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Global Used Oil and Re-refined Lubricants

May 23, 2017

A presentation at

1

Introduction

This presentation is based on Kline’s recently completed survey of the global used oil market and the re-refining industry.

‒ The first phase of the study focuses on five key markets: North America, Brazil, Western Europe, Russia, India, and China.

‒ The second phase of the study focuses on Indonesia, Thailand, Malaysia, Saudi Arabia, Mexico, South Africa, and Turkey.

Each market profile covers:

‒ Used oil regulation

‒ Used oil material balance in terms of used oil generated, collected, and disposed

‒ Various routes to disposal of used oils

‒ Major re-refiners of used oil

‒ Attractiveness of re-refining business

‒ Market trends and outlook

Base year for the study is 2015, and forecasts are provided for a five-year and 10-year period.

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Lubricant/Used Oil Life Stages

Finished lubricant consumption

Converted toused oil

Used oilnot collected

Reclaimed

Incinerated

Combusted

Sent to landfill

Collectedused oil

Use as fuel

Re-refined

Other end-uses

Consumedin use

Not classified asused oil

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The six markets covered in this study account for 24.6 million tons or 63% of the global lubricant demand. About 13 million tons of used oil is generated in five of the six markets covered in the study. No estimates of used oil generation in Russia have been made.

0

10,000

North America-a China Western Europe-b India Russia Brazil

Lubricant demand Used oil generated

Kilotonnes

a- Includes the United States, Canada, and Mexico.b- Includes DACH (Germany, Austria, and Switzerland), France, Italy, the United Kingdom, the Benelux, and Iberia.

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Used Oil Collection Rates in North America and Western Europe are among the highest (% of used oil generated)

0% 100%

North America

Western Europe

India

Brazil

China

Average

Used Oil Collection Rates by Region, 2015-a

a- For Russia, there is no official statistical data on the amount of used oil generated in the country and hence, the collection rate could not be estimated. Kline estimates that about 600 kiltonnes of used oil is collected.

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Regulations, Compliance, Collection efficiency and Material Placement

Used oil collection in a region mainly depends on used oil regulations, its enforcement, and thedepth and spread of the collection infrastructure. Stricter regulations and its enforcement result ingreater collection rates in a region.

In the United States, Canada and Western Europe, the enforcement of regulations is better. Theseregions also have well established collection infrastructure. Further, collection is higher in countriesthat offer incentives for collection and processing of used oil. For example, in Italy and Spain, anExtended Producer Responsibility (EPR) scheme is applied. The EPR scheme consists of deposit-refund system implemented in order to subsidize the industry.

The deposit is funded by lubricant producers and the refund is accrued to collectors, re-refiners,and fuel processors depending on the scheme. As a result, the collection rates in the United States,Canada and Europe are higher than 70%.

In all markets, most leading re-refiners have a business division or a sister company dedicated tothe collection of used oils. These collection companies have a well-established network ofcollection points, tank farms for the accumulation of used oil in a region, used oil collection trucks,bulk shipment trucks, and rail cars

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Used Oil Disposal Routes Vary Significantly by Different Markets

0%

100%

North America-a Western Europe-b China India Russia Brazil

Industrial fuel Re-refining Other

a- Includes the United States, Canada, and Mexico.b- Includes DACH (Germany, Austria, and Switzerland), France, Italy, the United Kingdom, Benelux, and Iberia.* Other include impregnation of wood blocks, anti-corrosion agent, etc.

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Global Used Oil Disposal

It is estimated that around 56% of the collected used oil is processed as industrial fuel. Used oil is treated to remove water and other impurities. The fuel oil may be used as a blend component or used standalone in various applications.

About 38% is used in re-refining and the balance is used in minor applications like concrete demolding agents. Used oil that goes for re-refining in a market depends upon two factors: re-refining capacity and enforcement of regulations.

The share of re-refining is expected to increase in the disposal route, mainly due to two reasons: better enforcement of regulations and improvement in infrastructure for collection and re-refining in different markets. Consumers and are also becoming more aware about the potential harmful effects of used oil dumping. This will also help in improving the disposal of used oil in an environmentally friendly way.

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Used Oil Collection and Re-refining Outlook by Key Markets

North America-a Western Europe-b Brazil Russia India China

% Of total

a- Includes the United States, Canada, and Mexico.b- Includes DACH (Germany, Austria, and Switzerland), France, Italy, the United Kingdom, the Benelux, and Iberia.

North America-a Western Europe-b Brazil Russia India China

2015 2025

Used Oil Collected share of Finished Lube Demand in Key Markets

Re-refining share of Used Oil Collected in Key Markets% Of total

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Outlook

The volume of used oil generated is expected to increase. The growth in generation will be mainly due to usage of better vehicle technology and reduction in losses and spillages. The usage of better technology will lead to fuel efficiency and subsequently, will lead to more generation of used oil.

The improvements are mainly expected to come from developing regions as collection infrastructure improves and regulations are enforced more stringently. The awareness about the harmful effects of dumping used oil in the environment is also expected to increase, driving improvements in collection of used oil in different countries.

The United States and Canada and Western Europe will witness minor improvement in used oil collection due to a shrinking lubricant demand. China, Thailand, and Mexico are expected to see the most growth in collection as collection by licensed collectors improves during 2015 to 2025. In other markets, collection will see slightly slower improvement in used oil collection.

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0

500

1,000

1,500

2,000

2,500

2006 2012 2015 2025

Lubricant Consumption (‘000Tons)

-80

-30

20

70

2006 2012 2015

Used Lubricating oil Net Exports/Imports (‘000Tons)

Country Summary: Russia

Characteristics

Key Regulations

Federal law #89-FZ and Technical Regulation TR TC 030/2012

Classification

Used oil is classified as hazardous waste. The regulations define the rules for collection and disposal of used oil.

ULO Industry Structure

ULO IndustryConcentration

Fragmented. Many small collectors and transportation companies exist. There is a smaller number of regional players, as well as ULO trader/aggregators

Key ULOCollector(s)

Rosa-1, 101 Poligon, Mosecopartner, Ros-util , Intergrin, Oiltrans, Prolain, Etilomin-EK, Otrabotka-maslo

VerticalIntegration

Limited. Rosa-1, Russia’s only re-refinery, has a wide collection network, but volumes re-refined are small (~30 KTA) relative to ULO burning

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Country Summary: Russia’s Strengths and Weaknesses

The largest finished lubricant market inEurope in volume terms.

New law prohibits dumping of the usedoil on ground or water streams; orburning it without removing all heavyadditives from it. This has resulted inincreasing the necessity of collecting andregenerating used oil.

The issue is the lack of re-refining capacitydue to which significant quantity of usedoil is diverted to fuel applications.

The obligatory licensing for collectorsintroduced in Russia in the beginning of2016 will play a positive role.

No centralized collection system. Generatorshave to find collectors.

Logistical challenging. Access to qualityfeedstock is limited. Heavy industries in far-flung places end up reusing used oil on siteor dump it.

Lubricant blenders are not interested in re-refining used oils as the base oil market isoversupplied in Russia.

DIYers also use used oil for lubricating locks,bicycle chains, and door hinges. Used oil isalso used for impregnation of wood blocksto protect it from insects and rot and formetals to protect it from corrosion.

Strengths Weaknesses

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Opportunities and Challenges for the Global Used Oil Market

Re-refiners have established sister companies to collect used oil. It allows them to not only ensureraw material supply but also control the quality of used oil they are receiving.

Start premium basestock to remain competitive. Also, integrating inexpensive re-refining APIGroup I operations along premium basestock production could be viable.

European re-refiners have issues acquiring used lubricating oil due to availability. Shipments ofused lubricating oil from the U.S. to Europe occurred in the 2010-2012 time frame, at a time ofhigh oil prices; these movements are not viable under the present conditions of lower oil prices.Russian collectors could potentially export used oil if the legislation will loosen.

Base oil prices decreased at much slower rate than fuel prices leaving base oil re-refiners better offthan used lubricating oil processors.

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Thank you for your time. We hope you found this presentation useful and informative.

For all subscription related queries, please contact:

Global Erin Durham +44-2081334679 Erin.Durham@Klinegroup.com

Europe Kristina Zablecke +32 491 448636 Kristina.Zablecke@Klinegroup.com

North America Alex Rappley +1-973-435-3450 Alex.Rappley@klinegroup.com

Asia Pierre Zolghadri +86-21-6012-6513 Pierre.Zolghadri@Klinegroup.com

Published Second Quarter 2016Base Year: 2015 Projections to 2025

Assessment of the North America, South America, West Europe and Asia-Pacificregions.

Individual country assessments for China, India, Russia, Indonesia, Thailand, Mexico, Malaysia, Saudi Arabia, South Africa, Turkey and USA Canada.

Americas____________

Asia ___________

Europe___________

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Gabriel Tarle

Senior Analyst, Energy Practice

Gabriel.Tarle@KlineGroup.com

Kline & Company, Inc.

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Suite 305

Parsippany, NJ 07054

Phone: +1-973-435-6262

Fax: +1-973-435-6291

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