Continued from page 29
It should be noted that implementation of any strategy requires the producer (importer) of lubricants to make financial outlays, but only in a single case, precisely in implementing strategy No
.1, the producer (importer) of lubricants has an opportunity
to recoup its investments and make a profit by selling new petroleum products obtained from processing used oil.
In implementing Strategy No.2, the producer (importer) of
lubricants incurs additional costs that may, depending on the management solution adopted: a) be included in the cost of the lubricants paid by the consumer;
b) reduce profits (EBITDA). Overall, implementation of Strategy No
. 2 involves the risk of the
lubricants being less competitive and the lubricants business in Russia being less effective.
In implementing Strategy No.3, the producer (importer) of
lubricants also incurs additional costs that impact on the lubricants business similarly to those resulting from Strategy No
.2, Strategy No .3 also entails substantial risks. The first risk is that, under Strategy No .3, a paradox arises:
company specialising in collecting and disposing of (processing) used (waste) oil and receiving used (waste) oil as raw material from the producers (importers) of lubricants (primarily oil majors), produce and put on to the market products that compete with those produced by the producers (importers) of lubricants themselves (oil companies). Considering that the
quality of the output produced from used oil is, in general, comparable with that produced from crude oil, whereas the cost is 15-20% lower, consumer preference inclines towards the cheaper product, i.e., that produced from used (waste) oil. Considering that, in Russia, producers of lubricants (oil companies) have excess capacity for producing lubricants out of crude oil, a paradox arises: the more the producer (importer) of lubricants produces (puts on the market), the more difficulties it creates for production and sale of the lubricants it produces if it concludes an agreement for collection and disposal of used oil with a specialised company.
The second risk is that specialised company in Russia are not able to collect and dispose of all the used oil from all producers (importers) of lubricants according to their norms utilisation, since they do not hold the requisite number of oil tank farms for storing the used (waste) oil. In contrast, oil majors in Russia have, in most regions, their own tank farms (LUKOIL, for instance, has 100 tank farms and ROSNEFT has 128) at which used oil and containers may be collected. In addition, the designs of these tank farms envisage the possibility of receiving and shipping used (waste) oil.
The third risk is that, in Russia, in 2013 there were utilisation facilities for used (waste) oil with an aggregate capacity of about 80 – 100 thousand metric tons, whereas the demand on the part of producers (importers) of lubricants for utilisation facilities might, in accordance with the potential norms of utilisation (% of the annual production of lubricants in Russian – 1 800 thousand metric tons), amount to the following:
Figure 3. Implementation of Strategy No 30
.1 of a producer of lubricants for collecting and disposing of (processing) used (waste) oil in Russia [4] LUBE MAGAZINE NO.126 APRIL 2015
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