The Oil Market is Recovering

Alexander TrukhanInterview with Alexander Trukhan, Chief Executive of Gazprom Neft-Lubricants
January 2010. Russian Oil Magazine

The oil subsidiary of Gazprom Neft places its stake on development of the premium segment.

The Gazprom Neft subsidiary Gazprom Neft-Lubricants LLC, which specializes in the manufacture and distribution of oil, lubricants and technical fluids, was founded in November, 2007. Now it manages the production assets in Western Siberia (Omsk) and European Russia (Yaroslavl). In 2009, total output exceeded 400,000 tons. The Company's strategy for the period up to 2020 provides for aggressive growth in all sectors of the lubricants market and for active growth abroad. The task which this subsidiary of Gazprom Neft sets itself is to become a technological leader among the Russian manufacturers of similar products. The purchase in April, 2009 of Chevron Italia S. p. A., including a plant for the manufacture of oils and lubricants in Bari, has granted the company access to advanced European technologies. Alexander Trukhan, Chief Executive of Gazprom Neft-Lubricants, spoke with Russian Oil about the company's future plans.

How would you assess the current state of the Russian lubricants market?

- It is gradually recovering. According to our estimates, consumption of oils in the country has fallen by 25% in 2008-2009. In the motor oils sector the fall was not that great, but with commercial oils we observed 30-percent drop in demand both for GOST and premium (mostly imported) products. We are now seeing a considerable revival. In 2010 consumption rose by 7-8%, and in 2011-2012 we expect similar growth. If our forecasts hold true, in 2012 demand on the domestic market will reach pre-crisis levels.

- What strategic goals has the company set itself for the domestic market?

- Our company, despite its young age, is pretty ambitious. We are actively developing in all sectors of the lubricants market – consumer, commercial, and industrial. The basic strategic goal in the medium term is to attain 16% of the Russian Federation market (our share is currently 11%). However, except for quantitative indicators, the structure of the food basket offered to our consumers is also very important for us. If the greater part of Gazprom Neft-Lubricants products (as with that of any other Russian manufacturer, it should be said) are GOST segment oils, in as few as 3-5 years we plan to change radically the correlation between standard and premium products. The first step in this direction was made thanks to the acquisition of Chevron Italia. We gained a state-of-the-art production facility, which enabled us to commence production of the G-Energy premium line of oils and launch an international brand to the markets of Europe and Russia.

- What key world market trends can you highlight that influence company development?

- Two major trends stand out for me. First, growth in demand for the second and third groups of base oils. Both worldwide and in individual regions, including Europe and Russia, sales of hi-tech commercial oils are on the increase. Second, there is a tendency for oil production facilities to raise performance, both by virtue of new technologies and thanks to the improved sensitivity of the majority of companies to the situation on varied markets. Major international players optimise their costs on stagnant markets and invest into developing markets; Russia is one such market. In practical terms this stipulates greater attention of international companies to industrial assets within Russia and to heightened competition, including in terms of price, in practically all product niches.

- Has your company succeeded in establishing partnership relations with the manufacturers of cars and equipment for which the oils you produce are designed?

- Closer cooperation with these manufacturers is a key aspect of our company's development. In 2010 we released over 40 auto oils under the G-Energy brand and some 30 new industrial products under the Gazprom Neft brand. Each of them has gained a whole number of approvals from equipment manufacturers. We commenced work with many automobile corporations back in 2009, but getting certain approvals took more than a year.

The company is serious in its approach to relations with industrial equipment manufacturers. For example, this year we managed to win a tender from Bosh Rexroth, which was seeking a supplier for hydraulic oils for its unique design of a stage management system for the Bolshoi Theatre. We won the tender and were part of an incredibly interesting project. Just imagine – the oil tank for the hydraulic system alone holds about 50 tonnes! It is positioned at a depth of 20m. Apart from the fact that the oil itself has to be of the highest quality, technical service and logistics had to be provided to meet the most stringent environmental standards.

- What is the essence of the Gazprom Neft-Lubricants strategy on the world markets? Access to which regions is a priority task for you, would you say?

- We determined a number of markets as targets, in Europe and in Asia. This means we are laying claim not just to have a presence there, but to gain a significant stake in their markets. These include Kazakhstan, Belarus, Ukraine, Italy and Serbia. We have opened or we are on the verge of opening offices in these countries and 2011 will be a year of active implementation of various marketing programs, which have already been appraised in Russia. However, we do not plan only to have a presence on our target markets; we also plan to access a good number of countries in Central and Eastern Europe and in Asia. The active Asian economies have demonstrated an interest in our products. Therefore I do not rule out the possibility that in a few years our list of target markets will grow further.

We have set out an interesting program for the Balkans. Gazprom Neft holds a 51% stake in the Serbian state oil company NIS, which has its own oil production facility. Thanks to the integration project we have mapped out, we intend to achieve a synergetic effect: one of our brands will gain a decent platform in southeast Europe while NIS will gain the necessary marketing and industrial support for its own oil business. We reckon that this will enable us to develop actively not only in Serbia, but in neighbouring states as well; Croatia, Bosnia and Herzegovina, Bulgaria, Romania and Montenegro. Our Italian subsidiary is likewise little by little getting supplies up and running to neighbouring states of Greece, Germany, Spain and Malta.

All in all, there are more than enough lines to follow for extensive company development. What is most important is that we have managed to put together an offer of genuine interest: in terms of range, marketing and service.

That said, the undoubted priority for Gazprom Neft-Lubricants is now full-scale development of our business in Russia. After all, we have only just begun to get ourselves into the various sales channels here. Retail outlets, shops at filling stations and service stations, commercial motor pools and various sectors of industry; this is an enormous market, for which we have only recently completed the shaping of supply, primarily in terms of our products. Therefore, we plan to spend the next year or two on a systematic and well-planned ramping-up of sales through the principal selling channels, primarily in the premium sector.

- What tasks does the company set itself for the coming year and in the medium and long term?

- 2011 for us is a time to consolidate on the results achieved last year. First of all, I am referring to bringing G-Energy to the market. We want to master all the key sales channels. We are setting our foreign divisions the same task.

As for the medium term, we are thinking seriously about expanding our own industrial base. We are for now restricted in terms of the volume of packaged products released and, to a great extent, this means we are forced to produce G-Energy in Italy (this is currently our most innovative asset, with very good low-tonnage blending, new reactors with a precision dosage system, a high degree of automation of all processes and high production standards). However, Russia, too, needs such enterprises. This year Gazprom Neft–Lubricants commenced the construction of an ultra-modern production facility in Omsk. We are also studying the possible creation of an industrial base in the European part of Russia.

Our long-term prospects involve advancing into foreign markets and investing into the production of second- and third-group base oils.

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NOTE OF REFERENCE

Alexander TRUKHAN, born 5 May 1962 in Kyiv. In 1988, graduated in Philology from the Kyiv State University. Fluent in Spanish, English and Portuguese. In 2001, gained an Economics MBA in International Business Management from the Kyiv National Economics University. From 1996 worked at BP Oil International (from 1997 – BP/Mobil) in the oil sales to CIS countries unit. In 1999, appointed head of the Ukraine representative office (oils) for Texaco Europe Ltd, which was transformed in 2001 into the joint venture TNK-Texaco and reorganised into TNK Lubricants. In 2005 Alexander Trukhan took up the post of Chief Executive of TNK Lubricants. From 2006 to 2007 headed the project of LLK-International for oils business development in foreign markets. In January 2008, appointed Chief Executive of Gazprom Neft–Lubricants.