Dmitry Minich, LLC “Lukoil-Reservenefteproduct”, Bitumen Chief Supply Chain Officer, talked to our magazine about the situation in the Russian bitumen market and technological innovations in this branch of the industry.
— Mr. Minich, how much of the bitumen in the Russian market is imported? How is it influenced by the volatile rouble / euro exchange rate? Name the main players, please.
20965— The import part of the bitumen market is insignificant, so any exchange rate volatility doesn’t influence it directly. The main players are well known: these are the vertically integrated oil producers and a number of independent bitumen producers. “Lukoil” has about 20% of the bitumen market and is one of the top three. Further refinery upgrades (increasing processing depth) and tax maneuvering will seriously influence the market, I think.
— Can you forecast a bear market in 2015?
— The possibility is there, but I don’t think it will decline too much due to large-scale infrastructure projects in road construction.
— How is your company going to take part in these projects?
— We are actively cooperating with oil traders, delivering bitumen production to governmental customers, implementing significant projects in federal road construction (?4, ?7 etc.) and, of course, working with road builders. For example, we are delivering specific kinds of bitumen (polymer modified asphalt cement, bituminous grout, 90 130) used for local runway construction and maintenance in Roshchino. A number of agreements on our production delivery for Central Circular Road section construction have been signed.
— What delivery services are adding additional competitiveness to the market?
— I’d mention such things as flexible delivery terms, delivery direct to the customer, good lines of products and quality control. We don’t restrict the spectrum of customers buying oil and bitumen products, we work with all our counterparts – both large and small companies, experienced and not so experienced. We use revolving payment: that is, we don’t make our customers pay in advance for the whole delivery. If you need a car tomorrow, you just pay for it today and tomorrow you will have it.
We are seriously seeing to bitumen production infrastructure development. Last year a new weighing house was put into operation and now we can gradually increase capacity during loading. Our further plans are to enlarge our loading station.
— What are the geographical specifics of your deliveries? Where is your product most in demand?
— We deliver our products to the European part of Russia – first of all, the Moscow region and Central Russia. We consider this market the main one due to its having the largest volumes and best financing conditions for road construction. The north-western region (St. Petersburg, the Leningrad region, Kareliya, the M8 highway from Moscow to Arkhangelsk) is also a very attractive region.
Despite the overall completion of the big Sochi Olympics infrastructure (our product was widely used there) a number of objects are still being built or reconstructed. The Volgograd “Lukoil” plant is situated not far from Sochi, which made it possible to deliver large volumes of product during the Olympic preparation period, and we are inclined to stay in the region. The same is true for the Caucasus.
The Tumen, the Khanty-Mansi and the Yamal-Nenets regions are also a priority due to the territorial proximity of the Perm plant, which can deliver production corresponding to the specific climatic conditions of the region.
We have interesting plans as far as Siberia and the Far East are concerned. We don’t have any logistic support there because there are no “Lukoil” plants in the Asian part of Russia. But the big-bag packaged bitumen project allows us to deliver product to Siberia and the Far East, to Sakhalin and Kamchatka. The delivery in this region is limited by navigation terms and so packaged bitumen delivery is the optimal choice.
— Is your bitumen exported?
— Of course. But other “Lukoil” companies deal with export. Priority is given to the countries of Central Asia, a number of African states and Turkey. There are projects to unite the Asian and European parts of Turkey with an entire network of highways and roads, and our Turkish partners are very much interested in our products.
— What is quality bitumen? Does the quality of your products allow you to transport them long distances without losses?
— Bitumen quality is not the only market requirement. Preservation of quality during transporting and storage is very important. A year ago our company put into operation an Austrian plant for big-bag bitumen packaging. We upgraded the packaged bitumen loading infrastructure for loading automobiles and railway containers and platforms. That gives our client 50% savings while transporting and 75% savings while also allowing storage which fully preserves bitumen quality.
— How superior are the premium grades of bitumen as compared with the ordinary product, and how does this influence the price?
— The main market players, of course, pay a lot of attention to widening the high quality production range – these are polymer modified asphalt cement and upgraded bituminous grades. The corporate group “Avtodor” pays great attention to the quality of materials used for road construction. They have developed the Avtodor corporation standard 2.1.2-2011. Production orders according to this standard have been sent to all oil companies. But only we were able to put out the products in full compliance with the standard and to produce them on a commercial scale - thousands of tons. This was during the last road construction season, and this season we’ve got some serious orders.
The aim of upgraded, premium grades of bitumen production and usage is to prolong the term of road exploitation. And of course, one must pay for quality.