Rerefining, Ready for Prime Time

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New U.S. base oil rerefiners are popping up all over. Improved rerefining technologies, rising virgin base oil and finished lubricant prices, and Valvolines new rerefined motor oil are cited as reasons why.

Announced U.S. rerefined base oil projects, all API Group II quality, include:

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Heritage-Crystal Clean plans to build a 2,000 barrels per day rerefinery in Indianapolis near its existing operations. Production will begin in mid 2012.

Avista Oil AG acquired a 50 percent stake in Universal Environmental Services LLC, enabling Universal to grow its used oil collection business and plan a rerefinery in Peachtree City, Ga., to process 30 million gallons of waste oil per year by 2013.

Green View Technologies expects to commission and bring online a rerefinery late this summer in Rollinsford, N.H. It hasnt released a capacity estimate.

NexLube Tampa LLC plans to begin building a rerefinery and blending plant in Tampa, Fla., in 2012, with opening expected in 2013. Expected to process 24 million gallons of used oil annually, the rerefinery will produce an estimated 1,100 barrels per day of base oil.

The past year has seen significant increases in virgin base oil prices, allowing rerefined base oils to compete. Refiners posted Group II base oil prices today are 40 to 45 percent higher than in June 2010. As their raw material prices rose, finished lubricant marketers have implemented three rounds of price hikes this year alone. In each round most finished lubricants went up from 5 percent to as much as 12 percent.

Milind Phadke, project manager for Kline & Co.s Energy Practice, sees great scope for rerefining to grow in North America. Despite Valvolines foray, I think this business will be primarily for fleets rather than individual consumers, Phadke told Lube Report. Rerefiners have a much smaller scale of operations compared to large lube companies. These large oil companies have difficulty incorporating rerefined base stocks in their blends as the quantity available is very small and not available in all parts of the world.

For rerefiners, growing beyond a certain size is uneconomical, said Phadke, as the bigger the plant, the bigger the collection radius for the used oil and hence the higher the cost. Some companies like Valvoline do venture in this business, but mainly for the marketing platform.

He noted that rerefining technology has improved significantly. With the current generation of hydro-treatment technology, it is possible to produce good quality base stocks, often borderline or even better Group II type base stocks, Phadke said. Also, as the share of virgin Group II and Group III base stocks in mainstream products increases, the quality of used oil obtained, and that of the rerefined base stocks, has also improved.

According to Phadke, the growth in finished lubricant prices, driven by high base stock prices and quality upgrades (such as the move from CI-4 to CJ-4 heavy duty motor oil specifications), along with the low value obtained for the used oil, means a purely economic case can be made for rerefining.

Most of the growth that you see in rerefining is the so-called closed loop rerefining wherein a large fleet contracts with a rerefiner to provide them with used oil which is rerefined, re-additized, and returned to the original application, he said, calling it a win-win situation. For the rerefiner, it reduces the cost of oil acquisition and the cost of marketing the rerefined base stock, while giving an anchor load to the rerefining plant. For the customer, they have cost savings and the assurance that the refined oil that they are using came from their fleet and not some unknown source.

While Phadke downplayed the impact of Valvolines line of rerefined motor oils, Stephen Ames, principal of SBA Consulting, Pepper Pike, Ohio, sees it differently. Valvoline launched its NextGen motor oils earlier this year. Made with 50 percent rerefined base oil, the line includes conventional, synthetic blend and high-mileage formulations that meet API SN and ILSAC GF-5 standards. All are backed by the same 300,000 mile engine protection guarantee that the companys virgin-oil based products offer.

If Valvoline is successful, others such as Shell and BP are sure to become fast followers, similar to ‘high mileage’ lubricants a few years ago, Ames told Lube Report. With that, a very robust requirement for high quality rerefined base oils will develop, possibly more than the marketplace can supply in the near term.

According to Ames, its not difficult for a North American rerefiner to produce Group II quality base oil if it is discriminating in its waste oil collection. The quality of the waste engine oils is already at Group II level although it contains fuel diluents and impurities that must be stripped out, he continued. If industrial oils, primarily Group I and naphthenic, are included in the waste oil feed, the quality of the rerefined base oils will be somewhat lower and their applications more limited.

He noted that most rerefining operations produce only light and medium neutral cuts. Most of the light and medium neutral base stocks consumed in North America are for engine oils and for the most part require at least Group II quality, Ames said. If one is rerefining to only Group I quality, the markets would be considerably more limited and the value less.

Most U.S. waste oil is sold as cheap boiler fuel, which in turn establishes the cost basis to the rerefiner. “Depending upon the waste oil collection area, that value could be as low or lower than the natural gas alternative, currently about $4.5 per mBTU or $26 per barrel of oil equivalent, Ames said. One can derive a substantially greater value for the waste oil if upgraded to base oil and especially Group II quality should the Valvoline ‘eco’ marketing program be successful. This is the principal driver behind the recent announcements of new rerefining capacity in North America.

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