The potential for this industry was explored during a session at the Annual Congress of the Independent Union of the European Lubricants Industry (UEIL) in Lisbon in October. As noted by Christian Hartmann, chief executive officer of Pura-lube Holding, Rerefining offers an improved environmental profile than the original refining process in terms of resource consumption, global warming, acidification, nitrification, carcinogenic risk and fine particulates production.

However, according to Kline & Co. Industry Manager Milind Phadke, some issues must be sorted out before growth can be achieved, particularly in the area of availability and acquisition of used oil, and the acceptance of rerefined oil by user groups. If these challenges are overcome, then this industry has some strong potential for growth, he said.

Global Perspective

Europe is the most advanced region and supplies the most rerefined base stock, said Hartman, with approximately 15 large rerefining plants. The European Union also has a well-established network for the collection of oil, thanks to regulatory requirements. Legislation also restricts the movement of used oil for burning and provides exceptions. for used oil slated for rerefining. In fact, it gives preference to rerefining over other disposal routes, he said.

You can think of the industry in terms of size, but you also need to think of it in terms of sophistication, said Phadke. The industry is most sophisticated in Europe because of regulatory support, and a well-developed collection, accumulation and disposal network. The collection system has very little comingling, ensuring that different types of used oil are not mixed together. The product is not degraded so the used oil collected in Europe has consistent quality, Phadke added. Asia, Africa and the Middle East, on the other hand, have informal collection networks, and no standards regarding used oil. As a result, the quality of the collected oil can vary dramatically.

The route from where the used oil is collected and where it is accumulated can vary on a day-to-day basis, Phadke said. We also see a lot of comingling, which further degrades the value of the used oil. And there is minimal testing. Because the industry is so unsophisticated, Kline foresees limited growth in these regions in the near term.

The North American market lies somewhere between these two extremes. The United States has a fairly well-developed collection infrastructure that is improving. Also, while there presently is no regulatory bias toward rerefining, that may be changing. Thats why the industry has potential for growth in North America, Phadke concluded.

Growth Potential

Hartmann noted that 76 percent of all finished lubricants are consumed in 20 countries. Per capita consumption of lubricants is highest in the U.S. at about 20 liters per year, but that is expected to diminish in the future. Annual per capita demand is 4.2 liters in India and 2.4 liters in China. You can expect growth in lubricant consumption as well as the availability of used oil in those countries.

Furthermore, greater volumes of used oil are collected in the U.S. than in any other country. As a result, a number of rerefineries are being built in the U.S. For example, Detlev Bruhnke of Avista Oil AG reported on a plant they are building near Atlanta, Georgia, U.S. He said that the first step in establishing a rerefinery is to secure the feedstock, because if you dont have the feedstock, youre not able to run the plant. Site selection is next, followed by rerefining We tested used oil from our supplier in our plant in Denmark and got very good results. VI [viscosity index] is relatively high, and sulfur is low. The test showed we can produce Group II materials using our technology in the U.S.

Phadke explained that there are currently 11 rerefining plants in operation in the U.S. with eight more under construction or ready to be commissioned. The U.S. market is on the cusp of some very strong growth, and a lot of factors are coming into play that make this industry very attractive, he said.

Hartman noted that Russia produces 500,000 tons of used oil annually, but has no rerefining infrastructure. In China, the government has issued 704 licenses for rerefining plants. However, they mostly use outdated technology and are eager to apply new methods, said Hartman.

The Middle East has some small rerefining projects underway. Africa has low consumption, and used oil collection is very difficult, said Hartman. One plant has been built in Libya with others underway in Egypt and Nigeria. South Africa has rerefining plants that produce fuel rather than base oil. The potential for rerefining projects in Africa is very low, Hartman concluded.

Finally, South America has only a few rerefining projects underway, notably Lwarts API Group II plant in Brazil. This market is expected to grow, especially in Brazil, which has strong used oil legislation.

Future Outlook

Phadke explained that Kline is conducting a large sample survey covering used oil generators, including commercial fleets, installers, and industrial users to understand their practices for handling used oil, how they dispose of it, and what their attitudes are toward rerefining in general.

He reported that there are a number of drivers to the rerefining industry, particularly in the U.S. First, the collection infrastructure for used oil has improved, and a greater awareness by the public has increased the volume of used oil collected. Collection levels now approach those in European countries.

Second, the rapid increase in lubricant prices has spurred used oil generators to seek higher value for their used oil stream. According to Phadke, Fleets are starting to follow a closed loop strategy where they send out used oil to be rerefined, and then take the product back. Thus, the value captured by the rerefiner is low.

Third, improved used oil quality and rerefining technology has boosted the quality of rerefined base stocks. These higher quality base stocks are able to address a wider portion of the market.

Wider Appeal

To broaden the appeal of rerefined oil, we need to understand what the different stakeholders think of these lubricants, Phadke said. He explained that the perceptions of lubricant blenders and marketers vary depending on their global marketing strategy. Global marketers, for example, generally consider rerefined base oils only as a marketing plank in their larger offerings because the product does not fit well with their supply chain.

These companies need the same base oil to be available around the world, which is something rerefiners cannot provide. Independent and mid-tier marketers, on the other hand, would consider rerefined base oils on a case by case basis if savings can be realized.

End users have different concerns, said Phadke. [Original equipment manufacturers] are concerned with final product performance and not the raw material used, so the base oil source is of little concern if the oil performs as expected. He added that commercial fleet owners would consider rerefined base oils as the oils establish a reliable track record. Base oil prices have increased four-fold over the past 10 years due to increasing crude oil prices, and the actual cost to fleets has increased even more due to quality improvements driven by specification changes. As a result, there is greater focus on capturing value from the used oil.

The reactions of installers and do-it-yourselfers are somewhat of an unknown, Phadke said. Valvoline has dipped its toe in the pool, and if others follow, consumers may be convinced. He added that customers are curious, and a portion of the sales may have been cannibalized from other brands of the company.

Phadke added that industrial users already practice on-site oil recycling. Therefore, they should be willing to start experimenting with lubricants made from rerefined base oils.

Another interesting factor is that natural gas prices are depressed. This is changing the economics for certain industries so that they are moving away from using heavy fuel oil to natural gas, which has reduced the competition for used oil and increased its availability for rerefining.

Finally, we also see improvements in finished lubricant quality, said Hartman. As a result, the quality of the used oil has improved. Though contaminated, it has a high VI and a good Noack [volatility rating], he said. The quality of the rerefined base oil will be borderline Group II or good quality Group I.

Phadke noted that broadening the appeal of rerefined lubricants is a challenge. In the near term, commercial fleets should be easy converts to closed loop rerefining once the rerefiner establishes its credentials. Others may step into this business based on how it performs. On the other hand, if another major brand were to enter the business, customer confidence will increase.