50% Spike Seen For U.S. Rerefining


Rerefining capacity in the United States is projected to increase from less than 800,000 metric tons per year in 2012 to more than 1.2 million metric tons by 2017, according to Kline & Co.

The U.S. rerefining industry is poised to take off, with big growth expected in the used oil business, said Anuj Kumar, project lead for Klines Energy Practice, during a webinar March 5 based on Klines first comprehensive analysis of the used oil and rerefined lubricant market in the United States. The study uses 2011 as the base year, when U.S. rerefining capacity stood at about 485,000 tons per year, according to Kline. The 2017 projection includes several announced rerefineries, some of which may not produce rerefined base oil.

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Recently there has been a gold rush to occupy all the good spots for used oil rerefining – by good spots, we mean those locations that have plenty of used oil supply, with limited or no competition, said Kumar. Once a rerefining plant is set up and used oil volumes are tied, there will be increased competition for feedstock if a new plant comes up in vicinity of an existing plant. Any plans to set up rerefineries in a sparsely populated region where used oil generation is quite low may not actually be genuine. We believe this could maybe be merely a means of discouraging others from thinking about a particular region.

He noted that several key drivers have benefitted the U.S. rerefining industry, including significant improvement in used oil collection infrastructure in recent years, a gradual decrease in the share of do-it-yourself oil change customers, increased collection volumes due to increasing awareness of used oil collection services and improvements in rerefining technology to improve the quality of rerefined base stocks.

Moreover, the growth in base stock or lubricant prices adds to the pressure to collect every last barrel of used oil, Kumar said. As the price of finished lubricants and base stocks increases, the value that could potentially be realized by rerefining the used oil increases.

He noted the industry does face challenges that need to be addressed. First is access to used oil supply, Kumar said. To run a seamless used oil rerefinery, its critical to have an uninterrupted feed stock supply. Lately we have seen a trend where rerefiners are taking over collection companies or spreading their geographical footprint to secure used oil supply.

Some used oil collectors have announced plans to set up rerefineries. That is an indication the industry is attempting to mitigate this risk, he said.

Kumar explained that growth in the used oil supply has been flat at best due to the extension of recommended engine oil drain intervals. Oil consumption has decreased, as recommended oil intervals have gone up due to use of synthetic lubricants in recent years, he said.

He pointed out that the used oil collection industry is ripe for some consolidation, noting it would help reduce costs and standardize collection practices which would make used oil quality more repeatable.

The second challenge at an industry-wide level is consumer acceptance of rerefined lubricants. Global lubricant blenders and marketers would consider rerefined base stock as a marketing plan to portray an environmentally friendly image, Kumar said. The product does not really align with their supply chain. They have sourcing arrangements both in-house and from merchant markets. Use of rerefined base stocks would mean realignment of their supply chain, which becomes difficult especially when a marketing company has its own supply of virgin base stocks.

He pointed out that an independent or mid-tier marketer would consider rerefined base stocks if it is convinced about the perceived cost benefits. Among lubricant end users, [original equipment manufacturers] are not really worried about the source of a base stock as long as it is high quality and performance is delivered, Kumar added.

Commercial fleets have potential as candidates to consider rerefined base stocks and would consider setting up a closed loop system as a track record is established, he noted.

He said the reaction of installers and do-it-yourself customers to rerefined lubricants remains a big unknown. Valvoline has launched its NextGen series of products blended with rerefined base stocks, but its impact has yet to be known, Kumar said. However, if more marketers follow suit, consumers could be convinced of the use of rerefined lubricants.

Industrial consumers also could be potential customers for rerefined lubricants because they practice on-site recycling. So we think they should be open to experimenting, he noted.

Rerefined base stocks produced in the U.S. represent less than 5 percent of the finished lubricant consumption, Kline found. The company has estimated U.S. finished lubricants consumption at 8.4 million tons in 2011. Kline estimated only about 60 percent was generated as a used oil – the rest is either lost or not classified as used oil.

He said about 80 percent of used oil generated was collected in the U.S. in 2011. He noted that figure is higher in densely populated states like California, and lower in less-densely populated states like Montana and Wyoming. About 69 percent of collected used oil is processed as industrial fuel, whereas only 14 percent is sent for rerefining, he said. The remaining 17 percent includes used oil that is exported, mainly from the Gulf Coast to Europe, Latin America and China.

Of the used oil sent for rerefining, about 66 percent was converted to rerefined base stock, while the rest was turned into other products like naphtha, diesel and asphalt.

Klines report is titled, Used Oils and Re-refined Lubricants: U.S. Market Analysis and Opportunities.

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