Thirty miles southwest of Atlanta, the rerefinery will have capacity to up- cycle used oil into nearly 1,300 barrels per day of API Group I and/or Group II base oil, CEO Juan Fritschy said during a tour by LubesnGreases. The plant also will produce asphalt flux and three types of fuel.

Fritschy called Peachtree City a perfect geographical spot in the heart of the Southeast, roughly equidistant from the ports of Savannah, Ga., and Mobile, Ala. We have access by truck to two different seasides of the country, he said. We can cover a nice footprint.

From a rerefined base oil point of view, as of today the closest rerefinery competitor is in Indianapolis, he added, referring to Heritage-Crystal Cleans new 2,000 b/d Group II facility there. So technically, we have a pretty good footprint that is going to be covered by us, at least for the next couple of years.

Avista already owns two rerefineries in Europe – Mineraol-Raffinerie Dollbergen GmbH in Germany (with 3,300 b/d of Group I capacity), and Dansk Olie Genbrug A/S in Denmark (800 b/d of Group I) – plus majority interest in a Netherlands refinery that can convert used oil into feedstock for those two facilities.

Avista engineer Holger Bretschneider is in charge of the Peachtree City project. He is one of the most experienced persons in the Avista engineering team and has been involved in the design and construction of the rerefineries in Germany and Denmark, Fritschy said. Supporting Bretschneider are six to 10 other Avista engineers who go back and forth to Germany as needed. These engineers know what they are doing because they did it before. Theres a lot of accumulated knowledge from the past.

Such projects can run over budget very quickly, Fritschy observed, so having somebody who already did it twice working on it gives you almost a comfort that its going to be in the plus/minus 5 percent range. Were pretty confident everything is going to plan, time-wise and budget-wise.

Operations

When its running, Peachtree Citys crew will number 22, including maintenance, operations and laboratory personnel. Overseeing them will be UES Vice President of Rerefining Operations Terry Malone. He has worked in recycling for USFilter and as an environmental specialist for Castrol Heavy Duty, and has prior experience in used oil recycling and water treatment plants.

Malone has been part of the projects planning and design team for more than two years now. During that time, these long-term Avista employees have shared their knowledge and success stories with me, he noted.

He also visited Avistas European plants several times to learn the process and how to successfully replicate it in Georgia. I will be returning several times over the next few months, Malone said. In addition, operational employees will travel here from other Avista locations, to help ensure a successful startup.

Target: Base Oil

According to Fritschy, the rerefinery will yield about 60 to 62 percent base oil, from the 30 million gallons of used oil per year it processes. While it is capable of making both Group I and Group II, he emphasized that UES will switch to produce either type or a mix of the two, depending on what makes sense from a profit standpoint.

We are going to produce a Group that overall gives the company the best margin, he said. If a Group II buyer is willing to buy at margin plus those extra operational costs we may have for running Group II, then we can produce Group II. But we are not conditioned by Groups.

There is plenty of demand now for rerefined base oil in North America, Fritschy observed, including from some lubricant majors who are particularly interested in rerefined base oil. We shipped and shared samples with most of the bigger brands. They sent technical teams to talk to us, and they came down here to visit our construction site. Everything boils down to how good the contract could be for UES. Small and medium size blenders have shown interest as well.

Many of these and other customers have wanted samples. So we shipped about 8 million gallons of used oil from the U.S. to our rerefinery in Denmark, he recalled. We ran our rerefinery in Denmark many, many times using exclusively American used oil. We produced fuels, asphalt, flux and base oil in those runs. We brought those samples back and shared those samples with all these potential buyers of byproducts and base oil.

He said UES has found no resistance to rerefined base oils in its talks with blenders; quite the contrary. Sometimes were a bit concerned we may not be able to fulfill the demand, Fritschy said.

The Collection Side

Avista Group initially acquired 50 percent of Universal Environmental Services from McPherson Bros., of Trussville, Ala., enabling UES to increase its used oil collection business and plan for the rerefinery. Avista later increased its ownership to 86 percent.

UES already hauls in close to 36 million gallons yearly. It collects oil in 14 states, has 135 employees, 19 collection facilities, 52 collection trucks and more than 50 transport trucks. This includes 45 new trucks purchased in the last 18 months.

The collection side of the business, headed by Vice President Scott Eddings, is as important as the rerefinery, Fritschy said. The fact that we have a rerefinery doesnt mean we can lose sight of how important the collection side is. We are first of all collectors of used oil. We have to keep improving on that side also.

If you dont control your collection, if you do not control the cost of your collection, we think you have a disadvantage as a rerefiner, he continued. UES has about 8 to 9 million gallons of storage capacity for used oil across the 19 locations. Its important we keep in mind that as a rerefiner, we also have to be the best collector. So we have to keep thinking about new ideas and new ways you can create value for the person who is giving the used oil to you.

One example: By the end of the year, each UES driver will have an industrial tablet computer to complete the paperwork required every time a pickup is made. The information will be posted in real time to a central system capable of creating daily, weekly or monthly reports and submitting the reports to customers systems.

UES collects most of its used oil from quick lubes, but thats a double-edged sword. Geographies with concentrated populations tend to generate more used oil, in proportion with vehicle counts. But while more used oil is available on the streets, that also will bring more competition from collectors, Fritschy observed. Maybe in a highly populated area, you might have two competitors. So you might prefer to be in an area with less people and one competitor. You have to know how and where to compete.

Know Your Collector

Jim Scott, UES vice president of supply chain, also remarked on the heavy competition in used oil collection. The market offers many options for a generator, big and small, Scott said. We advise each generator to know the potential collector, his insurance coverage and the facility they are taking the generated waste into. Ultimately, the generator is responsible for the material generated, so its important to understand the path of the used material and its final destination.

Scott believes the playing field rewards the more disciplined collectors. In most cases and in very general terms, used oil generators require a few other services. These services are often rolled into a package that encompasses the needs of the individual location or group and often leverages the used oil as an offset for other services requested.

In his experience, firm contracts for used oil have evolved into short-term agreements. This is due in part to the education of the generators, as well as the restrictions of long-term agreements, Scott said. Most disciplined large generators desire the flexibility to move, based upon the markets movements.

Natural gas poses another form of competition. About 80 to 90 percent of buyers who 10 years ago burned used oil for fuel are also connected to natural gas, and natural gas prices have gone down sharply in the last two to three years. Such buyers can switch easily to whichever fuel is cheaper, and they do.

Today, UES exports much of its collected oil. We have contracts with companies in Europe that take the oil, Fritschy said, and some is going to buyers in the U.S. Gulf. We also have buyers in our footprint, like asphalt plants and paper mills.

The consumption of used oil in the Southeast U.S. went down quite a bit, Fritschy noted. So we are timing these contracts, particularly the contracts of companies in Europe that are buying used oil, so that by the time we have to start up the rerefinery, they know in advance that we are going to slow down the supply of used oil to them. That has been clear to them from day one; we started supplying oil to them probably a year or two years ago.

Even so, UES expects to have some surplus used oil it can deliver to customers without interruption.

Branching Out?

While UESs Peachtree City rerefinery will not have a blending plant initially, the site allows it to add one later if needed. We wanted to make sure that we have the real estate in the property just in case in the future we want to have it, Fritschy explained during the tour. However, the blending plant is not in the budget for 2013, he remarked. We may decide to go ahead and build it in 2014 or 2015, or beyond that, or not.

Another scheme is to modify the rail connection at the back of the property to have two rail spurs. The most immediate goal, he emphasized, is to make sure the project works well and starts up properly. Then we will keep an eye on the market and if blending makes sense, we are going to have a blending plant in the medium term.

Looking ahead, Avista plans to partner with another used oil collector to 29 or build a second rerefinery in North America. We are talking to potential partners, Fritschy said. These are collectors who have enough volume or enough critical mass in used oil for us to grow them.

This second rerefinery would not be close to Atlanta. We are not going to compete with ourselves, he emphasized. It needs to be 500 miles away from Peachtree City at least.