Synthetic oils are the product of the future

18 JANUARY 2022

Anatoly Skoromets, General Director of Gazpromneft Lubricants (GPN-SM), told RBC+ about the key trends in the automotive and industrial lubricants market, business development, and research base.

The market for oils is very competitive, but GPN-SM is actively strengthening its role in both Russian and foreign markets. Is it really the right time for that?

When the 2020 pandemic significantly reduced transportation volumes in all modes of transport, refineries around the world froze capacity, and the consequence was a shortage of base oils. During the lockdowns, it was not very noticeable against the backdrop of reduced demand, but as activity returned, the need for lubricants increased. Not all of the companies that cut down production were able to immediately return to their previous volumes. We have secured a percentage of the market through quick response and an extensive distribution network. Domestic deliveries by the end of 2021 grew by 10%.

 By managing our own production sites in Russia and abroad, we are building a system of partner blending facilities in our target development regions. This removes many logistical issues and makes it possible to quickly meet emerging global demand as well as local specialized needs. That is why in 2020, which was a difficult year, we basically kept at a pre-pandemic level, as far as our most important high-margin product categories are concerned, and in 2021 the growth of sales was 9%. 

The environment is now favorable. Our share of the Russian market of packaged oils is approaching 24%, while three years ago it was 22%. I'm talking about our flagship products here: about 320k tons of oils under the G-Energy and Gazpromneft brands around the world.

So, during the pandemic, you also established yourself as a strong international player?

We have been able to maximize the efficiency of these two years thanks to the proactive actions and competencies of the international markets development team. We have significantly expanded the volume and geography of deliveries. Now our products are exported to 103 countries. The share of exports in total sales this year reached 36%. For comparison, exports in 2019 were 31%. An interesting fact about recognition of our oils abroad is that today we export every second can of Gazpromneft and G-Energy motor oil in 1 to 5 liter packages for motorists.

This year, new destinations for GPN-SM became Canada, Austria, Guinea, Qatar, Saudi Arabia, Oman, Jordan, and Kuwait. We managed to grow the sales by 32% in Europe. Most of our products are consumed in Italy, Spain, Bulgaria, Greece, and the Baltic states. In Italy, for example, we occupy 10% in the segment of industrial greases for a wide range of industrial equipment.

Right now we see good prospects for development in the Middle East and Africa. Deliveries to Morocco doubled this year: this means both motor and industrial ranges, and the share of packaged premium products was almost 60%.

One of the company's strategic goals is to sell almost 70% of our premium products on foreign markets by 2030.  But already now our capabilities allow us to play an active role in the formation of key trends in the global market, such as the introduction of digital technologies to reduce costs and time for maintenance, the growing share of electric cars and hybrids in connection with the carbon footprint cut-down agenda, the growing need for products with extended intervals of change.

 How difficult is it to compete with the world's well-known manufacturers, both on the global markets and in Russia?

The competition is still high, but now we are playing on equal terms with the world leaders. In the late 90's and early noughties, Russia was importing a lot of cars and equipment, with recommendations to use exclusively foreign oils, known to foreign manufacturers of machinery. The Russian market had lived in that situation for quite a bit, but over time its own high-tech products have emerged. In the beginning, when we came into contact with OEMs, we often encountered a skeptical attitude, we had to prove the qualities of our products through testing in harsh conditions, then invite independent laboratories to verify the result. For ten years GPN-SM had been doing a tremendous amount of work and we managed to overcome consumer barriers regarding our brands.

Now, on average, we develop more than 60 new products per year, which are often superior to their foreign counterparts in a number of parameters. Every year our experts conduct about 15 thousand laboratory tests, some formulations go through a cycle of several hundred tests. For instance, about 800 tests had been made before we marketed our synthetic motor oil G-Energy Synthetic Active 5W-40; now it is one of the most popular products among Russian and foreign car owners.

Overall, our products have already received more than 500 approvals from the world's leading OEMs.

It seems impossible to improve the quality of products, as well as to protect their competitiveness, without a sufficiently strong research base, doesn't it?

This is one of the key areas of work in which we are actively investing. A great deal is the work at ATIEL committees, the Technical Association of the European Lubricants Industry, which organizes the industry dialogue between producers of equipment, oils and additives. That's why we are the first to know about changes in requests, and we structure our work so that by the time equipment or new requirements are introduced to the market, we already have a ready supply.

To do this, it was strategically important for us to lessen our dependence on foreign research laboratories and to test our advanced developments with our own equipment. So in 2021 the GPN-SM Research and Development Center (RDC) got into gear, equipped with the most modern tribological equipment; its certification and calibration were recently completed. In the next few years, the RDC will focus on the development of products for a wide range of applications and proprietary components for high-tech oils. Now experts are already conducting the first tests of additives for marine oils and heavy-duty commercial vehicles.

We are digitizing the recipe process to make it faster, and we have our own software, an in-house development based on artificial intelligence technology. The digital product is based on machine learning algorithms that simulate the physical and chemical properties of the future oil, relying on a 10-year accumulated research base. This is essentially computer-aided modeling of the blend composition of lubricants, taking into account the required properties. Thanks to this, the number of test samples per research project was reduced by a factor of 3, and the time to develop a target formulation was reduced by 40%.

Technologically, modern lubricants are very fine-tuned products, with which oil becomes not a consumable but an integral part of the design. We are now beginning to patent a digital technical service that will remotely monitor the parameters of the working oil and use them to diagnose the condition of machinery. We have repeatedly tested this software in the toughest conditions: in rally raids, in the field, in quarries, right at the place of use of the equipment. Our diagnostics allows you to fix the problem before mechanics even see the first signs of an impending breakdown. For business, this means no downtime and the proper performance of equipment. Right now, expert technical support from oil selection to in-service monitoring and regular oil changes is our successful commercial service. It is in good demand: this year we have implemented about 8 thousand of such services for enterprises with a wide range of equipment.

It turns out that by introducing such services and products to the market, you also change consumer expectations?

Rather, we are responding to general changes in consumption – timeliness and customization of offerings do the trick. We have almost completed the digitalization of interaction with Russian distributors, all work is now done through personal online accounts, which reduces routine activities and the time required to process orders by half, and at the beginning of next year we will begin to connect foreign partners to the system.

Last September, a convenient electronic platform for the wholesale purchase of oils became alive, available to Russian as well as foreign participants.  The online format provides transparent pricing and takes into account the logistics of each transaction. During this time we have sold about 30 thousand tons of product and reduced the time from purchase to shipment to the consumer by half.

We have also changed our representation in retail: almost all the oils for private vehicles and small appliances – that's 250 items – are available in the largest online stores. Sales in this channel grew by 4% over the year.

What are the key trends on the lubricants market in general?

The whole business is set up for maximum efficiency, so the equipment is now working in very harsh conditions: higher loads, pressure, temperature fluctuations. At the same time, OEMs improve the accuracy of parts by reducing the clearances between rubbing surfaces. This means that new machinery requires low-viscosity, energy-saving lubricants, and synthetic oils that provide reliable protection under high loads are becoming more and more in demand.

 I consider synthetics to be a product of the future. In 2020, its share was 23% in Russia and 28% in the world. We predict that in ten years the figures will gain 10 percentage points and will only grow further. In the total GPN-SM sales this year, synthetic and semi-synthetic oils accounted for 31%, which is 6% more than in pre-pandemic year 2019.

We are ready for the 'synthetic' future of the market and are implementing a project to build a hydroisodewaxing (HIDW) system at the Omsk Lubricant Plant. HIDW will be a key technological resource that will provide us with our own base for synthetic oils as early as 2023. In parallel, our own sulfonate additive was tested during the year. Next year we will integrate it into production. This will displace up to 35% of imported components in the total volume of additives for synthetic oils. Thanks to these projects, by 2030 we expect to increase our market share in Russia to 25% and expand our presence in the global market.

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