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December 14, 2018

Volume 7 Issue 3

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Rerefined Oils Near Price Parity in Australia

The Australian API Group I market depends almost solely on rerefined oils, the price of which is almost equal with its imported virgin equivalent as lubricant blenders recognize the quality of the recycled product.

Just two years ago, the rerefined product was selling at a discount of as much as 25 percent.

In an exclusive interview with Lube Report, Tim Rose, the general manager of Southern Oil, the country’s biggest producer of rerefined base oil, said the rerefined Group I oils accounted for about 10 percent of the 650,000 metric tons of all base oil grades used by local lubricant blenders. He said exports of the rerefined product are growing too.

“I can confidently say you would probably find parity between a Group I that we produce and a virgin Group I,” said Rose. “We’ve always been reasonably popular with the blenders because we have had good quality properties, but also, in general, the world is moving towards demand for more environmentally sustainable products. That’s helped the closing of the gap.”

Southern Oil produces about 70,000 metric tons per year of rerefined Group I base oil from its two plants: a 17-year-old facility in Wagga, New South Wales—20,000 t/y—and another, known as Northern Oil, in Yarwun, Queensland—about 50,000 t/y. The newer Yarwun facility has amped up its production from 50 percent capacity in 2014, when it opened, to about 80 percent currently, Rose noted.

As the local market has become almost solely dependent on the rerefined product for its Group I needs, increased production has been exported, mostly to Southeast Asia, with some going to north Asia, the Middle East and Africa. Future growth, too, is likely to be in the export market, said Rose, observing that the local market is saturated and that overseas buyers would take more if they could get it from Australia.

Buyers like the high quality of the Australian rerefined product, explained Rose, saying it could have valuable characteristics because of the feedstock—made from the sophisticated used automotive lubricants from high quality Group II and Group III base oils.

Southern Oil’s namesake Wagga plant, which is close to the cities of Melbourne and Adelaide, processes mostly used automotive oils. Northern Oil, in the big, far-northeast mining state, uses mostly used mining lubes.

The rerefiner makes its base oil product in four viscosities: SN 70, 150, 300 and 450-500.

The constraint on working to the full capacity of the facilities is a lack of feedstock, Rose told Lube Report. Rerefiners, such as Southern Oil and its only local competitor, Cleanaway—which is estimated to produce about 30,000 metric tons—collect used engine, gear and hydraulic oils for their plants.

Rose said the approval to build one of the world’s biggest coal mines, the proposed Adani mine in the Galilee basin of Queensland, and a slew of others, would provide a source of additional feedstock and shoot production to full capacity. 

Expansion of rerefineries in Australia comes thanks to a government-led program known as Product Stewardship for Oil. It emerged at the start of this century, setting a levy on all oil-based products sold to subsidize the cost of collecting used oils. The levy is presently 8.5 cents per liter. 

“There are a couple of different tiers of benefit,” said Rose. “If you rerefine it, which the government considers to be the highest form of recycling of the oil, you get a certain level benefit; if you just collect and dewater and sell it as a cheap, nasty fuel, then you get less.”

Southern Oil’s more modern facility at Yarwun is capable of producing API Group II base oil, but Rose said the closing of the price gap between Group I and Group II stocks doesn’t at this point in time warrant the costs associated with the process.

The Australian market for Group I base oil is also partly supplied with virgin stock, including by importers QLSA and Hilditch. Caltex closed the last Australian refinery of virgin base oil in 2011. BP, Mobil and Shell each shut down their base oil refineries between 2002 and 2004.