Essar Oil UK, Hydrodec forming JV to recycle used industrial oils

Essar Oil UK Ltd has joined hands with the UK's Hydrodec Group plc, the cleantech industrial oil re-refining group, to re-refine industrial oils, in order to capture higher profit margins from specialty products.

Essar Energy Plc and the Hydrodec Group will re-process the oils in the UK as a joint venture hosted at Essar's Stanlow refinery complex in Cheshire, northwest England.

The joint venture will invest $50 million in a facility to re-refine transformer oil and subsequently base oil, used in lubricants, according to Hydrodec. The first unit of the 130 million-liter-a-year complex will be completed in 2014 and fed with used oil feedstock from the UK, the US and Europe.

The companies expect potential revenues of approximately $150 million per annum at attractive rates of return.

The collaboration will set up the transformer oil re-refining business utilising Hydrodec's existing technology and then develop Hydrodec's new lubricants technology through a pilot plant stage and finally establish a general used lubricant re-refining business deploying the new lubricants technology.

Hydrodec intends to initially establish a transformer oil re-refining business, which would process around 27 million litres of new, branded SUPERFINETM transformer oil from used transformer oil.

The companies expect revenue of $150 million a year starting in 2016 when the new units will be fully operational.

Europe's economic slowdown has led to overcapacity among oil processors and narrower refining margins, or the profit from turning a barrel of crude into products. Essar Energy, a unit of Mumbai-based Essar Group, is among companies looking for new technologies to boost earnings and cut costs, and has already switched to cheaper gas from fuel oil to power units at Stanlow.

Volker Schultz, chief executive of Essar Oil UK, said:  "We look forward to jointly developing this innovative project, which will combine Hydrodec's proprietary technology with Stanlow's considerable operational and project execution expertise."

Ian Smale, chief executive of Hydrodec, commented: 'This agreement will transform our ability to deliver our UK strategy. In Essar and its Stanlow refinery we are partnering with a leading international oil refiner with all the existing facilities and capability required for the successful delivery of the Hydrodec re-refining process. We believe a combination of our oil collection, feedstock delivery and technology with Essar's refinery operations and process management expertise will prove extremely powerful for the longer term expansion of our business into new markets.  It has the potential to make the UK the oil re-refining hub of Europe.''

The combination of the existing infrastructure, expertise and operating capability of Essar Oil UK with both Hydrodec's proprietary technology and feedstock from Hydrodec's UK subsidiary is expected to create a leading European oil re-refining centre at Stanlow, the UK's second largest refinery, Hydrodec said in a release.

The heads of terms are non-binding and the collaboration and proposals envisaged are subject to the entering into of definitive legally binding agreements.  There can be no assurance that any transaction will be concluded, Hydrodec said.