presentation at the ICIS World Base Oils and Lubricants Conference in London in February. It felt surreal, since Turkey is the number one holiday destination for Russian tourists, as well as a big consumer for Russian oil and gas products.
Greece Replaces Russia
Solvent Neutral 150 is the primary Russian base oil product exported to Europe, Turkey and elsewhere. Turkey, especially, has been a very important destination for Russian base oil.
However, in the last couple of years, Turkeys base oil imports from Russia declined tremendously. They slumped 44 percent in 2014, compared to the previous year. According to Varaksin, Russia exported nearly 190,000 tons of base oil to Turkey in 2013. In the following year, the volume slumped to 106,000 tons, rising to just 151,000 tons in 2015.
There are a variety of reasons for the drop-off. In 2014, the decline was caused by multiple factors such as a 3.7 percent duty for Russian base oil imports imposed by the Turkish government and a 36 percent growth in base oil imports from Greece compared to 2013, Varaksin reported. Also, there was a 10 percent drop in Turkish car sales in 2014. Last year, Greece surpassed Russia as the largest base oil exporter to Turkey because it was a more secure partner that offered better quality products with shorter shipping routes. He added that Russia and Greece constitute 70 percent of total Turkish base oil imports.
Europe is the largest base oil destination for Russia. In 2015, the country exported around 397,000 tons of base oil products to Europe, almost one-half of its total exports, according to DYM. In 2015, Russian exports dropped at the highest rate since 2009, by both river and rail transport, Varaksin said. Exported volumes have dropped 35 percent since 2010, despite a rebound in 2013. In addition, Russia is now losing its markets in Southeast Asia, India and the United Arab Emirates.
DYM found multiple reasons for this situation such as lower demand from export markets and increased domestic demand due to Russias state-sponsored import substitution policy. In addition, Lukoils Perm refinery suffered from production issues, and the companys Nizhny Novgorod base oil unit closed last year.
Traditional Export Routes
The trader also found that after the Baltic, the Black Sea is the second largest export gate, with about 20 percent share of total Russian base oil exports. At least five ports in the Azov and Black Seas can handle base oil transshipments. According to Varaksin, Kavkaz port has base oil only tank storage, but it has not been used recently because the port exports other oil products. Novorossiysk is by far the biggest Russian port for flexitank exports, but volumes dropped by one-half in 2015, to 43,000 tons, he said.
By export route, Russias 2015 base oil volumes are:
Baltic Sea: 397,000 tons from Svetly, in the Russian exclave of Kaliningrad, and the Latvian ports of Riga and Liepaja.
Black Sea: 185,000 tons from Fedosia and Novorossiysk.
Selenga River: 70,000 tons to China from Naushki on the Russian/Mongolian border.
Other: 285,000 tons via other routes.
In 2015, 80 percent of Russias base oil exports was controlled by five refineries. Lukoils Volgograd plant controlled 35 percent, followed by Rosnefts Novokuibyshevsk (12 percent). Rosnefts Angarsk, Lukoils Perm and Gazprom Nefts Omsk each held 11 percent of the total exports. Slavnefts Yaroslavl accounted for 4 percent, Bashnefts Ufa 3 percent and Tatnefts Taneco just 0.5 percent. The rest, or 13 percent, was exported by other companies.
Gazprom is actively decreasing exports and focusing on finished lubricants markets in Russia and the Commonwealth of Independent States, Varaksin said. He added that Lukoils export share dropped by about 50 percent because it had to change its logistic scheme in the Black Sea due to sanctions against the Feodosia port and not exporting through floating storage.
In addition, Rosnefts Novokuibyshevsk refinery exports to the CIS and Baltic countries, while its Angarsk refinery in Eastern Siberia ships to China. However, this refinery also was exporting to Baltic countries and Ukraine due to weak demand in China in 2015, according to Varaksin.
Volgograd is Russias single largest base oil exporter, shipping 326,000 tons in 2015. Its 550,000 t/y base oils unit is the biggest in Russia and the CIS. The refinery exports mainly Solvent Neutral 150, 500 and 900 products via the Volga-Don canal. The same site also produces 55,000 t/y of Group III base oil.
In the spring of 2015, Lukoil shut down its Nizhny Novgorod 250,000 t/y base oil unit because of low margins and intense competition in Europe, Varaksin reported. The refinery accounted for 17 percent of Lukoils base oil output. Seventy percent of the refinerys base oil exports were going through Lukoils terminal in Svetly, and about 3 percent went to Novorossiysk port for flexitank export.
Central Asia, Caucasus
The Group II and III base oil refinery in Nizhnekamsk, Tatarstan, operated by Tatnefts Taneco, started streaming in December 2014. It was the first new base oil unit built since the Soviet Union broke up. It produces 2.5-centiStoke Group II and 4-cSt Group III base oils. DYM found that its water white color, high quality Group III (viscosity index over 130) and Group II products are suitable for niche applications. The refinerys yield of light products is 67 percent while its refining depth ratio is 74 percent, the highest for any Russian refinery.
It started to export in March 2015 and loaded 4,500 tons for overseas markets between March and December 2015, Varaksin said. At the moment, it exports mainly to the European Union, India, UAE and other countries.
Two more refineries that use the Black Sea export route are Turkmenistans Turkmenbashi 80,000-t/y Group I+ base oil plant and Azerbaijans Group I refinery in Baku. Turkmenbashi has average production of 2,500 to 3,000 tons of SN 180 and 2,500 to 3,000 tons of SN 350 per month. It is a Group I+ product, almost Group II due to a new catalyst. Viscosity index is greater than 100, saturates greater than 92 percent. Besides the Black Sea routes, the refinery also exports to Iran and Central Asia, Varaksin observed.
He added that the product has high quality and bright color (0.5), low sulfur (below 0.03 percent) as well as high viscosity index. While closure plans for the Baku refinery are constantly changing, it is the only naphthenic refinery in the CIS, and it exports bulk cargos of 3,000 tons to Turkey via Batumi, Georgia, DYM said.
Another important player in the region is the Naftan refinery in Belarus. It exports SN 150, 500, 1200 and [smaller volumes] of 4-cSt Group III base oils, mainly to the Baltic ports and Ukraine.
At 3,500 kilometers away from the nearest port, Uzbekistans Fergana refinery is faced with expensive rail tariffs. Its base oil plant ships industrial grades, as well as SN 900 Group I base oil. In its best years, it exported up to 20,000 tons monthly, Varaksin concluded.