However the challenge for the RRBO refiner is to make economics work, so that the base oil buyer will find their proposal attractive. So let’s look at the second aspect of our article and help RRBO sellers by addressing the above points in the minds of a buyer of the lubricant company.
Before diving deep, I would like to mention here that I have developed a great respect for the RRBO industry, as it is not easy to compete with the virgin base oil industry, enjoying a superior position with lubricant companies. However the RRBO industry has been working very hard to demonstrate RRBO meet the same standards stipulated by API as that of virgin base oil based lubricants at equivalent quality and performance.
It is however important that in order to maintain an attractive price differential between RRBO and virgin base oils, the RRBO refiner has to understand and address the key value drivers, as follows:
a) Prevailing virgin oil prices b) Natural Gas and furnace oil prices c) Value of alternative local end uses for used oils d) Purity of used oils e) Cost of separation of used oils and pre/post testing f) Collection distance g) Regulations h) Local RRBO capacity i) Customer perception of RRBO quality j) Partnerships
This article could run into several pages if we decide to look into every value driver, however the purpose of sharing these drivers is to help executives in the RRBO industry to think about all these factors if they want to compete with the virgin base oil industry.
While addressing the basic economics for the value drivers on a continuous basis, the RRBO industry as a whole needs to provide greater assurance on the supplies to the lubricant companies. The reason is that there are too many RRBO refiners (compared to the number of virgin base oil refiners) and even the supply failure of one refiner could dilute the value proposition of other RRBO refiners. With over capacity of both virgin base oils and
RRBO, in my view, the RRBO industry needs to consolidate either through mergers and acquisitions or by optimising their network if they are operating at multiple sites. The RRBO refiner also needs to integrate their entire value chain to become more efficient and offer better value to the lubricant companies.
Now onto ‘Responsible Care’ of the lubricant organisations. Clearly RRBO has a wining horse here and RRBO refiners should endeavour to promote the ‘Green Oil’ agenda, which is good for the entire world and in particular, the whole lubricants value chain. While only 10% of the global used lubricants are re-refined into base oils, Europe has been re-refining a substantial portion of used oils, followed by Latin America and North America. I have therefore thought of taking an example of the European industry, as in my view, they can take a lead for Green World.
Used lubricating oils represent the largest amount of liquid, non-aqueous hazardous waste in the world. Recognising the potential damage used oils could do to the environment, in Europe, extended producer responsibility (EPR) schemes are already well-functioning for the waste oil industry. Usually, the EPR schemes are managed by means of a consortium which supports the collection, transportation and management of waste oils. Depending on the EPR scheme and national legislation in place, obligations by the consortium to send waste oil for re-refining rather than incineration also exist.
It also makes economic sense for Europe, as it helps to create more jobs and help in pushing the growth agenda. While the sector currently employs directly in 28 plants about 1000-1200 in re-refining and 2000-2500 mostly local jobs in the collection of waste oils, lubricant consumption, collection and production indicate scope for further employment and investments. Waste oil re-refining creates and secures green jobs and supports the green economy of resources in line with the European Commission’s expectations. According to a recent estimate, the EU could realistically boost GDP and create between 1.4 and 2.8 million jobs though resource efficiency. Furthermore, the industry contributes to creating indirect jobs in a diversity of sectors, from accounting, quality control to cleaning and repair work.
LUBE MAGAZINE NO.131 FEBRUARY 2016
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