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No. 4, 2012

Anastasia Rybalchenko


LUKOIL oils are confidently taking over the world market for lubricants

The Company's base and marine oils are now supplied to all continents and the geographical coverage of market presence by finished oils is expanding by the year. The Company does not conceal its ambitions: in seven years, sales of LUKOIL finished oils should rise five-fold, thereby increasing the market share in Europe, the Middle East and Central Asia.

Expanding horizons

In developing the business of sales of LUKOIL finished oils produced in Russia, the Company traditionally focuses on the most capacious markets of neighboring countries - Ukraine, the Republic of Belarus and Kazakhstan. In 2011, the geographical coverage expanded through supplies to Afghanistan and Mongolia. It is noteworthy that the development strategy in each new country of presence is based on profound analysis of the market and an individual approach. "We endeavor to take into consideration all regional specifics: economic, cultural, religious and legislative. Otherwise business will not succeed," says Deputy General Director of LLK International Alexey Strelchenko. It is just such a detailed approach that has helped the Company achieve historically maximum sales volumes of finished oils - during 2011, this indicators rose by 50% year on year.

The rise in sales volumes is largely a result of expanding the client portfolio. According to head of the Export Sales Division of LLK International Roman Milash, last year the Company concluded an agreement on supplies of locomotive oils for Kazakhstan Railways General Electri locomotives, replacing a serious and strong competitor - Shell. The Company is also supplying aviation oil to Uzbekistan and Turkmenia. Other achievements include opening of Central Asia's first mono-brand store, in Bishkek, and successful cooperation with Kazakhstan hypermarkets and vehicle maintenance garages. Having proved their effectiveness in Kazakhstan, programs for working with maintenance garages have now been laun-ched in Kyrgyzia and Armenia.

This year, the list of the main achievements has been supplemented by contracts for filing the General Motors Power Train Uzbekistan vehicle engine production plant in Tashkent and the Chance vehicle assembly works JSC AgromashHolding in Kustanai (Kazakhstan). Successful trials at JSC TNK Kazkhrom of the ENRC Group (of LUKOIL GEYSER and LUKOIL AVANGARD) and at Ivolga-Holding (of LUKOIL AVANGARD ULTRA and LUKOIL VERSO) resulted this year in LUKOIL product supply contracts, replacing Shell and Fuchs lubricants. Pilot supplies of oil are going to the biggest enterprise in Kazakhstan's mining and metallurgical sector - JSC Arselor Mittal Temirtau, as well as the oil production company Buzachi Operating Ltd.

"The Company's deserved prestige among major industrial enterprises in the region allows it not only to expand cooperation with existing business partners. LLK International's strong positions on the market strengthen its competitive advantages when negotiating with potential clients operating similar equipment," says Robert Sagatelov, head of the finished oil sales department. One such scenario consists in supplies of oil for Evolution series E33 locomotives for GUP Tokhi okhani Tochikiston (Tadjik Railways) by the Kazakhstan JV General Electri - Lokomotiv Kurastyru zauyty. The success of the contract for supply of LUKOIL locomotive oils was made possible largely thanks to work performed in previous years to obtain approvals and conduct operating trials on General Electri locomotives in Kazakhstan.

Overseas springboards

Development of sales of finished oil manufactured abroad is today managed from three of the Company's main production and commercial centers - Finland, Romania and Turkey. The oil-blending plant in Finland acquired within the scope of purchase of the company TEBOIL is the supply center for Scandinavia and Northern Europe. Some oil from this plant is also supplied to Russia and Kazakhstan.

The Company's production of finished oils at the Romanian Petrotel plant is geared to Eastern Europe. The main consumers of this plant's lubricants are located in the Czech Republic, Hungary, Serbia, Montenegro, Greece, Bulgaria, Moldavia, Ukraine, Bosnia and Herzegovina. The launch of new blended oils production in 2011 is making it possible, in step with market trends, to develop sales of high-margin products, gradually replacing the historical orientation of the business on large volumes of low-margin products.

The most substantial successes have, however, been achieved by the Company's Turkish subdivision - LLK Eurasia. Since 2009, after LLK International took control of the Akpet plant for production and packaging of motor oils, production at this plant has more than trebled, exports doubled and supplies to the domestic market quadrupled.

Turkey, with its population of over 73 million and geographical proximity to the LUKOIL Group's raw material sources, is one of the absolute priority overseas markets. Similarly to the business structuring system in Russia, the Company here combines direct sales to major final consumers with sales through dealership networks. Tenders have been won and direct supplies of LUKOIL lubricants have already been launched to enterprises in the priority branches of industry. In the transport sector, these are iZULAS (the municipal underground railway system) and TCDD (railways); in the coal industry and extraction - the companies Tki Cli, CSR, Eldemir and Bektaslar Gubrecilik, and in the power industry - ilken Enerji. For Turkey's railways, LLK-Eurasia is virtually the exclusive supplier of oils; supplies have also begun to the Turkish locomotive manufacturer Tulomsas.

Acquisition of the oil-blending plant in Turkey allows LUKOIL lubricants to be promoted not only on the Turkish market, but also to a number of countries of the Middle East and North Africa. The over 30 million population of Iraq, which neighbors on Turkey, is the second on the list of priority sales market in this region. The Company's products first appeared here in 2009 and, in 2012, it plans to occupy a 4% overall share of the market.

The Company's sales volumes are growing confidently in other spheres, too. The geographical coverage by supplies grew once again this April, when the Company started actively developing the lubricants market of the People's Republic of Bangladesh.

The geographical coverage by supplies of LUKOIL marine oils has been on a similar scale over the last three years. As of today, the LLK Marine supply network covers about 600 ports in 62 countries. It should be noted that LUKOIL-NAVIGO oils are a premium segment product and are positioned in the same price range with world leaders. One of the main indicators of the brand's premium status is the number of fillings of the most advanced and big vessels being built. During 2011 alone, LLK-Marine won the right to prime a 71 super-vessel at ship-building wharfs in China, Korea, Turkey, Romania, Russia, Japan, Germany and Ukraine. During the first quarter of 2012, tenders were won for supplying oil for another 36 ships.

As for base oils: up to 2008, they were mostly supplied only to Europe, whereas today they go to North and South America, Africa and Eurasia, a total of 35 countries (including Argentina, Ecuador, Columbia, Cuba, China, the USA, Korea, Vietnam, Singapore, Thailand, India, Sudan, Israel and others). It is noteworthy that LLK International is the only Russian producer supplying base oils not only in bulk (by tanker or railtank cars) but also in flexi-tanks. Initially, this project was intended for supplying LUKOIl Group needs for production of oil containers but, in time, it grew into a separate business. Shipments go through three terminals: the ports of Svetly (Kaliningrad, on the Baltic Sea), Theodosia (Ukraine, on the Black Sea), and Novorossiysk (Russian Federation, on the Black Sea). LLK International has for a few years now been concluding long-term contracts for supply of base oils with world-renowned companies, including Chevron, Afton, Petronas and others (among them state-owned companies from Middle East countries).

Quality and service

It is important that the growth of the Company's global presence is measured in terms not only of volume but also of quality level. As Vsevolod Shirinkin, head of the department for sales of base oils and raw petroleum products, asserts, this year, LLK International was awarded "A" status in the base oil supplier rating under the Chevron international classification. One more example of the Company's success as a supplier of high-quality base oils was the official invitation from the Argus Media agency for LLK International representatives to participate in the thematic conference held in Houston this last May. Alexey Strelchenko spoke about his vision of the prospects for production of base oils in Russia and shared the Company's achievements in the logistics sphere. "Particular attention was focused on aspects of quality, since, in terms of this indicator, LUKOIL base oils are way ahead of the output of other Russian producers," Alexey Strelchenko noted.

One more secret of the Company's success consists in the excellent and global service it provides. In particular, sale of premium products is supported by the high quality of services and professionalism of the distribution network's operation. "Today, LLK International distribution on the territory of Kazakhstan, Ukraine, the Republic of Belarus, the countries of Central Asia and the Trans-Caucasus is one of the most competitive compared to other Russian companies. We are completely satisfied with the quality of our dealers' work. They truly bend their efforts and resources to build up a long-term business, construct new, modern trade outlets, service stations and oil replacement points, decorated in the LUKOIL corporate style," asserts Roman Milash.

The new stage in the promotion of LUKOIL oils in the countries of Central Asia is based on plans to conduct, in conjunction with its dealers, marketing events to develop the "B2B" and "B2C" segments. At the beginning of the year, an individual plan was approved for each country. Yet one common accent is made in the joint work - serous advertising support for sales of the LUKOIL AVANGARD and LUKOIL LUX groups of oils.

With an eye on China

The development strategy for LLK International's overseas activities presupposes a rise in the level of distribution and a further increase in the company's presence on traditional markets in the countries of Europe, the Middle East, and Central Asia. The next sphere of expansion for the Company's ready oils will be the rapidly developing countries of Southeast Asia, with the key focus on China.

According to official statistics, China today imports 2.7 million tons of base oils a year. At the same time, China itself produces 8.3 million tons of lubricants. Over the last decade, the demand of the Chinese market for lubricants has grown by 7%. Last year, 7.1 million tons of lubricants were consumed, against 6.8 million tons in 2010, this largely being explained by the rapid growth of the motor industry. There are now over 100 million cars in the country and global car-manufacturers (including VW and Ford) continue to build new car plants throughout China. This is why the Chinese market is a priority for LLK International. The first batch of LUKOIL oils was shipped to Chinese consumers at the beginning of May this year and, at the end of the month, official distributors for LLK International in China and neighboring Mongolia were approved by the dealership committee.

"China is a complex market, characterized by a high level of competition," Alexey Strelchenko notes, "But that does not scare us off. Our experience of consistent building up of the LUKOIL international oil business gives us confidence that we can cope with all the tasks we encounter."  

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Oil of Russia, No. 4, 2012
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