Following the crash of crude oil prices, Russias gross domestic product plunged from U.S. $1.9 trillion in 2014 to $1.2 trillion in 2015, and the economic meltdown is expected to last until 2017, said the consultancy, citing International Monetary Fund data. The Fund predicts the countrys economy will contract by 1 percent in 2016.

The finished lubricant imports in Russia are decreasing because it is more profitable to buy domestic products due to the high U.S. dollar rate, said Tamara Kandelaki, head of InfoTek. For a number of economic reasons, such as the import substitution policy introduced by a number of state-owned oil majors, the countrys automotive and industrial segments are shifting toward Russian-made lubricants.

In 2015, the Russian government changed tax legislation for the oil and gas industry to stimulate refinery upgrades and to increase the depth of crude processing. The goal is to gradually increase the tax on mining by 70 percent and reduce customs duties on crude oil and light petroleum products by about the same percentage, Kandelaki explained.

Also, the excise tax was reduced by 2.2 times, taxes were frozen for one year and export duties were maintained at the 2015 level. The customs duty on black petroleum products will rise to double the customs duties on oil by 2017.

The duty reductions enhance the margin on base oil production in Russia, she said. This creates additional investment opportunities for modernization and is profitable for the industry, even at low oil prices.

In 2015, Russias total base oil capacity amounted to 2.4 million tons, and the utilization rate was 86 percent, according to InfoTek. Of these, 2.2 million tons are API Group I, while 90,000 tons are Group II and 132,000 tons are Group III.

After the collapse of theSoviet Union, the countrys base oil production capacity amounted to 4.2 million tons. In the years to follow, that proved unfeasible. Meanwhile, the countrys petrochemical industry closed several base oil plants and rationalized a total of 1.5 million tons of Group I capacity, Kandelaki said.

At present, Lukoil is the largest base oil marketer in Russia and produces 923,000 tons of Group I base oil and 32,000 tons of Group III base oil in Volgograd and Perm. It is followed by Rosneft, which produces 665,000 tons of Group I base oils at Novokuibyshevsk, Angarsk and Yaroslavl.

Gazprom Neft has 375,000 tons of Group I base oil capacity at its lubricants production site in Omsk and Yarosavl. Bashnefts 250,000 ton Group I facility is located in Ufa. In late 2014, Russian oil major Tatneft began to stream 90,000 tons of Group II and 100,000 tons of Group III base oil at its plant in Nizhnekamsk, Kandelaki said. InfoTek found that the managements of all the aforementioned plants have plans to modernize or rationalize their capacities.

Tatnefts Nizhnekamsk plant is getting ready to relaunch its long idled 10,000 t/y Group IV PAO production in 2016. Lukoils Volgograd plant is working to improve the quality of its Group I and Group III base oil by downgrading the former to 180,000 t/y and upgrading the latter to 75,000 t/y by 2019. In Volgograd, the company also plans to introduce new 180,000 t/y Group II production in the same timeframe.

Rosneft is constructing new Group II and III base oil capacity at its refineries in Angarsk and Novokuibyshevsk. The former site expects to upgrade to 128,000 t/y of Group II and 32,000 t/y of Group III. The latter site is poised to upgrade to 217,000 t/y of Group II and 130,000 t/y of Group III by 2020. Both sites also expect to reduce their Group I capacities to 120,000 t/y and 73,000 t/y, respectively, by 2020.

Gazprom Nefts Omsk base oil plant increased its Group I capacity to 280,000 t/y, while it expects to add new 150,000 t/y Group II and 50,000 t/y Group III production by 2020. Slavneft, a joint venture between Gazprom Neft and Rosneft, recently announced it expects to stream its 100,000 t/y Group III base oil plant in 2017.

InfoTek found that that Russia has 56 blending plants, with a total capacity of 730,000 t/y; they are operating at a 70 percent utilization rate. Only 16 plants produce automotive lubes, and some independent blenders closed in the last few years, Kandelaki said. The rest of the plants produce industrial oils, greases and coolants.

The consultancy also found that the oil majors operate five stand-alone blending plants, facilities that are not part of a refinery complex. The total capacity of these five blending plants amounts to 226,000 tons, while the blending capacity of independent producers, including the 40,000 t/y Fuchs plant in Kaluga and the 180,000 t/y Shell plant in Torzhok, amounts to 504,000 tons. In 2015, the former group of plants produced 197,000 tons of finished lubes, while the latter produced 311,000 tons.