In the last few years, Russian oil behemoth Rosneft has been trying hard to keep up with its domestic competition. In 2013, after the $55 billion takeover of the ex Russo-British joint venture TNK-BP, the Kremlin-backed state oil giant became the worlds largest oil company by proven oil reserves. Since, it embarked on a large capital investment program, primarily spending on crude oil exploration to increase its output.
More quietly, it also has been turning its attention to the lubricants business.
Rosneft is the second-largest lube company in Russia and holds around a 20 percent share of the countrys market. It primarily offers industrial oils such as transformer, turbine and gear oils for the metals and machine building sector, and hydraulic oils for road and agricultural machinery.
The company operates two base oil refineries (in Novo-Kuibyshev and Angarsk) and four lubricant blending plants, but its principal focus has always been on crude, fuels and other petroleum products. Most of its lubricants and base oils are outdated Gost products, suitable for Russias vast industrial sector but pass for modern equipment and vehicles. (Gost is Russias obsolete specification standard.)
High quality base oils and lubricants are sophisticated, research-and-development-needy products, and while native and foreign competitors were diving into the countrys lubricants business, Rosnefts management seemed to be pushing it aside.
That began to change recently, when the company revealed it has established a subsidiary to deal with its lubricant production and marketing. The revelation was actually shy and informal, at the sidelines of an energy meeting in Moscow last May, where LubesnGreases heard the rumors. Word was spread by company officials such as Alexey Telepen, general director of Nefteprodukt, Rosnefts defense and aerospace specialty lubricants plant located in Moscow, and Mikhail Semenov, head of the technology division of the newly founded business unit. Both officials confirmed that Rosnefts lube company was established in late 2013.
In Russia as anywhere, creation of such a venture normally would be introduced with great fanfare. Rivals such as Lukoil and Gazprom are well known for their marketing efforts to popularize their lubricant branches, and have churned out quite few automotive products with new brand names.
It turns out Rosneft keeps its lubricants business low profile for a reason – there is not that much to show. It has no established lubricants company logo and brand name, and more important, it has no formally appointed general director who will coordinate the companys nascent departments.
The oil major has experienced tough times since last summer, when it was targeted by Western economic sanctions against Russia over the countrys actions in Ukraine. The problems only worsened with the crash of crude oil prices, sharp ruble devaluation, and blocking of foreign lending markets. All this led to difficulties in repaying the companys creditors after the $55 billion acquisition of TNK-BP from its co-owners BP and AAR, a group of Russian tycoons. BP now holds about 20 percent of Rosnefts shares, with the government owning the rest.
Considering the looming economic crisis in Russia, outstanding debts and the Western financial embargo and sanctions, it seems likely that Rosneft will continue to keep the expansion of its lubricants business on a back burner for the foreseeable future. In February the company said it plans to slash its capital expenditures by 30 percent in 2015, a considerable cut of its $14 billion to $16 billion spend last year.
Puzzled over the obscure creation of Rosnefts lube subsidiary, LubesnGreases sat with Tibor Leimeter, one of the few appointed officials that work on giving life to the project they call RN-Lubricants LLC. The idea to establish a lube subsidiary simmered in Rosneft even before the acquisition of TNK-BP, said Leimeter, the companys deputy general director for production.
After the sale was closed we decided to unite the lubricant operations of both companies, TNK and Rosneft, he said during an interview at the sidelines of the RPI Lubricants Russia conference in Moscow in November. We have all necessary departments, needed [management] processes and international and domestic certification to operate as a lubricants company.
In 2013 Rosneft produced around 755,000 metric tons of base oils and lubricants, of which 45,000 tons were transformer oils. Our main aim is to increase the market shares in the high quality motor oil and in the premium industrial oil segments, Leimeter said.
The fledgling company aims to ease Russian industrys reliance on Gost-spec products, and to supplement them with new formulations. In the process, it pledges to fight the imported competition. This depends very much on the modernization of our two base oil production sites in Novo-Kuibyshev and Angarsk. The former gets ready for a big 400,000 ton per year revamp that will allow us to stream Group II base oils in 2016 and Group III base oils in 2018, Leimeter confirmed.
Currently, the Novo-Kuibyshev refinery in Samara region has capacity to make 230,000 t/y (4,400 barrels/day) of API Group I base oils, as does Angarsk, in Siberia.
The three major production sites – in Angarsk, Novo-Kuibyshev and Moscow (Nefteprodukt) – produced 588,000 tons of base oils, lubricants and additives in 2013, according to Rosneft. It boasts of being the second largest lubricant marketer and the number one additives producer in Russia.
Rosneft is also a large exporter and around 50 percent of its total base oil production is shipped to neighboring countries, mostly Kazakhstan and other Central Asia countries, as well as Ukraine. Its finished products are sold in Turkey and in the Middle East as well. We are planning to expand our sales in China and to increase our presence in the Middle East. Also, after we promote and introduce our new brand name, we aim to penetrate the European market as well, Leimeter stated.
Despite the reality of sanctions, Russias weak currency and the recession, he asserted that there is no obstacle to the company retaining its strong foothold on the domestic market. Our strength is logistics. Our production facilities are very conveniently dispersed in key regions across the country and basically we cover its whole territory, Leimeter said.
With the 2013 upgrade of the blending plant in Novo-Kuibyshev, the 340,000 t/y lubricants and additives plant expanded its coverage and now supplies all of central Russia, part of Siberia and Kazakhstan.
The company also operates a 250,000 t/y blending plant in Ryazan, located at a refinery formerly owned by TNK-BP. This lube plant uses base oils supplied from the Yaroslavl-based Slavneft, a joint venture between Rosneft and Gazprom Neft which operates a 250,000 t/y Group I base oil plant. (Ryazans own 275,000 Group I base oil plant closed in 2010.)
In Ryazan, our main focus is production of high quality industrial lubricants that can easily compete with their imported counterparts, Leimeter said, adding that lubes from this factory are shipped primarily to the European part of Russia and Ukraine. The oil majors Angarsk lubes facility supplies industrial and automotive oils to the countrys Far East market.
However, the company doesnt have plans to expand its production into foreign countries, following the steps of its domestic counterparts such as Lukoil Lubricants, which invested heavily to acquire production sites in Europe in the last few years. I dont see any necessity in it because the market, especially the Western one, is flooded with many players and productions facilities, Leimeter said.
In the premium automotive oils segment, Rosneft now produces an assortment of synthetic and semi-synthetic diesel and gasoline engines oils branded as Revolux and Magnum (TNK-BPs former label), but these products market share is diminutive compared to the companys overall output, which is dominated by industrial oils, according to Leimeter.
RN-Lubricants new branding and its visual appearance are still works in progress and we will be hearing about it very soon, he promised. We are now preparing a report on our strategy and the companys projected budget that needs to be approved by Rosnefts top management, finally.