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 March webinar based on Klines first comprehensive analysis of the used oil and rerefined lubricant market in the United States. In 2011, the studys base year, U.S. rerefining capacity stood at about 485,000 tons per year, according to Kline. The 2017 projection includes several announced rerefineries, although not all will pan out as base oil producers.

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, he cautioned. We believe this could maybe be merely a means of discouraging others from thinking about a particular region.

Not every project is a mirage, of course, and several new players have affirmed to LubesnGreases that they are quite far along in their plans and/or construction.

As this issue goes to press, Juan Fritschy, CEO of Universal Environmental Services (which is adopting the name Avista Oil USA), confirmed the company is commissioning its rerefinery in Peachtree City, Ga., from mid-April to mid-May. The rerefinery is expected to have capacity to process 30 million gallons of waste oil per year and to produce nearly 1,300 b/d of Group I and/or II base oil. We will start producing on May 2, and we expect to be in full production by June 1, Fritschy said.

In Florida, NexLube Tampa continues to move towards commissioning its rerefinery in the last quarter of 2013. That facility is expected to process 24 million gallons of used oil annually and produce 20 million gallons of Group II base oil.

FCC Environmental began engineering and site preparation work early last year for a rerefinery in Baltimore. The start-up for the FCC refinery is currently projected for late Q4 2014, FCC Environmental Vice President Vincent Glorioso told Lube Report. We are going through the permitting and final engineering process, and believe the start-up date to be realistic.

Transformer oil collector and rerefiner Hydrodec, which uses a catalytic rerefining process to make naphthenic process oil at a plant in Canton, Ohio, now is working on a scheme for making advanced paraffinic base stocks. Hydrodec CEO Ian Smale in March told shareholders that the technology will soon move to the pilot plant stage, and offers potential for new types of high-quality base oils such as Group II, II+ and III. If the planned rerefinery is able to stick with crankcase materials as feedstock, the company anticipates roughly 75 percent will be rerefined into base oil, or about 30 million gallons per year.

All of these schemes are aiming to benefit from several key drivers which Klines Kumar enumerated in his webinar. These include significant improvement in the used oil collection infrastructure in recent years; a gradual decrease in the share of do-it-yourself oil change customers; greater collection volumes due to increasing awareness of used oil collection services; and advanced processing technologies that result in better-quality rerefined base stocks.

Moreover, theres more pressure now 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.

The industry does face challenges however. First is access to used oil supply, he said. To run a seamless used oil rerefinery, its critical to have an uninterrupted feedstock supply. Lately we have seen a trend where rerefiners are taking over collection companies or spreading their geographical footprint to secure used oil supply.

As well, some used oil collectors have announced plans to set up rerefineries, hoping to capture the same limited used oil supply. That is an indication the industry is attempting to mitigate this risk, he said.

Kumar emphasized that volumes of used oil supply have not been growing; theyve at best been flat 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.

At this point, he added, the used oil collection industry is ripe for some consolidation, as this would help reduce costs and standardize collection practices, which in turn would make used oil quality more repeatable.

A second industrywide challenge is consumer acceptance of finished lubricants made from recycled base oils. Global lubricant blenders and [major] marketers would consider rerefined base stock as a marketing plan to portray an environmentally friendly image, Kumar said. However, 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.

By contrast, an independent or mid-tier marketer would consider using rerefined base stocks if the company 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 in particular 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 noted. However, if more marketers follow suit, consumers could be convinced of the use of rerefined lubricants.

Industrial lube 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 United States 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.

Of that, it estimated only about 60 percent was generated as a used oil – the rest was either lost or not classified as used oil.

Klines study indicated about 80 percent of used oil generated in the United States in 2011 was collected. That figure is higher in densely populated states like California, and lower in less-populous 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 U.S. Gulf Coast to Europe, Latin America and China.

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

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