These and other important points were put on the table during a rerefining focus day at the GBC Base Oils and Lubricants Conference in Moscow earlier this year.

In Russia this industry remains hindered by lax law enforcement and a lack of state and private incentives, Gabriel Tarle, Kline & Co.s senior analyst for petroleum specialties, told the gathering. Russia has a small number of regional players, as well as used lubricant traders and aggregators, he added, but the vertical integration of the countrys rerefining industry is limited.

Russia officially collected about 600,000 metric tons of used lubricants in 2015, and over 90 percent of it was burned as fuel, Tarle pointed out. Only a scant 50,000 tons were processed for production of base oils.

Kline, headquartered in Parsippany, New Jersey, did not give an estimate of how much of the countrys used oil goes uncollected, but Russias Association of Waste Recycling estimates that about 1 million tons of used oil is generated in the country annually.

Add in the Custom Union (the Russia-Belarus-Kazakhstan trading bloc) and the Commonwealth of Independent States, and the wasted potential goes even higher. There is a huge amount of used oil generation volume, stated Dima Cherikover, another presenter at the conference in late May, and we are sorry to say that less than 10 percent of it is processed. He pegged lubricant consumption in Belarus at 100,000 tons a year, Ukraine at 250,000 tons, and Russia at nearly 2 million tons (which varies from other sources estimates).

Cherikover is managing partner of DVCH Management, which operates a fledgling rerefinery in Belarus. New regulation enforced in Russia in the last few years can change this condition for the better, he urged. The country made a positive step towards solving the issue of used oil collection and processing.

The rerefinery is located in Belaruss Krupki district, around 120 kilometers east of Minsk, and is a public-private partnership between the countrys Ministry for Natural Resources, MDD-Bel and DVCH Management. Opened in 2015, it can handle 15,000 tons of waste oils annually (about 300 barrels a day), and produce 13,500 tons of API Group I base oil and vacuum gas oil products. It also has lubricant blending capacity, and now is eyeing a project to make Group II base oil, Cherikover said.

Collection Leaders

Used oil collection rates in North America and Europe are much higher, Cherikover emphasized, the highest in the world in fact. In the 28 European Union member countries, he pointed out, 88 percent of collect-able used oil actually is gathered for reuse. About 45 percent of that is burned as fuel by industrial users in making cement, steel and lime and for power generation, and a sliver is exported. But a bit over half of whats collected goes to rerefiners.

Western Europes rerefining trade group, GEIR, he added, has proposed ambitious goals for rerefining. By 2025, it says, some 85 percent of the nearly 2 million tons of waste oil collected each year in the EU28 should be rerefined, unleashing a potential 1.1 million tons of rerefined base oils.

By contrast, Kline found it impossible to gauge the exact rate of collection in Russia in its recent study Global Used Oil and Re-refined Lubricants. In 2015 it perhaps was 54 percent of the used oil generated, Tarle surmised.

The study covers six markets-North America, China, Western Europe, India, Russia and Brazil. Together they account for 24.6 million tons, or 63 percent of global lubricants demand in the base year of 2015. Excluding Russia, the other five regions collected roughly 13 million tons of used oil for reuse, according to the study. About 56 percent of that material was processed and then used as an industrial fuel or fuel blending component, about 38 percent is used in rerefining and the balance is used in minor applications like concrete de-molding agents, Tarle said.

Especially in North America and Western Europe, the share of rerefining is expected to rise as a disposal route, he went on. It is due to two reasons: better enforcement of regulations, and improvement in infrastructure for collection and rerefining in different markets, Tarle observed. Consumers are also becoming more aware of the harmful effects of used oil, and Kline expects this will help deter them from disposing of used oil in environmentally unacceptable ways.

The consultancy predicts the volume of used oil generated to increase in all six of the studied regions. Paradoxically, this growth will be mainly due to usage of better vehicle technology and industrial machinery likewise, and reduction in losses and spillages, Tarle contended, and will make more used oil available for collection.

The gains will come mainly from developing regions as their collection infrastructures improve and regulations are enforced more stringently. Kline foresees that the United States, Canada and Western Europe, with already high collection rates, will witness only minor gains due to overall shrinking lubricant demand. China, Thailand and Mexico are expected to see the most growth in collection as it will be improved by the [increase in] licensed collectors from 2015 to 2025. Other markets should expect only minor growth in used oil collection, Kline said.

Russias Fragments

In 2015, Russia consumed 1.6 million tons of finished lubricants, according to Kline. The country has only one modern rerefinery, Rosa-1 in Ryazan, with capacity to process 40,000 tons of waste oil per year. Rosa-1 can make Group I base oils and also has capacity to make commercial lubricants.

In Russia, the used lube oil industry is fragmented, with the existence of many small collectors and transportation companies, Tarle said. Rosa-1 has a wide collection network, but the volumes rerefined are very small and amount to around 30,000 tons per year, way smaller than the used lube oil [volumes] burned in the country.

Key regulations in Russia include a federal law from 1998 that mandates treatment and handling of various industrial and consumer wastes, and the Custom Unions technical regulation 030/2012, which spells out the requirements for lubricating materials, oils and special fluids. The latter was amended in a 2014 regulation providing specific guidelines and rules for waste oil treatment.

Next, federal law 458-F3 regulating the collection and processing of used oils was enacted in January 2015. Eight months later, the government ordered the collection of an ecological tax by all companies that generate used oil. The following year (2016) was the starting point for this rule, after which generators had to submit reports to the government for assessing the fee rates they have to pay. In 2017, the tax rate was increased by 15 percent.

Also last year, Russia introduced obligatory licensing for used oil collectors, and it is a positive development, Tarle noted, adding that early in 2017 the government started to receive its first payments of the ecological tax.

Kline found that Russia still lacks clear enforcement of these regulations, or depth and reach in its used oil collection infrastructure. [Russia needs] stricter regulations and enforcement, which will result in greater collection rates, similar to that in the U.S., Canada and the Western Europe, Tarle said.

The consultancy observed that used oil collection rates are higher in countries that offer incentives for collection and processing of used oil. For example, in Italy and Spain an Extended Producer Responsibility scheme is applied. The EPR scheme consists of a deposit-refund system implemented in order to subsidize the industry. The deposit is funded by lubricant producers, and the refund is accrued to collectors, rerefiners and fuel processors, depending on the scheme. As a result, the collection rates in the U.S., Canada and Europe are higher than 70 percent.

Also in those regions, most leading rerefiners have a business division or a sister company dedicated to the collection of used oils, Tarle continued. These collection companies have a well-established network of collection points, tank farms for the accumulation of used oil in a region, used oil collection trucks, bulk shipment trucks and rail cars.

A Challenged Market

The analyst underscored several weaknesses in Russias waste oil collection and treatment practices:

No centralized collection system. Generators have to find collectors.

Logistical challenges. Access to quality feedstock is limited. Heavy industries in far-flung places end up reusing used oil onsite, or dumping it.

Lubricant blenders are not interested in rerefined base oil, because the virgin base oil market is oversupplied in Russia. Lack of rerefining capacity means that a significant quantity of used oil goes to fuel applications.

With few disposal options, do-it-yourselfers resort to lubricating locks, bicycle chains and door hinges with used oil. Used oil is also utilized for impregnation of wood blocks and fence posts to protect from insects and rot, and to protect metals from corrosion.

DVCHs Cherikover sees similar hindrances in the former Soviet Union (FSU) countries. The prices of used oil and final products leads to the situation that only production of high-quality used oils are profitable, and a huge capital investment is needed, he ruefully told listeners. The FSU suffers from low collection rates, a bad collecting culture and a lack of clear legislation addressing the incineration of used oil, he remarked. Meanwhile, black market operators with ready cash are able to divert used oil volumes to the burner market.

Cherikover believes this deadlock requires a legislative answer. Without strong legislation changing in the near future, investment in high-quality rerefining in the FSU appears economically unreasonable, he stated. Near term, those in the region need to focus on low-volume technologies and niche products to survive.

If the weaknesses can be reversed, Kline believes that Russia has great potential to develop a robust rerefining industry. It is the largest finished lubricant market in Europe in volume terms. The new [2014] law prohibits dumping of used oil on ground or in water streams, or burning it without removing all heavy additives from it. This has resulted in increasing the necessity of collecting and regeneration of used oil, while the obligatory licensing for collectors introduced in Russia in the beginning of 2016 will play a positive role, Tarle concluded.