Although rerefining is nonexistent in Russia, it has great potential there too, speakers said at the World Refining Associations Base Oils & Lubricants in Russia Conference here, March 23-25.
About 2 million tons of waste oils have been collected in the EU in 2007, or about 35 percent of the lubricants consumed that year, according to a survey by Hamburg, Germany-based kopol Institute for Environmental Strategies.
Scandinavian countries have became pioneers in waste recycling. Norway, Sweden and Finland have regulated collection of used lubricating oils, while their governments have established a tax refund system for returned waste oil.
These are the main preconditions for the investment, growth and profitability and doing business in this sector, said Kari-Matti Elo, trader in Espoo, Finland-based EcoStream, which collects and recycles used oil products.
EcoStream last week said it now owns 100 percent of the share capital in L&T Recoil Oy (LTR) rerefinery. A 60 million (U.S. $79.2 million) project, the LTR plant went onstream last summer, according to Elo. It is located in Hamina, Finland, on the shore of the Gulf of Finland, about 30 kilometers from the border with Russia. The plant is in the same industrial park where Russian lubricants producer LLK International operates a blending plant.
Major rerefining plants in Europe include those of Trglitz-based Puralube and Dollbergen-based Avista Oil, both in Germany, and Viscolubes two plants in Italy. Avista Oil operates a plant in Denmark.
The EU has six additional rerefining plants, but only the Puralube, Viscolube and LTR facilities use hydrotreating technology, Elo pointed out. Puralube is the first one who claimed that it produces Group II base oil, he said, adding that the Hamina plant produces Group II base oil as well.
The winning formula for rerefining profitability is to use advanced hydrotreating technology, which accounts for maybe 50 percent of the success of the venture, claimed Elo.
Besides the fact that this technology has been introduced several decades now, rerefining production takes more operational excellence. The puzzle is slightly different to reach the final feedstock product, compared to traditional base oil production, he explained. That is to say, if you have already invested successfully in a rerefining plant, setting up the next one will avoid three quarters of the problems that you faced with the first one.
During the Moscow conference, industry observers predicted that Group I base oil usage in Europe is going to decline, and that the market expects an increased demand for Group II and Group III base oils.
Hence, the hydrotreating option will give a competitive advantage over the non-hydrotreating producers in the sector. The Group II base oil is definitely an asset for every producer, including the rerefineries, Elo assured.
According to Elo, the Russian rerefining market has enormous potential because there is no competition at all, and the countrys economic growth had been excellent until the financial slump in the past couple of years. Relatively low labor costs and skilled profiles in oil refining industry will boost any investment in the sector, he noted.
However, Elo added, challenges rerefining faces in Russia include low domestic prices for base oils, the question of foreign investment protection, permitting and lack of subsidies, low feedstock availability and quality, and difficulty in finding investors. In addition, current Russian environmental policy does not support used oil recycling and is not compatible with the EUs environmental policy. Countries like Saudi Arabia, Venezuela or Russia are rich with oil, and the prices of the base oil have been very low there, contrary to the non-oil producing countries that care about self-efficiency, he observed.
Obviously, all these would be less of a challenge for Russian market players who might be already involved in the rerefining business activities and who realize the prospects of demand increasing for Group II and Group III base oils on the domestic as well as on the European markets, Elo concluded.
He also touched on the economics of rerefining.
Big crude refineries are not interested in this field – they dont care about rerefining. We are looking to produce only 60,000 tons per year [of rerefined base oils]; why would majors care when they are running a refinery which is producing 5 or 10 million tons per year? he said.