Base oils supplement: Base oil re-refining attracts investment

20 February 2012 00:00  [Source: ICB]

PHOTO CAPTION: Re-used motor oil is a valuable resource

PULL-QUOTE: "Re-refining plants are less economically favorable and each typically offers only local and regional availability, which could be an issue"

Milind Phadke industry manager, Kline & Company

Re-refining of base oils from used lubricants is attracting plenty of interest in the US, driven by technology, regulatory stimulus and market conditions

The regeneration of base oils from used lubricant oils is becoming a real business opportunity. Technology advances, an attractive pricing spread, a changing regulatory scene and ­established sourcing networks are creating an environment for growth.

Although recycling is generally the ­territory of the smaller aggregators of used oil, recently, larger oil producers have been starting to take notice. Valvoline, based in Lexington, Kentucky, US, a marketer, distributor and producer of branded automotive and industrial products and services, made the first leap with the introduction of its NextGen 50%-recycled-oil product in April 2011.

Re-refining has been around for decades. The initial technology was unattractive, but during the past 20 years it has become possible to consistently and reliably produce high-quality Group I and II base oils from used oil, according to C.J. Hummel, managing director of the Energy & CleanTech Group at investment bank Headwaters MB, based in Denver, Colorado, US.

"The latest re-refining technology is a much cleaner process than its predecessors. In addition, it offers process efficiencies, a more homogeneous product, higher safety standards and reduced emissions," he notes.

Re-refining also offers an improved environmental profile than the original refining process in terms of fossil resource consumption, global warming, acidification, nitrification, carcinogenic risk potential and fine particulates production, according to Christian Hartmann, CEO of Puralube Holding, a ­Germany-based re-refiner.

A NEW LIFE FOR USED OIL

"Re-refining provides a new life to used oil, which allows continued utilization of the ­lubricant resource, and it has a smaller environmental footprint than other methods of managing used oil," adds Greg Ray, chief ­operating officer of Heritage-Crystal Clean, an environmental-services provider based in Elgin, Illinois, US. The company is in the final stages of building a new US re-refining plant in Indianapolis, Indiana, that will be able to produce up to 30m gal/year of lubricating Group II base oils.

Currently, 78% of reclaimed used oil ends up being burned as a fuel, according to Milind Phadke, an industry manager with US market research and consulting firm Kline & Company. Phadke estimates global lubricant demand at 35m tonne in 2009, with re-refined basestocks accounting for less than 5% of that total. The potential used oil generated on a global basis was about 23.75m tonnes, with the remainder lost to evaporation, spills and re-use to extinction.

Interest levels in re-refined oil vary from ­region to region, depending on the environmental consciousness of a particular culture, the government regulations and even the amount of infrastructure in place to collect the used oil, according to Darryl Gaines, NextGen brand manager with Covington, Kentucky-basedAshland Consumer Markets, which owns the Valvoline business.

There is very little re-refining taking place in Asia and South America. There are exceptions in these regions, says Ray: "Countries that seek to establish independence of lubricant supply, such as Brazil and Indonesia, have ­established tariffs or restrictions on lube oil ­imports that have provided support for local re-refining firms."

Europe is the most advanced region and supplies the most re-refined basestock. There are approximately 15 sizable operating plants on the Continent, says Hartmann. The EU also has a well-established network for the collection of oil, thanks to regulatory requirements. Legislation in Europe also restricts the movement of used oil for burning, and provides exceptions for used oil that is destined for re-refining. In fact, its five-step hierarchy gives preference to re-refining over other disposal routes.

The US might surpass Europe, however, if the numerous announced projects all come to fruition. While Puralube is the only company with announced plans for a new facility in Europe, there are seven companies - both existing and new players - that are either constructing or planning to build new re-refining plants in the US. The current capacity of about 10,400 bbl/day could be doubled if all of these projects come to fruition.

Puralube is also planning a facility in the US. Leading re-refiner Safety-Kleen of Plano, Texas, has announced an expansion and a new facility. The US's Heritage-Crystal Clean, Universal Environmental Services of Peachtree City, Georgia, (with backing from new owner Avista Oil in Germany), Green View Technologies of Rollinsford, New Hampshire, and NexLube Tampa of Florida, are the other significant new players. At least two of these facilities are expected to come onstream in 2012.

DRIVERS FOR RE-REFINING

This dramatic expansion of capacity in the US is driven by a number of factors. The rising cost of oil, and therefore virgin base oils, has made consumers more cost-conscious, and hence more open to recycled products, while at the same time it has buoyed the price of re-refined oil," says Hummel. "At current commodity prices, a re-refinery can expect to make up to $1.90/gal of re-refined base oil on a gross basis and $1.40/gal profit on a net basis," he adds.

The changing regulatory environment has also played a role. According to Hummel, re-refining capacity in the US has increased by 30%, and the number of plants risen from six to nine since 2008, when the US Environmental Protection Agency excluded used lubricants from being considered as solid wastes (under the Resource Conservation and Recovery Act) if the used oil is being collected or transported with the intention of closed-loop recycling (EPA ruling 503-F-08-006).

The lubricants formulated with the base oils produced from re-refined oil meet the same stringent refining, compounding, and performance standards as virgin oil for use in automotive, heavy-duty diesel, and other ­internal combustion engines, hydraulic fluids, and gear oils. The America Petroleum Institute (API) certifies re-refined oil products without distinguishing between virgin and re-refined base oils.

Extensive field testing has demonstrated that re-refined base oil is virtually indistinguishable and equivalent in appearance and quality to virgin base oil. In addition, US Federal regulations state that re-refined oil is equivalent to new oil when the re-refined oil meets the API Standards.

Some members of the Independent Lubricant Manufacturers Association (ILMA), based in Alexandria, Virginia, find that for certain applications, the re-refined base oils allow for a better performing finished product, according to Jeffrey Leiter, the ILMA's general counsel. Some blenders prefer re-refined oil because it has characteristics that give it enhanced performance, thus requiring the addition of a lower amount of additives.

The quality of the used oil itself is increasing as the demand for Group II base oils grows, according to Ray. "The re-refining process serves to remove the degraded chemical additives and products of engine use (such as metal contaminants, fuel and sludge) that have contaminated the oil, and return it to its original state when it was first refined. Therefore, as the virgin base oil quality continues to improve, re-refiners can expect to 'ride the coat-tails' of this trend."

Improvements in re-refining technology are also making it possible to improve the quality of the basestock supply, according to Phadke. "Newer hydrotreating technology enables production of Group II quality basestock, which now accounts for nearly 20% of the global re-refined basestock supply," he ­observes. Ray notes that, according to technical industry surveys, Heritage-Crystal Clean believes that the split between Group I and Group II is actually close to 50:50.

One of the new products making waves in 2011 was Valvoline's NextGen consumer oil that contains 50% re-refined oil. "Technological advances have allowed for higher-quality base oils used as feedstocks. From our viewpoint, we support increased availability of base oils and re-refining capacity so that we can have a more secure supply and competitive costs," states Gaines. He adds that "consumers around the world are increasingly interested in supporting sustainable products and services that help the environment."

"The superior environmental profile of re-refined oil is attractive to many customers, and provides a point of differentiation," agrees Ray. "At present, this factor is a relatively small one in the marketplace, but the trendline suggests that particularly at the retail level, more consumers are expressing an ­interest in purchasing re-refining lubricants because of the life cycle benefits."

The market is not without challenges, however. "Re-refining plants are less economically favorable at the large sizes associated with virgin refineries. The larger the collection area, the greater the acquisition cost. This situation becomes an important issue in low population density areas. Therefore, the volume of production per plant is limited, and each plant typically offers only local and regional availability, which could be an issue for global lubricant producers," comments Phadke.

As the re-refining capacity increases, competition for used oil will increase as well. And some consumers continue to perceive re-refined oil as lower quality and lower performing.

Valvoline is tackling the latter issue. In 2012, the company is continuing to support the adoption of its NextGen technology, with product development efforts focusing on the education of consumers about the product and its benefits, according to Gaines.

Hummel does not see the supply of used oil as being a real problem. "The supply will increase over time, as the burning of used oil is slowly phasing out because of environmental regulations and the abundant supply of natural gas," he says. Rather it is the control over the supply, and thus the spread, that is an issue for many re-refiners. "We see the larger aggregators taking advantage of their position in used oil by getting into the re-refining business themselves."

Heritage-Crystal Clean is a good example. The company plans to supply its new plant through a used oil collection program that it is introducing to thousands of customers across the US through its network of 67 branch locations.

Cynthia Challener is a freelance journalist based in Burlington, Vermont, US. She is a regular writer for several trade publications, including ICIS Chemical Business


Author: Cynthia Challener



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