Hydrodec Group will collaborate with Essar Oil UK on a joint venture oil rerefining center at Stanlow, U.K., including a rerefinery with API Group II+ and III base oil capacity by 2016.

Announced Monday by Hydrodec, the collaboration would combine Essar Oil UKs existing infrastructure, expertise and operating capability with Hydrodecs proprietary technology and feedstock from Hydrodecs OSS Group subsidiary, which collects used oil. The agreements heads of terms are non-binding, and the collaboration and proposals are subject to entering into definitive, legally binding agreements.

Two discrete rerefining operations are envisaged, initially for transformer oil and subsequently for general used oil, with a potential combined [feedstock throughput] capacity of up to around 130 million liters per annum and potential revenues of approximately U.S. $150 million per annum at attractive rates of return, Hydrodec stated in its news release.

The company said the collaboration will be conducted in three phases: Establishing a transformer oil rerefining business utilizing Hydrodecs existing technology, developing Hydrodecs new lubricants technology through a pilot plant stage, and establishing a general used lubricant rerefining business deploying the new lubricants technology.

Its a fantastic opportunity for us to partner with a company who can really help us raise the profile of oil recycling and the generation of, first, transformer oil, and then ultimately with our new technology, genuine base oil delivery in the U.K., Hydrodec CEO Ian Smale told Lube Report. It wont be that small either – we would look to be building a 100,000 tons per year [2,000 barrels per day] plant at some point, replacing some of the base oil the U.K. has lost in due course.

Hydrodec first intends to establish a transformer oil rerefining business capable of processing 27 million liters of new, branded Superfine transformer oil from used transformer oil. This will be established in two stages, the company said, with an initial two-train processing facility commissioned by end of 2014, drawing used oil feedstock from the U.K. and other countries such as the U.S. and Continental Europe. As an initial step, the two companies will consider importing Superfine transformer oil that is manufactured in the United States for sale in the United Kingdom.

With Essar Oil UKs assistance, Hydrodec projects it will establish a pilot plant for the new general used oil technology in the Stanlow area in 2014s first half.

Hydrodec then intends to create a lubricant oil rerefining business at Stanlow in partnership with Essar Oil UK which is capable of processing up to 100 million liters of used lubricant oil into high grade Group II+ and Group III base oil for sale into the U.K. and continental Europe by 2016, the company stated.

While the global Group III base oil supply is in surplus with more expansions on the way, Smale noted that the base oil supply picture is different in the United Kingdom and Europe. This is a global market, but the expansion is coming in the Far East and the Middle East, he said. Its not coming in Europe. The opportunity for us is to compete with import economics, which we are confident we can do, and to displace imports.

Smale said that based on conversations with high quality lubricant companies, hes reasonably confident the market is there for a rerefined Group III base oil. Their view is if you could find a recycled Group III base oil, it would be an absolute game-changer for the recycled oil industry – so thats the goal.

While the project will be based at Essars Stanlow refinery, it has nothing to do with the base oil units, which we closed down last March, Essar Energy spokesman Andrew Turpin told Lube Report. Because the project is at an early stage, Essar did not want to add any detail beyond the announcement at this time, according to Turpin.

The Stanlow base oil plant had capacity to make 5,060 barrels per day of Group I stocks. It was part of a fuels refinery that India-based Essar bought from Shell last year.

Hydrodec, which has corporate offices in the U.K., began commercial production at its transformer oil rerefinery in Canton, Ohio, in October 2008. The 22,000 square foot plant can recycle up to 8 million gallons per year. It uses a proprietary catalyst to remove impurities and produce a rerefined product the company describes as hydrogenation-refined naphthenic mineral transformer oil. Hydrodec previously opened a transformer oil rerefinery in Young, Australia, in 2006.