Rerefining Gets Another U.S. Player


Heritage-Crystal Clean on Monday outlined plans for a new rerefinery in Indiana that would begin production in 2012 of about 2,000 barrels per day of API Group II base oil. The project has an estimated capital cost of $40 million.

Elgin, Ill.-based Heritage-Crystal Clean, which provides parts cleaning and waste services, currently sells the used oil it collects as fuel to electric utilities and asphalt plants. The companys management team includes former Safety-Kleen executives and engineers with experience in designing and building rerefineries.

Heritage-Crystal Cleans rerefinery will employ vacuum distillation followed by hydrotreating, which we view as the standard processing approach for modern rerefiners, Greg Ray, the firms chief financial officer and vice president of business management, told Lube Report. We dont expect to license the design from anyone else as we have in-house capability to design a rerefinery – our management team has successfully designed, built and operated several rerefineries in the past.

The company is designing the plant to process up to 50 million gallons per year of feedstock in the form of used oil and yield about 30 million gallons per year of good-as-new on specification base oil.

Heritage-Crystal Clean serves more than 41,000 customers through a network of almost 60 branches, and sees an opportunity to expand aggressively into used oil collection services. In some markets, the HCCI service offer already includes used oil collection, and we have been successful at cross-selling this to our existing accounts, explained Ray. We propose to eventually supply our plants 50 million gallon capacity with our own collection volume. Which means we will need roughly 100 service trucks, or about two at each of our existing locations.

The company also sees significant economies of scale in the rerefining business, Ray said. We feel that a 50 million gallon plant is of sufficient size to be a low cost producer of lube oil – we would not have the same view of a plant that was only 10 or 15 million gallons per year, he explained. Having a rerefinery will allow us to upgrade the used oil we collect into a higher-value product, which we believe will provide us with an important competitive advantage and help fuel our growth.

CEO Joe Chalhoub said Heritage-Crystal Clean has evaulated the opportunity for more than a year. Based on current market conditions and the price of lubricating oil, we believe the rerefinery could generate annual revenue in excess of $90 million, with operating margins similar to what we expect from our parts cleaning and containerized waste lines of business at maturity, he added. The company is evaluating a range of alternative financing plans to fund the project.

After exploring several sites, Heritage-Crystal Clean decided on Indiana as the best location, Chalhoub said during a conference call Monday. We have narrowed our search to a few locations, including the possibility we will build our rerefinery at the same site as our existing hub operations in Indianapolis, he continued. Co-locating the rerefinery with our hub would provide synergies due to coordinated operations. The site already has seven million gallons of available storage tanks, he noted.

Transportation access is another advantage of the Indianapolis location. The site is also rail-served, which is an important consideration as we expect to make substantial use of rail transport, Chalhoub stated. During recent months, we completed significant groundwork on the various permits required. We will expect to make a final decision on the site selection within the next few months.

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