Total Group, one of the largest integrated oil and gas companies in the world, announced a plan to invest 30 million euros ($42.6 million) in a new lubricant blending plant in Tianjin, a coastal city in northern China. The investment will help the company expand its presence in the world's second-largest lubricant market.

Tianjin Lubrication Oil Blending Plant, a new subsidiary of Total China, will produce a full range of lubricant and grease products. The plant, which is expected to be operational by the fourth quarter of 2012, is designed to reach a maximum capacity of 200,000 metric tons annually. "The new investment in Tianjin marks a strategic move from Total's existing lubricant manufacturing facilities in Guangdong province and Jiangsu province to cover the high-potential provinces in north and west of China," said Thierry Pflimlin, senior vice-president of Total Refining and Marketing for the Asia Pacific region.

The new plant with a-state-of-the-art production unit will produce a range of products for car drivers and motorcyclists, original equipment manufacturers (OEM) and the marine markets, the company said in its statement.

Total said its products are targeted at the premium lubricating oil sector in China. The low-end market is dominated by the domestic players.

China's demand for oil products will keep increasing, benefiting refining companies like Total, according to the company.

"China is facing overcapacity in the refining industry but we expect to see a balance in the next five to six years," said Pflimlin. Some refining capacity, especially the smaller plants, need to be shut down, he added.

Plants in China may be able to refine 750 million metric tons of crude oil annually by the end of 2015, China Petrochemical Corp said last year.

The high price of crude oil has also squeezed the refiners' profit margins.

The Dalian-based West Pacific Petrochemical Company (WEPEC), in which Total holds a 22.4 percent stake, is likely to suffer losses this year because of rises in the price of crude, according to Total. Dalian WEPEC is a major gasoline exporter in China, with exports accounting for over 30 percent of the country's total.

That loss is also partly due to China's oil pricing system which is not in step with the international price of crude, Pflimlin said.

"The National Development and Reform Commission should take measures to ensure the profitability of oil refiners," he said. China adopted the current oil pricing system in 2009. The government adjusts domestic oil prices when international prices change more than 4 percent within 22 working days.