Oil Recyclers Closely Watching a New Maritime Regulation—So Should Quick Lubes
Come January 1, a ship sailing in the middle of the ocean will have tighter restrictions on its sulfur emissions. Does that affect your quick lube business?
Chances are good that it will.
Those in and around the oil industry have closely watched the International Maritime Organization’s decision to lower the threshold for sulfur emissions by ships out on the open ocean. The allowable sulfur content by weight will drop from 3.5 percent to .5 percent beginning in 2020.
The change is expected to have far-reaching impacts, including the ability for quick lube operators to sell their used motor oil for use by those ships.
Waste oil has a variety of uses. One is that it is re-refined into lubricant for new motor oil. It’s also a common blend ingredient for cheap and widely used marine fuels.
In 2020, the most common marine fuels won’t meet the new sulfur limits. One estimate says that used motor oil is part of some 80 million gallons of fuel oil that will no longer be viable for use by ships.
“In the used motor oil pool, knowing that a decent portion of that total volume is going out into markets, that volume is not going to have a home anymore,” says Craig Linington, executive vice president of oil for Clean Harbors-Safety Kleen.
While the full effects of the new regulations aren’t yet clear, experts who deal in waste oil say that it’s important for shops to take notice and review their collection service.
Breaking Down the Change
The IMO, a 171-country coalition, confirmed the new sulfur emissions limits in 2016. The new rules cover open ocean regions in addition to even more stringent emissions limits in immediate coastal waters.
Most refer to the regulations as IMO 2020. The goal is to limit the amount of sulfur dioxide going into the atmosphere. It’s a pollutant and a precursor to acid rain, according to the U.S. Energy Information Administration.
Writing for the National Oil Recyclers Association publication Liquid Recycling, Modern Fuels President Tom Murray estimated an 80 percent drop in the worldwide demand for high-sulfur fuel oils, which are the most common marine fuel products.
The impact to quick lubes will be determined by how else that waste oil can be used.
“I think what everyone’s concerned with is, when all this used oil finds its way back into the marketplace, what does that do to the pricing of used oil?” says Jim Scott, vice president of supply chains for Universal Environmental Services in Georgia.
UES is a re-refiner and collector of used motor oil. Most of the oil that the company collects is processed into base lubricant to be made into new products. That means that the blender markets for marine fuels are not primary outlets for UES, Scott says.
The same is true for Safety Kleen, which is the largest re-refiner and waste oil collector in the United States. Clean Harbors-Safety Kleen collects around 240 million gallons of used motor oil each year and runs five re-refineries.
Linington, who was an executive at Jiffy Lube before coming to Clean Harbors-Safety Kleen, says that the company’s operations are diversified enough that they don’t rely heavily on serving the marine fuels market.
While entities like Safety Kleen and UES might be well-positioned to weather IMO 2020, they’re still watching closely for potential IMO 2020 impacts. The pricing implications could have ripple effects across the oil industry.
“There are so many implications of this change in regulation across so many different parts of the industry,” Linington says. “I don't know that anybody has landed on the exact right answer.”
Multiple Factors at Play
The extent of the impact for quick lube operators—“waste oil generators” to those who trade the stuff—is tough to predict. Linington says that waste oil can be picked up directly by re-refiners like Safety Kleen. Or it can go through any combination of traders, lenders and international entities, making it hard to track it all.
Industries could also respond in different ways that may maintain some demand for waste oil as high-sulfur fuel oil.
Shippers could install scrubbers that mitigate emissions from high-sulfur fuel oils, but few ships currently have them. And they cost money and time to put into place. They could also rely more heavily on a class of fuels called “very low-sulfur fuel oils,” which can include waste oil but are more expensive to produce than high-sulfur blends.
In Liquid Recycling, Murray wrote that the industry estimates a cost of something like $30 billion to $60 billion to switch over to very low-sulfur fuel oils. Refiners and oil companies have been retooling their operations to meet the demand for those products.
The figures are estimates. Scott Parker, executive director of the National Oil Recyclers Association, says that different prognostications about IMO 2020 could show increases and decreases in future high-sulfur fuel oil use.
“This is a very much dynamic, very large marketplace,” Parker says.
That marketplace could shift to absorb a lot of that excess oil.
Representatives for Quest Resource Management Group says the company is relying on a broad spectrum of outlets for the waste oil that it manages. Quest works on recycling solutions for lots of industries, and one of the materials it deals in is used motor oil.
While it’s still early to predict the value changes for used motor oil, Quest vice president of marketing and business development Vanessa Lépice says that there appear to be outlets to accommodate a lot of the excess oil.
“The capacity to take on the volume is actually quite wide,” Lépice says. “And we’ve seen a lot of our vendors have started to make adjustments to their refining process to produce the low-sulfur marine fuel.”
After all, waste motor oil has to go somewhere. One estimate from the Mississippi Department of Environmental Quality says that the United States generates 1.3 billion gallons of waste oil annually.
No matter how the market for used motor oil responds, the most immediate change for quick lube operations may be in whether or not they can still get paid for it.
“If the value is diminished, that will be more difficult,” says Ray Hatch, CEO of Quest. “But it has to be dealt with.”
The Road Ahead
IMO 2020 isn’t a hopeful sign for operators hoping to get paid for waste oil.
In NOLN’s 2018 Operator Survey, more respondents reported getting paid for their used oil than in 2017 and fewer reported paying for pickup. But the majority—67 percent—said that they’re neither charged nor paid for used oil.
Even for those who are paid, it may not add up to much. In NOLN’s July issue article about waste oil management, Montana Jiffy Lube operator Briggs Anderson says that he gets paid, but it’s barely enough to break even.
It depends on where that oil is going once it leaves the quick lube shops and what kind of value the collectors are getting on their end. Those working in the used oil market say that now is the time for operators to research where their oil goes.
“I'm pretty certain that, come IMO, those that don't have an outlet other than the bunker blending and industrial fuels market are going to really struggle to offer any type of value to quick lube operators,” Linington says. “So, the more that the owner-operators can understand that now, they’d be prepared to make a potentially better decision to protect themselves.”
There are other factors to consider when researching how to get value out of used engine oil.
Proximity to a re-refiner or a shipping port might give a quick lube a better shot at generating some value for waste oil, because it reduces transportation costs. Finding out how heavily a collector relies on the marine fuels market could also be a good step. It’s all about factors that offset the cost of pickup for the collector, Parker says.
It’s important to keep the environmental factors in mind, too. Priority should be placed on recycling or reprocessing waste oil, even if the cost shift more toward the quick lube operator.
“We always want to keep in mind that dealing with a reputable company that has the appropriate insurances and has environmental safety,” Parker says. “Even when oil prices go up and down, there might be ways for you to shop certain things. But there is a certain cost associated.”