Azerbaijans economy ministry recently said the state-sponsored Sumqayit industrial park could include construction of a lubricant blending facility, weeks after a state investment promotion fund announced plans to build an API Group II/III base oil plant at the same location. Some market observers expressed doubts about the viability of the two projects.
Located near the capital of Baku on the shore of the Caspian Sea, the park is ready to house a dozen companies that have already been approved by the government to invest hundreds of millions of U.S dollars in the Azeri oil and chemical industry.
In a recent news release, the economy ministry said it presented Alco Lubricant Co. a certificate to build a U.S. $10 million lubricants blending plant with capacity to produce 30,000 tons of finished products annually. The project will be built on a 6.2 acre plot, and the plant is expected to be fully operational by the end of 2017, the Azeri ministry said.
The plant could employ more than 100 local technicians and specialists and produce lubricants intended for the domestic and international markets, the ministry stated.
The API Group II and Group III base oil plant project was recently announced in a similar fashion by the Azeri Export and Investment Promotion Fund, which said the plant with capacity of 80,000 metric tons per year could be built for U.S. $350 million. The organization suggested the project could be financed by private and state entities.
Some market observers with knowledge of the region are wary of such announcements because the projects could be politically motivated. And even if the projects come to fruition, observers said, they can only be pulled off through the involvement of state corporations and state money.
Denis Varaksin, base oil trader at Berlin-based DYM Resources, said it is highly unlikely that independent investors would back such a base oil plant project. First, it is a small capacity plant, and second, it involves high investment costs, Varaksin told Lube Report last week. The blending capacity seems more realistic – the smaller investment can be directed towards lubricant blending capacity and for a packaging facility.
He said that construction of a Group III base oil plant in Azerbaijan is not economically logical. There is great competition in the region, and the country is too small. Could they sell the base oil in neighboring Russia or Iran? I doubt it, Varaksin observed, noting that both markets are flooded with base oil – by domestically produced base oil in Russia, and by base oil from South Korea in Iran, besides products from other competitors.
The base oil project is still under discussion, and its technical documentation and economic feasibility are currently under review. VNIINPs Oleg Tsvetkov recently confirmed to a reporter that his institute was visited by Azeri state officials, who discussed the possibility of developing an 80,000 t/y base oil plant in Azerbaijan.
VNIINP, the Moscow-based All Russia Research Institute for Oil Refining, has been involved in the development of many refining projects in Russia and in former-Soviet states.
The Azeri government claimed that the base oil project in Azerbaijan could be constructed in two years, and that the investment could be recouped in eight years.