Confidential WiP document - Waste Authority WA · PDF fileExecutive summary vi Executive summary Historical overview The typical life-cycle for lubricant oil in Western Australia has

Final Report

Used oil management options

study

PART A: Report on the Western

Australian used oil market

Prepared for the Waste Authority

November 2008

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iii

Contents

Executive summary vi

Historical overview vi

Current market overview vii

Future market developments viii

Competing fuels ix

Other matters x

Summary x

1 Background and introduction 1

1.1 Terms of Reference 2

2 Peak bodies and key enterprises 3

2.1 Virgin oil suppliers 3

2.1.1 Australian Institute of Petroleum (members) 3

2.2 Used oil producers 4

2.2.1 Institute of Automotive Mechanical Engineers 4

2.2.2 Motor Trades Association 4

2.2.3 Mining industry 4

2.2.4 Local government 5

2.3 Used oil collectors/reprocesses 5

2.3.1 Nationwide Oil Pty Ltd (Nationwide) 8

2.3.2 Romine Holdings Pty Ltd (Wren Oil) 8

2.3.3 Oil Energy Corporation (Tox-Free Solutions) 9

2.4 Key markets overview 9

3 Current supply chain picture 14

3.1 Virgin oil market summary 14

3.2 Virgin oil relates to used oil 16

3.3 Used oil market 19

3.3.1 National market overview 19

3.3.2 Used oil from generation to recycler 21

3.3.3 Domestic mainland used oil market 26

3.3.4 Key non-mainland Australian markets 28

3.3.5 Exports of used oil product from Western Australia 31

3.3.6 Used oil market summary 33

4 Characteristics of the current operating environment 36

4.1 Collection process and infrastructure 36

4.1.1 Used oil collected from the private sector 36

iv

4.1.2 Local government sector collections 39

4.2 Storage and related infrastructure 42

4.3 Reprocessing and technology 43

4.3.1 Current approach to reprocessing used oil 43

4.3.2 Future approach to reprocessing used oil 45

4.4 Institutional and legal controls 48

4.4.1 Waste and Resource Recovery Act 48

4.4.2 Emissions controls 50

4.4.3 Export controls 52

4.4.4 National Product Stewardship for Oil (PSO) programme 53

4.4.5 Transitional funding programme 56

5 Future possible operating environment developments 57

5.1 Local government joint tender 57

5.2 Loss of key storage infrastructure 57

5.3 Development of new export infrastructure at Bunbury Port 58

5.3.1 Emissions trading 58

5.4 Competing products 59

5.4.1 Western Australian natural gas market supply 59

5.4.2 Crude oil market 62

5.5 Bitumen applications 65

6 Summary of findings 67

A Data appendix A-1

B Bibliography B-1

Boxes, charts, figures and tables

Box 1 Matters in respect of which regulations may be made 48

Box 2 Objectives of the PSO review 55

Figure 1 Australian oil refinery production by product type 3

Figure 2 Waste oil aggregation points in Western Australia: 2007-08 6

Figure 3 Waste oil aggregation points in the South West: 2007-08 7

Figure 4 Indicative benchmarking prices for various oil products 11

Figure 5 Consumption of Lubricants and Greases 15

Figure 6 Lubricant and grease production, imports and consumption 16

Figure 7 Volume of used oil products based on benefit 21

Figure 8 Waste oil generation in Western Australia by LGA: average 2005-08 24

Figure 9 Waste oil generation in metropolitan Perth by LGA: average 2005-08 25

Figure 10 Singapore residual fuel oil 180 spot price FOB (US ¢ per litre) 27

Figure 11 Location of key non-mainland markets for burner fuel oil 28

Figure 12 Ownership structure: Christmas Island phosphate mine 29

Figure 13 Sources of used oil in Western Australia 34

v

Figure 14 Used oil final market destination 35

Figure 15 Stylised representation of Nationwide used oil reprocessing approach 44

Figure 16 Stylised representation of Wren Oil used oil reprocessing approach 45

Figure 17 Fuel combustion CO2-e per GJ for select fuel source 59

Figure 18 EIA forecasts for the world oil price in nominal dollars 64

Table 1 Value of petroleum and mineral production in 2007: select LGAs 5

Table 2 US dollar denominated oil price product reference 12

Table 3 Long-run vs. short-run effects: the case of oil demand 14

Table 4 Lube oil comparison of estimate values 16

Table 5 Estimates of collectable proportion in Europe for 2002 17

Table 6 National market overview based on benefit payments 20

Table 7 Top 25 LGA regions for the generation of used oil 22

Table 8 Select specification details for burner fuel type DB50 30

Table 9 Select details from automotive commercial operations that generate used oil 38

Table 10 Respondents to the WALGA used oil survey 39

Table 11 Companies that collect oil from local government in WA 40

Table 12 Frequency of oil collection 40

Table 13 Storage capacity 42

Table 14 Oil collected annually from the general public, internally generated, and industry 42

Table 15 Benefit payment rates 54

Table 16 Indicative implications of expansion of lube-to-lube refining 55

Table A1 Used oil collection summary by LGA boundary A-1

Executive summary vi

Executive summary

Historical overview

The typical life-cycle for lubricant oil in Western Australia has been initial use

in an automotive or other application, aggregation of used oil at automotive

workshops, mining sites etc., collection of used oil by a recycling company,

reprocessing of the used oil into various products -- largely burner fuels of

varying quality -- and resale of used oil as burner fuel products to remote

power stations, smelting operations, and firms producing products such as

cement, limestone, bricks, and recently to overseas markets.

The remote power station market is in long-term decline. The cost of Liquid

Natural Gas (LNG) distribution and Compressed Natural Gas (CNG)

distribution has fallen rapidly in recent years and continues to fall.

Increasingly, remote power generation, even where there is a relatively modest

load, will switch to LNG and CNG based electricity generation. The amount

of kiln based activity in Western Australia has also fallen in recent years. In

particular, the Loongana Lime kiln facility in Kalgoorlie closed in 2006 and this

represented a substantial reduction in the local demand for burner fuels.

There is a substantial and well established market for burner fuels in South

East Asia and from 1999 to 2004 BP (Kwinana) purchased approximately 35M

litres of used lube oil (ULO) from Wren Oil and Nationwide Oil to blend with

decant oil to produce Fuel Oil Component (FOC). The FOC was then

exported to BP Singapore for use in Asian Power Generation. In 2004 the

infrastructure used to export burner fuel oil from Kwinana ceased to be

available for use and exports ceased.

The reduction in the local demand for burner fuel oil, combined with the

increase in the volume of mining activity and the loss of export infrastructure

led to a situation where the supply of some used oil burner fuel products

greatly exceeded demand. Inevitably this led to a significant build-up of used

oil at reprocessing and other storage facilities. Stocks cannot increase

indefinitely, and a crisis point was reached in 2007 when all available storage

was full, and used oil collections ceased.

Industry and local government in Western Australia had no plan for such a

situation. During the period when used oil collections were suspended stock

piles of used oil built-up across the State. In some cases this led to unsafe

storage practices and there was a general increase in the risk of inappropriate

disposal.

The lubricant oil life cycle

Domestic market trends

Export market developments

Supply-demand balance

Issues when collections

ceased

Executive summary vii

Current market overview

There are two main used oil collection companies in Western Australia. Wren

Oil, a family owned company, and Nationwide, part of the ASX listed

Transpacific Industries Group. The Wren Oil reprocessing plant is located in

Picton (Bunbury) and the Nationwide reprocessing plant is located in

Kalgoorlie. Additionally, Toxfree provide some collection services as part of a

wider waste management business, but Toxfree do not operate a dedicated

used oil transport fleet.

Wren Oil use the Thin Film Evaporation Refinery process to reprocess the

used oil they collect. The lightest petroleum material recovered is used for

internal operating purposes. Ultimately the process results in two burner fuel

products, a high grade burner fuel oil and a low grade burner fuel oil.

Currently the heaviest material is blended with unrefined fuel oil so that it can

be pumped. Nationwide use a dehydration process to remove water with some

light ends used for internal operating purposes. The remaining product is a

low grade burner fuel oil.

The economics of used oil collection in Western Australia have improved

substantially since the crisis point was reached in late 2007. Western Australian

used collection companies now generally charge 15 cents for each litre of used

oil they collect and so are in receipt of a substantial additional source of

revenue. As the annual amount of used oil collected in Western Australia is

approximately 42.3M litres, the amount of additional revenue collected is

approximately $6.3M. Collection charges are not the norm elsewhere in

Australia, but do apply in North Queensland.

The collection charge has had little impact on commercial operators. Some

operators have absorbed the charge and others have passed the charge straight

through to customers. Local governments have limited ability to pass on

charges and regional local governments are not able to man depots. While

most local governments have grudgingly paid the charge, at least one local

government initially stopped collecting used oil from residents.

Used oil recyclers have been able to obtain approval for the export of Fuel Oil

Component (FOC) from Western Australia. The infrastructure to export FOC

is currently provided by Shell in North Fremantle, and FOC is sold to Vitol in

Singapore. Additionally, it has been possible to use the export infrastructure to

sell burner fuel oil to the Christmas Island Phosphate Company (CIP) on

Christmas Island.

The ability to export FOC to South East Asia, where there is a large well

established market for this type of fuel oil, and the development of the

Christmas Island Phosphate market, means that in 2008 there is no longer any

Collection companies

Used oil reprocessing

approaches

Additional sources of

revenue

Impact of collection charges

Recent new markets

Used oil stockpiles

Executive summary viii

stockpile issue regarding used oil in Western Australia. Rather, it is a case of

recyclers accumulating product so that they can send shipments of appropriate

size to established markets.

There remains some uncertainty regarding the recovery rate for used oil in

Western Australia but it is possible to develop defensible upper and lower

bound estimates. An appropriate range for the recovery rate in Western

Australia would appear to be between 57 percent and 66 percent, which is

relatively high by world standards.

Future market developments

Although current and medium term market economics appear positive for

burner fuel products there remains uncertainty regarding the long term future

of some burner fuel oil markets. For example, although the market for

phosphate products is buoyant, the current phosphate mining leases on

Christmas Island expire in February 2019, and the most recent applications for

further mining leases are yet to be approved. It is also possible for there to be

localised market disruptions, or substantial changes in demand for product

from one of the current substantial users of burner fuel oil. For example, the

recent large scale Nickel smelter rebuild in Kalgoorlie saw a significant

temporary reduction in demand for burner fuel oil.

Both Shell and Verve Energy have indicated that while they will not withdraw

access to storage and precipitate a crisis, the storage facilities they provide

access to -- which are rented to Wren Oil on full commercial terms -- will not

be available long-term. In the case of the facilities provided by Shell, this also

means that the infrastructure currently used to load burner fuel oil on to

tankers for export or transport to Christmas Island will not be available long-

term.

The amount of used oil collected in Western Australia is such that individually

Wren Oil and Nationwide have difficulty meeting the needs of large off-shore

customers. As such, Wren Oil and Nationwide are progressing a Joint Venture

arrangement for the collection of used oil in Western Australia. The proposed

Joint Venture agreement is at a very advanced stage of development and

agreement on terms between the parties is highly probably sometime in 2008.

The two recyclers are currently working closely together to supply newly

established markets.

Regardless of whether or not a formal Joint Venture is put in place, Wren Oil

and Nationwide have committed to building substantial new storage and

export infrastructure at the Port of Bunbury. A site within the port area has

been identified and negotiations for a lease with the Port Authority are

progressing. Storage tank infrastructure and the associated pumping

Used oil recovery rates

Market risks

Existing storage and export

infrastructure

New commercial

arrangements

New storage and export

infrastructure

Executive summary ix

equipment for loading burner fuel onto tankers is relatively straightforward

infrastructure to install.

The current providers of storage and export infrastructure are aware of the

efforts to develop replacement infrastructure and are unlikely to withdraw

access to their infrastructure prior to the completion of the new infrastructure.

Expectations are that the replacement infrastructure in Bunbury will be

installed and operational within two years, including time taken to obtain all

regulatory approvals. Development of the infrastructure is a priority for both

Nationwide and Wren Oil.

Industry peak bodies are generally supportive of the idea that used oil is not a

waste product and that the establishment of a lube-to-lube re-refining plant in

Western Australia would be the most appropriate medium to long-term goal.

The Joint Venture agreement will mean that the volume of used oil collected

will be sufficient to operate a lube-to-lube recycling plant in WA. Both Wren

Oil and Nationwide are committed to the establishment of a lube-to-lube

recycling plant at the Wren Oil site in Picton. Although the technology

required for a lube-to-lube recycling plant is complicated, the technology is

proven.

The re-refined base lube product produced at other Nationwide sites has been

shown to have no difficulty meeting required technical specification standards.

The re-refined base lube oil produced at Picton by the Joint Venture would be

sold locally, and exported using the infrastructure developed at the Bunbury

Port. Some burner fuel oil products would continue to be exported or sold to

Christmas Island Phosphates using the Bunbury Port infrastructure.

Competing fuels

There is much uncertainty surrounding the future price of natural gas in

Western Australia for large industrial users. It is however almost certain that

long term contract prices will not return to the levels seen in previous decades

of around $2 a gigajoule. It is also relatively certain that large industrial users

are likely to face prices substantially less than $10 a gigajoule. Exactly where

between these two levels depends on a range of factors, including the timing of

up-stream developments, demand competition, and government action.

LNG for remote power station energy generation is generally priced at a

discount to the next use alternative liquid fuel, diesel.

Price movements for crude oil, residual fuel oil, and used lube oil burner fuels

all move together. As such, by considering the prospects for the price of crude

oil it is possible to gain an understanding of the likely price path for products

such as DB50 and FOC, or even re-refined base lube oil. There is considerable

Lube-to-lube refinery

Re-refined base lube market

Gas market summary

Crude oil price summary

Executive summary x

uncertainty about future oil prices. The actual long run price path will depend

on factors such as the possible gains in production in non-OPEC countries,

energy efficiency gains, OPEC cartel stability, and whether or not alternative

forms of energy will emerge to challenge oil. Official forecasts suggest that it is

unlikely that we will see a return to the very low prices for fuel oil products

observed during the 1980s and 1990s. A moderate to high world oil price,

which is thought the most likely scenario, is a positive indicator for those

selling reprocessed used oil products.

Other matters

Local government have called for tenders for the provision of used oil

collection services to all local government in Western Australia. The result of

the tender process is currently unknown, but it is expected that as a result of

the tender process the average price per litre paid for used oil collections by

local government will fall. The local government sector is not the most

important source of used oil in Western Australia and a reduction in collection

charge revenue from this source of used oil is unlikely to threaten the

economic viability of the overall used oil collection system.

The establishment of a Joint Venture will create a monopoly supplier of used

oil collection services in Western Australia. From the generator point of view

the existence of a monopoly supplier of collection services is a concern. It is

however noted that the barriers to entry in the industry are not especially great

and that this will limit the extent of market power the Joint Venture partners

can exert. It should further be noted that individually neither Wren Oil or

Nationwide collect enough used oil to support the establishment of a lube-to-

lube re-refining plant in Western Australia.

The economic viability of a lube-to-lube recycling plant relies on the

continuation of some form of PSO per litre payment. It is noted that a review

of the PSO is currently underway. Should there be a substantial reduction in

the subsidy payment for re-refined base lube oil this would have a material

impact on the profitability of any lube-to-lube refining operation in Western

Australia.

Summary

Since the storage crisis in 2007 the market for used oil derived products has

evolved substantially. New markets for burner fuel oil that are outside

mainland WA have been found, and the stockpile that began accumulating in

2004 has been completely cleared. Wren Oil and Nationwide are in the final

stages of establishing a Joint Venture arrangement, and have committed to

building new storage and export infrastructure in Bunbury.

Local government tender

Market power

The PSO program

Executive summary xi

Generators of used oil broadly report that collection services are operating

well, and the probability of a sudden sustained disruption to collection services

is unlikely.

Provided it remains possible to export used lube oil derived burner fuel

products, markets for burner fuel oil over at least the medium term but

probably much longer are positive. The Joint Venture is however committed

to the development of a lube-to-lube re-refining plant, and the prospects for

products produced from such plants are positive over the long-term. The

viability of a lube-to-lube re-refining plant in Western Australia is however

dependent on the continuation of a PSO payment for re-refined lube oil.

Background and introduction 1

1 Background and introduction

The typical life-cycle for lubricant oil in Western Australia has been initial use

in an automotive or other application, aggregation of used oil at automotive

workshops mining sites etc., collection of oil by a recycling company,

reprocessing of the used oil into various products -- largely burner fuels of

varying quality -- and resale of used oil as burner fuel products to overseas

markets, remote power stations, and firms producing cement, limestone, and

brick products.

The remote power station market is in long-term decline. The cost of Liquid

Natural Gas (LNG) distribution has fallen rapidly in recent years and continues

to fall. Increasingly, remote power generation, even where there is a relatively

modest load, will switch to LNG based electricity generation. Currently

Energy Developments Limited (EDL) provide LNG from a plant in Karratha

to power stations in the Kimberly.

Additional to LNG developments, technology for the transport of

Compressed Natural Gas (CNG) has also evolved and WorleyParsons

currently supply a 6MW power station in Exmouth using CNG technology to

transport the gas.

The amount of kiln based activity in Western Australia has also fallen in recent

years. In particular, the Loongana Lime kiln facility closed in 2006 and this

represented a substantial reduction in the mainland WA demand for burner

fuel.

A final complication for the used oil market in Western Australia was the

withdrawal of access to export infrastructure, and subsequent withdrawal of

BP from the export of Fuel Oil Component (FOC) in 2004.

The reduction in the available markets for burner fuel and FOC, combined

with the increase in the volume of mining activity, lead to a situation where at

existing market prices the supply of some used oil based products greatly

exceeded demand. Inevitably this led to a significant build-up of used oil at

reprocessing and storage facilities. Stocks cannot increase indefinitely and a

crisis point was reached in 2007 when storage tanks were full and used oil

collections ceased.

The economics of used oil collections have improved substantially since the

crisis point was reached in late 2007. Western Australian used oil collection

companies now charge 15¢ for each litre of used oil they collect, and so are in

receipt of a substantial additional source of revenue. Additionally, it has been

Background and introduction 2

possible to resume exports of FOC to Singapore and also sell burner fuel to

the Christmas Island Phosphate Company (CIP) on Christmas Island.

Although current market economics for burner fuel products are positive,

there remains uncertainty regarding the long-term future of some markets. For

example, the official policy at CIP is that the phosphate mine will close in five

years1. Further, access to some of the current used oil storage infrastructure

will not be made available in future years. Should market economics move to a

more unfavourable situation there is a risk that oil collection services may once

again be disrupted. Should collection services cease, this would present a

serious problem for industry in Western Australia. The increased risk of illegal

dumping and inappropriate disposal in such an environment also presents the

wider community with a serious problem.

The following report contains information on the flow of used oil in Western

Australia and represents the first step in a detailed process of understanding

the market for used oil. The report specific terms of reference are outlined

below.

1.1 Terms of Reference

The Department of Environment and Conservation (DEC), under the

direction of the Waste Authority (WA) of Western Australia, commissioned a

study into the state of the used oil collection and reprocessing infrastructure

and operations in Western Australia. The project was to proceed in two

distinct phases. Phase one of the project was to fully document the used oil

market in Western Australia. Phase two of the project was to evaluate the used

oil collection systems that operate in other jurisdictions and make

recommendations. This report deals with phase one of the project only.

The specific phase one terms of reference required:

• Details on the key industry peak bodies and enterprises to be collected

• The flow of virgin oil volumes and used oil volumes to be mapped

• The characteristics of the industry, in terms of infrastructure, technology

and processes, and legal controls to be described, and

• Details on possible future changes to be collated, including details on:

− the likelihood of the change occurring

− the probable timeframe for the change

− any barriers to the change taking place, and

− the likely impact of the change on the used oil supply chain.

1 It is however noted that CIP are actively pursuing new mining leases.

Peak bodies and key enterprises 3

2 Peak bodies and key enterprises

This chapter provides a brief profile of key enterprises and peak bodies

including location and focus of operations.

2.1 Virgin oil suppliers

2.1.1 Australian Institute of Petroleum (members)

The Australian Institute of Petroleum (AIP) is the representative body of the

Australian petroleum industry -- including BP (Australia), Caltex (Australia),

Mobile Oil (Australia) and Shell (Australia) -- and is tasked with ensuring open

channels of communication between the industry, government, and other

stakeholders. In 2006-07 Australian refineries produced approximately 38,800

ML of product, of which approximately 146.5 ML related to lubricating oils.

Figure 1 Australian oil refinery production by product type

Diesel29%Fuel oil

2%

Jet fuel14%

LPG4%

Bitumen and other4.5%

Petrol46%

Lube oils0.5%

Data source: AIP (2007) Downstream Petroleum and ABARE (2008), Energy Statistics

There is one refinery in Western Australia; it is owned by BP, and located at

Kwinana. The other six Australian refineries are located in Brisbane (Bulwer

Island and Lytton), Sydney (Clyde and Kurnell), Melbourne (Altona) and

Geelong.

Given the small role that lubricating oils play in the product mix of Australian

Refineries AIP literature relating to lubricating oils is not extensive. It is

however noted in AIP (2007, p. 22) that “AIP members have adopted a

product stewardship role for their products and are actively supporting the

collection and recycling of waste oil and its packaging.”


2.2 Used oil producers

Automotive applications, in broad terms, are the main source of used lube oil

in Western Australia. In the regions the extent of used oil generation is

positively correlated with the level of mining activity. Many car owners change

the oil in their car themselves and then dispose of the used oil at a local

government collection point. Local government is therefore also a large source

of used oil. The final substantial source of used oil is the heavy shipping and

navel sector.

2.2.1 Institute of Automotive Mechanical Engineers

The Institute of Automotive Mechanical Engineers (IAME) has a branch

office in Belmont, Western Australia. The IAME has a training and general

technical information provision focus. The IAME Operations Manager for

WA was able to provide general information and contact details for many

individual operators that had previously replied to an IAME questionnaire

regarding the level of used oil stored at specific auto mechanical workshops in

WA.

2.2.2 Motor Trades Association

The Motor Trade Association (MTA) has a branch office in Belmont. Many,

but not all the organisations represented by the IAME are also represented by

the MTA. The range of organisations covered by the MTA is however

substantially broader than the range of organisations covered by the IAME and

includes numerous bodies that do not have a direct link to the market for used

oil.

2.2.3 Mining industry

The resources industry in Western Australia is a substantial sector and has been

the main driver of growth in Western Australia in recent years. In 2007 the

value of production from Western Australian mining was estimated at $53.1B.

The most significant minerals in terms of value in 2007 were Iron Ore

($16.1B), Crude Oil and Condensate ($10.6B), Nickel ($7.0B), Alumina ($4.7B),

LNG ($4.4B), and Gold ($4.0B) (DoIR, 2008, p. 4).

Both minerals exploration expenditure and petroleum exploration expenditure

rose sharply in 2006 and again in 2007. Expenditure on mineral and petroleum

exploration in Western Australia in 2007 represented a record high. Growth in

the mining sector in WA is therefore likely to continue over the long term.

(DoIR, 2008, p. 4). Broadly speaking, mining activity will expand in and

around the locations where mining is already concentrated. Details on the


value of mineral and petroleum production in the key local government areas

are shown in Table 1.

Table 1 Value of petroleum and mineral production in 2007: select LGAs

Local Government Area Region ($) M

Roebourne Pilbara 15,724

East Pilbara Pilbara 11,114

Ashburton Pilbara 6,393

Waroona Peel 3,340

Coolgardie Goldfields 2,937

Leonora Goldfields 2,748

Kalgoorlie-Boulder Goldfields 1,842

Laverton Goldfields 1,370

Boddington Peel 1,365

Data source: DoIR (2008, p. 21).

The peak body for the mining industry in Western Australia is the WA

Chamber of Minerals and Energy.

2.2.4 Local government

There are 142 local government areas in Western Australia. There are two

additional local government areas -- Christmas Island and Cocos (Keeling)

Islands -- that are non-self governing external territories. Although these two

locations are not incorporated into Western Australia, Western Australian law

is applied to these external territories by way of Commonwealth Legislation.

The peak representative body for local government in Western Australia is

WALGA.

WALGA provided access to details of a recent member organisation survey

into the state of used oil collections, and the views of member organisations.

2.3 Used oil collectors/reprocesses

There are two used oil reprocessing companies operating in WA, and a third

operator that runs a limited used oil collection service as part of its broader

waste collection services. Details for the main used oil aggregation points in

Western Australia are shown in Figure 2. In the figure the various stars

represent aggregation points for storage and the coloured dots represent

locations where used oil is reprocessed into specified products such as burner

fuels. The volume details in the map relate to volumes captured by the DEC

controlled waste tracking system for the 2007-08 year. Additional details for

the south west of the State are shown in Figure 3.


Figure 2 Waste oil aggregation points in Western Australia: 2007-08

kilometres

0 250 500

PerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerth

Picton

Kalgoorlie

Kwinana

Pinjarra

Kewdale

Welshpool

Henderson

Newman

Tom Price

Dampier

Wedgefield

Narngulu

Waste oil sites 2007-08

1,000,000 to 10,000,000 (2)

100,000 to 1,000,000 (4)

15,000 to 100,000 (5)

0 to 15,000 (5)

Wren Oil

Nationw ide

Note: Green lines on the map represent LGA boundaries for Western Australia.

Data source: DEC controlled waste tracking system. [Database accessed September 2008].


Figure 3 Waste oil aggregation points in the South West: 2007-08

0 15 30

kilometres

PerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerthPerth

Welshpool

Kewdale

Kwinana

Henderson

Pinjarra

Picton

Waste oil sites Perth-Picton 2007-08

1,000,000 to 10,000,000 (2)

100,000 to 1,000,000 (4)

15,000 to 100,000 (5)

0 to 15,000 (5)

Picton

Note: Green lines on the map represent LGA boundaries for Western Australia.

Data source: DEC controlled waste tracking system. [Database accessed September 2008].


2.3.1 Nationwide Oil Pty Ltd (Nationwide)

Nationwide have substantial storage facilities in Welshpool, although the main

reprocessing and storage facilities are located in Kalgoorlie. The relevant site

licence number reference is 7723/5 and the site is licensed to process 40,000

tonnes of waste oil per annum2. Nationwide is part of the ASX listed

Transpacific Industries Group (TPI), and is also a member of the Australian

Oil Recyclers Association Ltd (AORA).

Nationwide collect used oil mainly from commercial operators and only

relatively few local government authorities.

The used oil collected by Nationwide is ultimately brought to the Kalgoorlie

site for reprocessing. The used oil collected contains varying levels of

contaminants and water. Once at the Kalgoorlie site the various loads of used

oil are blended together and filtered. Broadly speaking, a dehydration process

is used by Nationwide to produce two products from the used oil collected; a

high flash point fuel oil (approximately 5-8 percent of usable product) and

dehydrated fuel oil (approximately 92-95 percent of usable product). The high

flash point fuel oil is largely used internally for the operation of the Kalgoorlie

facility. The largest single customer for the dehydrated fuel oil (DFO)

produced by Nationwide is the BHP Billiton owned and operated Kalgoorlie

Nickel Smelter. DFO is also blended with product from Wren Oil before

being either sold as a burner fuel product to the Christmas Island Phosphate

Company or Fuel Oil Component (FOC) to Vitol. Historically DFO was also

sold to the Loongana Lime Kiln in Kalgoorlie.

The BHP Billiton Kalgoorlie Nickel smelter is one of the world’s largest

operations of its kind and produces approximately 100,000 tons of nickel-in-

matte per annum. During the second half of 2008 the smelter was closed for

approximately three months for a substantial rebuild.

2.3.2 Romine Holdings Pty Ltd (Wren Oil)

Wren Oil’s premises are located at Lots 1, 4, and 12 Harris Road, Picton

(Bunbury). The relevant site licence number reference is 6378/10 and the site

is licensed to process 20,000 tonnes of waste oil per annum and 4,000 tonnes

of other oily waste type products such as oil filters, oily rags etc. Additional to

storage at the Picton site Wren Oil has commercial arrangements for storage in

North Fremantle (Shell) and Kwinana (Verve Energy). Wren Oil is a family

owned business and is a member of AORA.

2 The licence conditions allow for a maximum variation above the licence limit of 10 percent.

For any increase in volumes greater than 10 percent the licensee must seek and be granted prior approval in accordance with the Environmental Protection Act 1986.


The used oil collected by Wren Oil is ultimately brought to the Picton site for

reprocessing. Wren Oil use the Thin Film Evaporation Refinery process to

recycle the used oil it collects from industry and local government and

produces a high grade fuel oil product, a heavy fuel oil product, and a very

viscous bottom product which will subsequently be referred to as used lube oil

(ULO). Without heating the ULO is very slow to pump. Current practice is to

blend the ULO with other used oil or DFO from Nationwide to produce

either FOC for export sale to Vitol in Singapore, or burner fuel for sale to

Christmas Island. The burner fuel product produced is sold under the brand

name DB50.

Historically, Wren Oil sold the ULO generated as part of the refinery process

to BP (Kwinana) who then blended decant oil with the ULO and exported the

resulting specified fuel oil product to Singapore. As a specified product an

export licence was not required for the export of FOC by BP (Kwinana).

2.3.3 Oil Energy Corporation (Tox-Free Solutions)

Tox-free is an ASX listed company based in WA that provides waste

management services in Western Australia, including regional areas. Previously

Tox-free manufactured demineralised burner fuel oil for power stations, but

following the conversion of several regional power stations (Broome, Derby,

and Esperance) to natural gas, Tox-free ceased production of burner fuel.

Today Tox-free does not run a dedicated fleet of vehicles to collect used oil,

but does accept oily wastes at facilities in Kwinana, Henderson, Kalgoorlie, and

Port Hedland, and processes oily sludge at its Kwinana site. The company is a

member of AORA.

2.4 Key markets overview

Specific details on end use markets are presented later in the report. Here the

emphasis is on providing an overview of the key features of the market only.

The key domestic markets for used oil products are kiln based activities in

Dongara and Bunbury3, Nickel smelting in Kalgoorlie, and Phosphate drying in

Christmas Island. Additionally, there is a well established and deep market in

South East Asia for FOC.

At this stage it is worth emphasising the importance of the export market for

Western Australian used lube oil products. The used oil storage problem arose

as a direct result of the withdrawal of access to export infrastructure. Provided

used oil recyclers have access to export infrastructure, and federal government

3 The Bunbury market will close at the end of 2008.


approval to export FOC, there is a ready market for all used oil product

collected and reprocessed in Western Australia.

In some domestic applications the relationship between burner fuel oil and

natural gas is one of complements in that the two fuel sources combine to

provide a better overall fuel. In other applications the relationship is one of

substitutes in that as the price of one increases demand switches to the other

product4.

For complementary applications such as Nickel smelting, depending on the

specific raw material inputs that are being processed, the optimal mix between

natural gas and burner fuel oil can vary substantially. This necessarily means

that domestic demand for burner fuel oil products can vary substantially

through time while the underlying output at a given plant remains unchanged.

The export market plays an essential role in smoothing domestic demand

fluctuations. The FOC that is exported from Western Australia is sold to Vitol

in Singapore. Vitol then blend the FOC with refinery derived fuel oil to

produce burner fuel oil for combustion in regional power stations. The

regional market for burner fuel oil is very deep. For example, Vitol blend

approximately 640M litres of product per month for sale as burner fuel to

regional power stations and as bunker fuel oil. To put this volume in context,

note that the total amount of used oil collected in Western Australia in 2007-

08, without adjusting down for water content in collections, was approximately

43M litres.

Pricing approaches in the domestic market vary. In some cases the benchmark

reference price is the price of natural gas, while in other cases the relevant

reference price is the Singapore 180 cst residual fuel oil spot price. For FOC

sold to Singapore and DB50 burner fuel sold to the Christmas Island

Phosphate company, the Singapore 180 cst residual fuel oil spot price is the

relevant reference price benchmark.

The actual pricing formula used is a matter of commercial-in-confidence

between the purchasing customer and the oil recycler. It is however generally

understood that products such as DB50 sold to Christmas Island and FOC

4 The cross-price elasticity of a good measures the percentage change in the quantity of a good

-- say burner fuel oil -- demanded as a result of a one percent change in the price of a different but related good, say the price of natural gas. If the cross-price elasticity of demand for burner fuel oil and natural gas is 0.1, it implies that if the price of natural gas were to increase by one percent, the quantity of burner fuel oil demanded would increase by 0.1 percent. Where the cross-price elasticity is positive, the goods are referred to as substitutes. Where the cross-price elasticity is negative, the goods are referred to as complements.


sold to Vitol are priced at a substantial discount to the Singapore 180 cst

residual fuel oil spot price.

Figure 4 plots recent data for the world price of crude oil, the Singapore 180

cst residual fuel oil spot price, and a price path band for the range of prices

that lie between 20 percent and 40 percent below the Singapore 180 cst

residual fuel oil spot price. Both the Singapore 180 cst residual fuel oil spot

price and the crude oil price are set in US dollars and are highly correlated5. As

the values in the table are expressed in Australian dollars per litre they

necessarily include both a US dollar oil price movement effect and an exchange

rate effect. For completeness the actual US dollar values and exchange rate

values that support the detail in Figure 4 are provided in Table 2.

Figure 4 Indicative benchmarking prices for various oil products

0

25

50

75

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175

Ja

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8

Crude oil

180 cst fuel oil

==== Indicative price band for exports

AUD cents/litre

Note: The monthly price for crude oil is the arithmetic mean of the weekly export volume weighted all countries price,

and the monthly price for 180 cst is the arithmetic mean of the daily spot price. The exchange rate conversion is the

RBA published US dollar exchange rate for the first trading day of each month.

Data source: Exchange rates: www.rba.gov.au/Statistics/HistoricalExchangeRates/index.html; Crude Oil and 180 cst

prices: www.eia.doe.gov/oil_gas/petroleum/info_glance/petroleum.html [accessed 20 October 2008].

5 A formal measure of linear correlation between two variables is the correlation coefficient.

The correlation coefficient is found as the covariance of two random variables divided by the product of the standard deviation of the two random variables, and the measure is bounded by minus one (perfect negative correlation) and one (perfect positive correlation). On consideration of a randomly selected period of three years worth of weekly data the correlation coefficient for the world US dollar crude oil spot price and the US dollar 180 cst Singapore spot price was found to be .97.


Table 2 US dollar denominated oil price product reference

Date

Average

crude oil

Singapore

180 cst

20 percent

discount

40 percent

discount

Exchange

rate

US$/barrel US¢/litre US¢/litre US¢/litre US per AUD

January 2007 50.77 31.09 24.87 18.66 .79

February 2007 53.65 33.86 27.08 20.31 .78

March 2007 58.70 35.35 28.28 21.21 .79

April 2007 63.67 39.55 31.64 23.73 .81

May 2007 63.91 39.58 31.66 23.75 .83

June 2007 66.89 41.14 32.91 24.68 .83

July 2007 72.87 44.24 35.39 26.54 .85

August 2007 69.48 43.19 34.55 25.91 .85

September 2007 73.88 45.29 36.23 27.17 .82

October 2007 78.16 50.86 40.69 30.52 .89

November 2007 88.86 57.57 46.06 34.54 .93

December 2007 87.62 54.66 43.73 32.79 .88

January 2008 89.87 54.43 43.54 32.66 .88

February 2008 90.82 54.20 43.36 32.52 .90

March 2008 100.48 57.46 45.97 34.48 .93

April 2008 104.98 62.35 49.88 37.41 .91

May 2008 118.93 69.77 55.82 41.86 .94

June 2008 128.06 73.91 59.13 44.35 .95

July 2008 133.52 83.40 66.72 50.04 .96

August 2008 113.97 76.82 61.46 46.09 .94

September 2008 98.52 68.92 55.14 41.35 .85

Note: The monthly price for crude oil is the arithmetic mean of the weekly export volume weighted all countries price,

and the monthly price for Singapore 180 cst is the arithmetic mean of the US dollar daily spot price. The exchange

rate is the RBA published US dollar exchange rate for the first trading day of each month.

Data source: Exchange rates: www.rba.gov.au/Statistics/HistoricalExchangeRates/index.html; Crude Oil and 180 cst

prices: www.eia.doe.gov/oil_gas/petroleum/info_glance/petroleum.html [accessed 20 October 2008].

For natural gas, the actual price a large use customer pays depends on the cost

of product, the transmission charge, and the load factor. The load factor is

calculated as the ratio of average gas demand to peak gas demand. For

example, consider the Alinta Gas Network (AGN). Across the AGN

southwest distribution network average annual residential gas consumption is

20GJ, or 1.67GJ per month. Peak demand occurs in July where actual demand

is 11.2 percent of total demand, or 20GJ × 0.112 = 2.24GJ. The load factor

for AGN is therefore 1.67GJ ÷ 2.24GJ = 0.74.

When bidding for gas supply as a large use customer it is necessary to pay for

the maximum monthly amount of gas required rather than the actual amount

that will be used in any given month. The actual cost of product is therefore

found as the per GJ cost of natural gas plus the per GJ transmission cost all

divided by the load factor. For a large industrial user the load factor could be


expected to be close to unity but will necessarily be something less than unity.

The cost of product for natural gas in the current interim Office of Energy

audited cost stack for the southwest regulated area is $6.50 per GJ.

Transmission charges vary with pipeline and transmission distance. To fund

the expansion of capacity on the pipeline the current full haulage tariff on the

Dampier to Bunbury Pipeline is higher than the Economic Regulation

Authority determined price and is thought to be approximately $1.30 per GJ.

Transmission tariffs are expected to fall overtime once the pipeline capacity

expansion project has been completed.

Current supply chain picture 14

3 Current supply chain picture

This chapter describes the used oil supply chain in Western Australia in terms

of volumes sold, collected, processed, and resold as specified products.

3.1 Virgin oil market summary

From the mid 1990s through to 2004-05 the volume of lubricant oil and

greases consumed, both nationally and in Western Australia, had been rising.

Since 2004-05 official figures indicate that there has been a substantial decrease

in lubricant oil and grease consumption. The substantial reduction in the last

two years coincides with a substantial increase in the world oil price. In general

when price increases it is expected that, holding all other things constant, the

quantity consumed will fall. In some instances it is not possible for an

adjustment to a price increase to take place instantaneously, but over time the

adjustment does take place. Details on the short-run own-price elasticity of

demand and the long-run own-price elasticity of demand for oil more

generally, in select countries, are shown in Table 36.

Table 3 Long-run vs. short-run effects: the case of oil demand

Country Price Elasticity

Short-run Long-run

United States -.06 -.45

Japan -.07 -.36

Germany -.02 -.28

United Kingdom -.07 -.18

France -.07 -.57

Italy -.04 -.21

Data source: Cooper (2003).

There are many possible explanations for the reported reduction in lubricating

oil consumption but one possible reason is that the relevance of the traditional

oil change cycle is increasingly been questioned by customers when they have

their car serviced7. Information collected at large automotive car servicing

6 The formal economic measure of the change in consumer behaviour following a price change

is referred to as the own-price elasticity of demand for the good. The own-price elasticity of demand for oil is defined as the percentage change in the quantity of oil demanded as a result of a one percent change in the price of oil. Thus, if the own-price elasticity of demand for oil is minus 0.1, this means that if the price of oil were to increase by one percent, the quantity demanded would decrease by 0.1 percent.

7 The Strategic Waste Initiative Scheme: Project No. 4014 report notes that given the quality of the oil used in engines today, the 10,000 km oil change reflects tradition rather than need.


chain stores regarding oil change frequency was however inconclusive. Both

10,000 km and 5,000 km appear to be used as default settings for oil changes.

The 5,000 km frequency was indicated as appropriate where the majority of

driving trips were very short trips.

Official ABARE data for lubricating oil consumption in both WA and

Australia as a whole are shown in Figure 58.

Figure 5 Consumption of Lubricants and Greases

0

100

200

300

400

500

600

700

19

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-97

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-05

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-06

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06

-07

ML

AUS WA

Data source: ABARE (2008) Energy Statistics

Australia has always imported some grease and lubricant products, but prior to

2003-04 Australia was a net exporter of lubricant oil and grease products.

Domestic production has however fallen substantially in recent years, and since

2003-04 Australia has been a net importer of lubricant oil and grease products.

In 2006-07 domestic consumption was 419M L, domestic production was

146M L, and imports were 365M L. In 2006-07 Australia therefore imported

around 2.5 times more lubricants and greases than it produced. Details on

production, consumption, and imports for lubricating oils and greases are

shown in Figure 6.

8 Further investigation revealed that ABARE allocates the national consumption information

to States on a formula basis rather than aggregating up State data to arrive at a national consumption figure. ABARE were unable to provide any insight into the reported consumption spike in 2004-05.


Figure 6 Lubricant and grease production, imports and consumption

0

200

400

600

800

1000

19

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-97

19

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-98

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-07

ML Imports Production Consumption

Data source: ABARE (2008) Energy Statistics

Regarding the price of lubricating oil, it is noted in SWB, (2008, p. 26) that the

price of virgin lubricating oil in Australia has not increased in price at the same

rate as that observed for crude oil. It is suggested that the reason prices have

not risen is due to the establishment of new lubricating oil refineries in Korea

and Malaysia that resulted in an increase in overall supply in the region.

Using excise and customs data provided by the Department of Environment

Water, Heritage, and the Arts (DEWHA), PWC (2008) arrive at different

values for the domestic sales of lubricating oils in Australia. It is possible to

compare PWC derived estimates with the ABARE estimates only for select

years, and in some cases the difference between the two estimates is

substantial. It has not been possible to establish the reasons for the different

estimates.

Table 4 Lube oil comparison of estimate values

Year Excise data ABARE Data Difference Difference

ML ML ML (%)

2006-07 461.5 449.7 11.8 2.6

2004-05 473.6 700.3 226.7 38.6

2002-03 521.7 582.1 60.4 10.9

2001-02 459.0 557.0 98 19.3

Data source: ABARE (2008) Energy Statistics and PWC (2008)

3.2 Virgin oil relates to used oil

EEA (2002) cited in Fitzsimons (2005) suggest that the amount of used oil that

is recoverable, expressed as a percent of total virgin oil used, is between 50


percent and 60 percent. The actual recovery rates for different usage types do

however vary substantially. In some applications, such as with marine oils, no

waste oil is generated. In other applications, such as with aviation oil, a very

high proportion of the oil used is recoverable. Estimates of the amount of oil

recoverable for different European countries are shown in Table 5. The

estimated recoverable share for oil varies substantially across European

countries, but as can be seen from the last row in the table, the oil

consumption share-weighted average recoverable oil estimate is 46 percent.

Table 5 Estimates of collectable proportion in Europe for 2002

Country

Oil

Consumption

Estimated

recoverable

Recovered share

of recoverable

Tonnes (%) (%)

Austria 109,000 49.19 62.47

Belgium 173,100 36.46 95.08

Denmark 71,718 65.41 74.61

Finland 88,809 55.85 80.00

France 841,356 50.18 57.44

Germany 1,032,361 44.88 99.29

Greece 87,800 45.74 54.78

Ireland 39,800 44.71 86.00

Italy 617,594 31.86 96.37

Luxembourg 10,170 45.74 98.11

Netherlands 152,694 43.53 90.27

Portugal 102,000 51.81 74.98

Spain 510,980 49.95 62.69

Sweden 142,814 54.08 80.00

U.K. 840,834 47.75 87.80

Consumption share-weighted average 45.88 81.74

Note: The unweighted arithmetic mean estimated recoverable rate is 47.81.

Data source: www.geir-regeneration.org cited in Fitzsimons (2005, p. 53)

For Australia, AATSE (2004) provide a detailed breakdown of oil use by

category, and using 2002 data the implied used oil recovery rate is estimated to

be 53 percent. Should the current consumption mix in Western Australia vary

from the national consumption pattern in 2002, it is possible the actual

potential recoverable oil rate will differ from 53 percent. It is further possible

that the specified recovery rates for different applications that underpin the

AATSE (2004) calculations may not apply in Western Australia.

The AATSE (2004) report specifies the recoverable rate from both petrol and

diesel engines to be 60 percent. As these values are published by the

Australian Academy of Technological Sciences and Engineering one must be

extremely cautious in questioning the applicability of the published reference


recovery rates for Western Australia, but it is worth at least considering the

possibility that they might vary. As will be discussed later in the report the

mining sector accounts for a significant proportion of the total volume of used

oil that is recovered in Western Australia. Should the general level of

maintenance and overall control of equipment used in mining applications be

such that the amount of recoverable oil from mining equipment is greater than

the AATSE reference rate, it is possible that the potential recoverable rate for

Western Australia may be higher than 53 percent.

A further complication in estimating the volume of used oil recovered relates

to the water content in used oil product entered into the hazardous waste

tracking system. AATSC (2004, p. 47) report the water content in collected

used oil as between ten percent and 12 percent. In the case of ship bilge oil

the water content may be as high as 20 percent as measured by weight

(Fitzsimons, 2005, p. 52).

Although detailed information is available for used oil collections, to relate

used oil collections data to virgin oil consumption data it is still necessary to

make numerous assumptions. With respect to collections data it is necessary

to estimate the average water content of the material collected. With respect to

consumption data, at the national level there is divergence between official

consumption statistics and the allocation to State level consumption appears to

be made using a formula rather than based on ground up estimates. A final

complication arise in that the virgin oil consumed in one period turns up as

used oil collected in subsequent periods so that the there is a certain time

varying component that impacts upon estimates.

With these limitations in mind care must be taken when estimating the amount

of used oil recovered in Western Australia. Rather than provide a point

estimate of the recovery rate, the approach taken has been to estimate what is

thought to be a reasonable maximum boundary range using data for 2006-07.

The specific approach used to calculate the lower bound recovery rate estimate

was as follows:

− Take the maximum oil and lubricant consumption estimate for 2006-07,

which in this case was the excise data estimate, and allocate to WA the

ABARE estimate of WA consumption, which is 14.11 percent of

national oil and lubricant consumption.

− Next, take the used oil collected total from the DEC Controlled Waste

Tracking System and allow for a water content in collected material of

12 percent, which is a reasonable upper bound estimate of the average

water content in oil collections.

− These values represent the maximum reasonable estimate for virgin oil

and lubricant consumption in WA and the minimum reasonable


estimate for used oil collected and so will provide an estimate of the

minimum recovery rate.

The specific approach used to calculate the upper bound recovery rate estimate

was as follows:

− Take the minimum WA virgin oil and lubricant consumption estimate

for 2006-07, which in this case was the ABARE estimate.

− Next, take the used oil collected total from the DEC Controlled Waste

Tracking System and allow for a water content in collected material of 8

percent, which is a reasonable lower bound estimate of the average

water content in oil collections.

− These values represent the minimum reasonable estimate for virgin oil

and lubricant consumption in WA and the maximum reasonable

estimate for used oil collected and so will provide an estimate of the

maximum recovery rate.

Using this approach the minimum recovery rate for Western Australia is 57

percent and the maximum recovery rate is 66 percent.

3.3 Used oil market

Used oil collection services are generally operating well in Western Australia,

although there are some issues with collections in remote locations where local

governments currently do not want to pay a per litre charge for used oil

collections. In October 2008 there was no stockpile issue with respect to used

oil in Western Australia.

3.3.1 National market overview

Indicative information on the volume of recycled products produced from

used oil can be obtained by considering the PSO benefit payment information.

As there can be changes in the inventory level of used oil in storage, the

information provided by benefit payment details is indicative of used oil flows

in any given year only. The well documented rise and subsequent fall in

inventory levels in Western Australia is a relevant example of the substantial

inventory changes that can from time to time take place.

Table 6 contains details on both the volume of used oil derived product sold,

and the proportion of the total recycled product sold through time for the

categories: low grade burner fuels, high grade burner fuels, diesel fuels, and

base oils. By reading across the low grade burner fuel row of the table and

down the 2001-02 column it can be seen that in 2001-02 benefits were claimed

for 104M litres of low grade burner fuel, and that measured by volume of

product, low grade burner fuel represented 53 percent of all used oil product

for which a benefit was claimed. Both the absolute amount and relative


amount of product sold as low grade burner fuel has however been falling

through time. By reading down the 2006-07 column of the table to the low

grade burner fuel row it can be seen that in 2006-07 the amount of low grade

burner fuel oil for which the benefit was claimed had fallen to 77M litres and

that this amount represented 35 percent of the total amount of product for

which the levy was paid.

Table 6 National market overview based on benefit payments

Category 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

M L (%) M L (%) M L (%) M L (%) M L (%) M L (%)

LG burner fuel 103.5 53.2 96.3 49.6 106.4 45.6 93.2 42.3 73.4 34.9 77.3 35.2

HG burner fuel 65.8 33.8 68.3 35.2 98.2 42.1 100.2 45.5 107.2 50.9 131.4 59.8

Diesel fuels 25.2 13.0 26.1 13.5 23.1 9.9 17.2 7.8 19.9 9.5 2.9 1.3

Base oil 0.1 0.0 3.2 1.7 5.5 2.4 9.8 4.4 10.1 4.8 7.9 3.6

Totals 194.6 100.0 193.9 100.0 233.3 100.0 220.4 100.0 210.6 100.0 219.5 100.0

Note: The amount claimed for material sold as re-refined base oil in 2006-07 would appear to be significantly less than the known base oil re-refining production

capacity in Australia. There are several possible explanations for this but the most likely explanation is that it is a timing issue regarding claims. If this

assumption is correct, the amount claimed in the 2007-08 year for base oils should be substantially (say three times) higher than the amount recorded in 2006-

07.

Data source: SWB (2004, p. 26)

The change in use can perhaps be more easily seen by considering the detail in

Figure 7. In the figure the fall in the volume of low grade burner fuel oil sold

and the growth in the sale of high grade burner fuel oil can be seen. The

dramatic reduction in the sale of diesel fuel oil (25M litres in 2001-02 but only

2.9 M litres in 2006-07) can also be seen in the figure. It is understood that the

fall in diesel sales relates to changes in the Fuel Quality Standards Regulations

2001.


Figure 7 Volume of used oil products based on benefit

0

50

100

150

200

250

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Base oil Diesel fuels HG burner fuel LG burner fuel

M litres

Data source: SWB (2004, p. 26)

Base oil production has risen during the sample period, but total production

for which a benefit payment has been claimed remains very low. It has also

been argued that there are substantial barriers to re-refined base lube oil

gaining acceptance as a quality substitute product to virgin base oils. For

example, in SWB (2008, p. 26) it is argued that re-refined oils have difficulty

meeting technical specifications, and that as globally branded products are sold

internationally, international agreements must be reached regarding standards

for re-refined oils before the products will be deemed of a standard that does

not void equipment warrantees. It is further suggested in SWB (2008) that

until such agreements are in place, substantial expansion in the production and

use of re-refined oils will not take place.

Transpacific Industries Group have however indicated that the re-refined base

lubricating oil they currently produce has no problem meeting technical

requirements (pers. comm. Gary Watson). Both used oil recyclers operating in

Western Australia expressed confidence in the marketability of re-refined base

lube oil.

3.3.2 Used oil from generation to recycler

The DEC controlled waste tracking system provides data on used oil

collections across Western Australia. Details are shown in Table 7 for the

volume of used oil collected from the top 25 local government areas. As can

be seen from the detail in the table the largest volumes of used oil were

collected from local government areas that also have a high level of mining

activity, followed by areas with a substantial light industry component.


Table 7 Top 25 LGA regions for the generation of used oil

LGA 2005-06 2006-07 2007-08 average

L L L L

East Pilbara (S) 3,242,500 3,847,775 3,590,158 3,560,144

Kalgoorlie/Boulder (C) 2,594,458 2,509,238 2,572,921 2,558,872

Port Hedland (T) 1,526,499 2,920,295 2,439,207 2,295,334

Ashburton (S) 1,370,570 2,171,855 1,424,900 1,655,775

Swan (C) 1,462,216 1,610,289 1,750,979 1,607,828

Leonora (S) 1,335,300 1,412,110 1,540,400 1,429,270

Belmont (C) 1,190,204 1,133,820 1,277,840 1,200,621

Stirling (C) 1,201,410 1,189,372 1,158,557 1,183,113

Canning (C) 1,104,132 1,121,382 1,243,196 1,156,237

Gosnells (C) 1,132,210 1,038,556 1,127,800 1,099,522

Bunbury (C) 931,080 897,022 767,465 865,189

Cockburn (C) 773,055 887,960 750,359 803,791

Collie (S) 790,950 775,767 823,770 796,829

Wanneroo (C) 781,590 738,625 809,325 776,513

Roebourne (S) 916,798 444,771 897,256 752,942

Rockingham (C) 736,657 713,106 785,204 744,989

Vincent (T) 680,305 607,108 599,827 629,080

Kalamunda (S) 586,036 598,075 675,855 619,989

Bayswater (C) 559,445 534,995 552,854 549,098

Kwinana (T) 404,180 531,865 620,260 518,768

Coolgardie (S) 399,648 506,231 547,787 484,555

Yilgarn (S) 430,050 526,756 475,850 477,552

Fremantle (C) 602,395 436,900 361,815 467,037

Laverton (S) 359,000 423,000 563,850 448,617

Note: The error rate for the data was approximately 10 percent and so the volumes reported in the table represent a

modest under reporting of the volume of waste oil collected.

Data source: DEC Hazardous Waste Tracking System. Waste type 6.04 only.

Presenting information in a table format allows for a very precise

representation of the volume of used oil material generated in each LGA.

However, by defining appropriate bands for used oil generation, it is possible

to map used oil generation information for Western Australia using a colour

coded map that includes local government boundaries. Although some detail

regarding volumes is lost when it is translated into a map, the ability to

represent all used oil generation data for Western Australian in a single map is

valuable.

In Figure 8 white is used to represent local government areas where the annual

average amount of waste oil collected from all sources for the period 2005-08

was less than 10,000L; light blue is used to represent LGAs where between

10,000L and 50,000L was collected; medium blue is used to represent LGAs

where between 50,000L and 250,000L was collected; dark blue is used to

represent LGAs where between 250,000L and 1ML was collected; and black is


used to represent LGAs where more than 1ML was collected. In the figure the

ten LGAs where on average more than 1ML of used oil were collected, plus

Perth city, are labelled. The map clearly shows the importance of the mining

regions in terms of generating used lube oil.

The details for the metropolitan area are difficult to see in Figure 8 and so a

separate metropolitan only map has also been prepared. Detail for the average

volume of used oil collected from metropolitan LGAs is shown in Figure 9,

where the colour coding uses the same key as that used in Figure 8. The detail

in the metropolitan map is useful as it shows areas where there is substantial

light industry, such as: Belmont, Canning, Gosnells, Stirling, and Swan are also

important locations for the generation of used oil.


Figure 8 Waste oil generation in Western Australia by LGA: average 2005-08

0 250 500

kilometres

Leonora (S)

Kalgoorlie/Boulder (C)

Ashburton (S)

East Pilbara (S)

Swan (C)

Stirling (C)

Gosnells (C)

Belmont (C)Perth (C)

Canning (C)

Port Hedland (T)

Waste oil by LGA average 2005-08

1,000,000 and > (10)

250,000 < 1,000000 (25)

50,000 < 250,000 (26)

10,000 < 50,000 (26)

0 < 10,000 (57)

Note: LGA- Local Government Area. Default count includes the Shire of Christmas Island and the Shire of Cocos Island as Western Australian local

government areas even though they are non-self governing external territories.

Data source: DEC controlled waste tracking system.


Figure 9 Waste oil generation in metropolitan Perth by LGA: average 2005-08

0 10 20

kilometres

Nedlands (C)

Claremont (T)

Subiaco (C)

Perth (C)

Cambridge (T)Vincent (T)

Victoria Park (T)

Cottes loe (T)

South Perth (C)

Peppermint Grove (S)

Mosman Park (T)

Bayswater (C)

Bassendean (T)Stirling (C)

Chittering (S)

Belmont (C)

Fremantle (C)

Melville (C) Canning (C)

Cockburn (C)

Serpentine-Jarrahdale (S)

Rockingham (C)

Gosnells (C)

Wanneroo (C)

Joondalup (C)

Mundaring (S)

Kalamunda (S)

Kwinana (T)

Armadale (C)

Swan (C)

Waste oil by LGA average 2005-08

1,000,000 and > (10)

250,000 < 1,000000 (25)

50,000 < 250,000 (26)

10,000 < 50,000 (26)

0 < 10,000 (57)

Note: Rottnest Island part of Cockburn (C), Garden Island part of Rockingham (C)

Data source: DEC controlled waste tracking system


From the information contained in the DEC tracking system it is also possible

to identify aggregation points along the used oil supply chain and these were

previously identified and shown in Figure 2 and Figure 3.

In collating the data for mapping purposes it has been possible to allocate

approximately 90 percent of the entries in the system. The total volumes

recorded in the system for used oil collections, including those volumes that

were not matched for mapping purposes, were: 37.2M litres in 2005-06, 42.3M

litres in 2006-07, and 42.7M litres in 2007-08. The growth in the volume of

material collected over this period has therefore been 5.5M litres, which

represents an increase in the volume of used oil collected of 14.7 percent

between 2005-06 and 2007-08.

It is worth relating the volume of used oil to Western Australian economic

output. Information on Gross State Product (GSP) is only published annually

by the ABS and details for the 2007-08 year are as yet unavailable. Where GSP

information is unavailable, State Final Demand (SFD) information provides a

reasonable alternative measure. State final demand is the sum of household

and government final consumption expenditure, and private, general

government and public corporation gross fixed capital formation. There are

two measures of SFD, a current dollars measure and a constant dollars or

chain volume index measure. In the current application the most appropriate

measure is the chain volume measure.

The chain volume measure of SFD for Western Australia in 2005-06 was

$106,810M, in 2006-07 it was $116,199M, and in 2007-08 it was $126,995M.

So, over a period that saw the volume of used oil collected grow by 14.7

percent, Western Australian SFD grew by 18.9 percent. For the Western

Australian economy it seems reasonable to suggest that economic expansion is

associated with growth in the volume of used oil generation.

3.3.3 Domestic mainland used oil market

Changes in energy generation technology have meant that over the past ten

years domestic mainland markets for burner fuel oil products have shrunk.

The notable reductions in demand occurred following the conversion of a

number of Kimberly power stations to LNG, the extension of a natural gas

pipeline to Esperance, and the closure of the Loongana Lime Kiln

(Kalgoorlie).

The remaining large volume consumers of burner fuels in Western Australia

are understood to be Austral bricks in Picton, Cockburn Cement in Dongara,

and the BHP Billiton owned Nickel Smelter in Kalgoorlie.


On 29 October 2008 Austral Bricks advised Wren Oil that they will

permanently cease operations on 19th December 2008. This represents a

significant further reduction in mainland WA demand for used oil burner fuel

products.

The Cockburn Cement Lime Kiln located at Munster (near Kwinana) is four

times the size of the Dongara plant, but due to the concern of nearby residents

the kiln does not make use of used oil burner fuel oil products.

Pricing for mainland Western Australian customers varies, although the most

appropriate reference point is the Singapore 180 cst residual fuel oil and 380

cst residual fuel oil spot price9. In Figure 4 details were shown for recent price

movements in the Singapore 180 cst residual fuel oil spot price in Australian

dollars per litre. In Figure 10, details are shown for a much longer time series,

and are shown in US dollars per litre. In Figure 10 the substantial increase in

the US dollar price of residual burner fuel oil products since 2004, and recent

price fall, can be seen clearly.

The detail also suggests that the profitability of selling FOC into the South

East Asian market is likely to be substantially better than it was when BP

(Kwinana) undertook such activities.

Figure 10 Singapore residual fuel oil 180 spot price FOB (US ¢ per litre)

74.95

0

15

30

45

60

75

90

Jun-

86

Jun-

87

Jun-

88

Jun-

89

Jun-

90

Jun-

91

Jun-

92

Jun-

93

Jun-

94

Jun-

95

Jun-

96

Jun-

97

Jun-

98

Jun-

99

Jun-

00

Jun-

01

Jun-

02

Jun-

03

Jun-

04

Jun-

05

Jun-

06

Jun-

07

Jun-

08

Cents per litre

Data source: Energy Information Administration, tonto.eia.doe.gov/dnav/pet/hist/rfo180sin5d.htm, [accessed 22

September 2008].

9 The Singapore 380 cst residual fuel oil spot prices appear to be similar to the Singapore 180

cst residual fuel oil spot prices, except that they appear to be about five percent lower.


3.3.4 Key non-mainland Australian markets

For Western Australia the key non-WA markets lie to the North in Asia and

Christmas Island rather than to the East Coast mainland States.

Figure 11 Location of key non-mainland markets for burner fuel oil

Data source: Shire of Christmas Island

Christmas Island Phosphates

A substantial new customer for burner fuel (DB50) is the Christmas Island

Phosphate Company (CIP), located on Christmas Island. Christmas Island is

an Australian non-self governing external territory located in the Indian Ocean

approximately 360 km south of Java and 2,600 km northwest of Perth. The

island has an area of 135 km2 with approximately 80 km of coastline. Through

a series of complex arrangements Western Australian law generally, but not

exclusively, applies on Christmas Island. The territory is not incorporated into

Western Australia and GST does not apply on Christmas Island.

The economic history of Christmas Island is largely the history of phosphate

mining. The island was originally annexed by the British and subsequently

settled for the purpose of mining phosphate. Were it not for phosphate


deposits, and assuming only economic assessment criteria were used, the island

would in all probability not have been settled.

With respect to phosphate mining, apart from relatively brief periods during

the Second World War and a period of closure between 1988 and 1991,

phosphate has been mined on the island since 1889. In-line with higher

phosphate prices, the CIP mining operation has seen substantial expansion in

recent years. The current mining leases do however expire in February 2019.

There remain substantial reserves of phosphate on Christmas Island, but there

are concerns about the environmental impact of granting additional mining

leases, and in 2007 the former Commonwealth government rejected an

application by CIP for additional mining leases on environmental grounds. In

October 2008 CIP’s legal challenge to the decision of the then environment

minister Malcolm Turnbull to deny further mining leases on environmental

grounds was successful. While this does not mean that new mining leases will

necessarily be granted in the near future, public statements by the company

about the prospects of mining on the island since the decision have been

positive10.

In addition to its direct phosphate mining operations, CIP has several wholly

owned subsidiaries involved in various activities. Some subsidiaries are

concerned with on island activities and others are concerned with off island

activities. Details of the various subsidiaries are shown in Figure 12. The

Indian Ocean Oil Company (IOOC) is responsible for the provision of fuel oil

for the burners that dry the phosphate and the diesel used by the mine fleet of

vehicles.

10 It is also notable that the Commonwealth Attorney-General’s Department has

commissioned a full economic impact study into the implications of mine closure on Christmas Island. The study is the first attempt to put hard numbers around the economic importance of the mine to the local economy and the number of direct and indirect jobs that depend on the mine.

Figure 12 Ownership structure: Christmas Island phosphate mine

Phosphate Resources Limited (PRL) Trading as

Christmas Island Phosphates

Phosphates Resources (Singapore) Pty Ltd (PRS)

Phosphates Resources Properties Pty Ltd (PRP)

Indian Ocean Oil Company Pty Ltd (IOOC)

C.I. Maintenance Services Pty Ltd (CIMS)

Phosphate Resources China (PRC)

Indian Ocean Stevedores Pty Ltd (IOS)


The IOOC is responsible for the provision of the burner fuel required for the

operation of the phosphate driers. The substitute product for the DB50 fuel

oil they currently purchase from Western Australia is 180 cst residual fuel oil

purchased from Singapore.

The frequency and size of the exports to CIP are determined by their fuel

needs and the size of their storage tanks on the island. The current process for

supplying DB50 to CIP is for IOOC to purchase DB50 fuel oil from Wren Oil

in lots of three to four million litres, have the product loaded onto an IOOC

provided tanker in Fremantle, which then transports the product to Christmas

Island. The type of costs incurred by IOOC when purchasing product are

therefore broadly the same as those with a product purchased FOB from

Singapore, although actual shipping costs from Singapore would be lower as

Christmas Island is approximately 1,300 km from Singapore and 2,600 km

from Perth.

The DB50 burner fuel oil is a product that contains the ULO that had been

accumulating since 2004 when exports ceased.

Table 8 Select specification details for burner fuel type DB50

Test Method of Analysis Units Specification Typical analysis

Viscosity at 90ºC cst 40-50 42



Flash Point (Pensky Martin) ºC greater than 61 greater than 61

Gross Specific Energy MJ/kg 42-43 42

Data source: Wren Oil Product Statement for WREN DB50

To balance CIP’s needs against local demand requires both the used oil

collected by Wren and used oil collected by Nationwide. More generally,

supplying this market with oil collected by both collection companies can

smooth any local disruptions that might take place, such as that observed

during the recent closure of the Kalgoorlie Nickel Smelter for a period of

extended maintenance.

Since October 2006 CIP has purchased significant volumes of burner fuel. A

further substantial shipment will depart for Christmas Island prior to the end

of November 2008.

Other interstate markets

For large volumes of material the only means of transport is via shipping

tanker. The coastal shipping industry in Australia is however not large, and

generally operates with employment conditions that are substantially different

to those that operate on international shipping fleets. Additionally, in the case


of transport from Western Australia to South-East Asia, there is the potential

for back loading on ships which can result in very competitive pricing. Such

opportunities do not generally exist for interstate shipping.

As shipping rates for exports are priced in US dollars it is difficult to make

precise comparisons between the cost of shipping fuel oil products

internationally versus the cost of interstate transport. Indicative spot prices for

the cost of transporting oil products interstate suggests a price of around 32

cents per litre for transport between Fremantle and Melbourne, although it is

possible to imagine that for a long term transport contract it would be possible

to negotiate a substantially lower per litre charge for interstate shipping. For

shipping between Fremantle and Christmas Island it is understood transport

costs are around 10 cents per litre, and for shipping between Fremantle and

Singapore it is understood transport costs are around 6 cents per litre11.

There are additional handling fees and charges for interstate shipments, but the

transport cost difference on a 4M litre load sent to Christmas Island versus a

load sent to Melbourne, using the spot transport rate, is around $880,000, and

for the same load sent to Singapore more than $1M. Notwithstanding a

fundamental change to transport costs, the difference between the shipping

rates for interstate shipping and international shipping means that Western

Australian oil recyclers will export product rather than send it to interstate

markets.

3.3.5 Exports of used oil product from Western Australia

Exports of used oil products from Western Australia have been a key feature

of the market for some time.

Export history 1999 to 2003

Prior to 2004 it was possible for BP (Kwinana) to export Fuel Oil Component

(FOC) -- a blend of Used Lube Oil (ULO) and decant oil -- from Western

Australia using infrastructure in Kwinana. Correspondence from the

Australian Oil Recyclers Association (AORA) indicates that between 1999 and

2003 approximately 35M litres (or 7M litres per year) of ULO was purchased

by BP from Wren Oil and Nationwide Oil, blended with decant oil internally

available to BP (Kwinana), and export to BP Singapore as FOC for sale into

the Asian power generation market.

The physical layout of infrastructure at the Kwinana site was well suited to

supporting the export of FOC. Storage tanks were available at Kwinana and

ULO could then be pumped via a pipeline from the storage tanks directly to

11 Transport cost details were provided by Wren Oil.


the BP (Kwinana) Refinery where it was blended with decant oil and then

exported from the Refinery related port infrastructure to Singapore, where it

could be sold into a well established and deep market.

During this period the export of product to Singapore by BP (Kwinana) took

place on an opportunistic basis only and was not a significant activity for BP

(Kwinana). It required a number of things to align -- currency value,

appropriate transport ship access, ULO availability, and market price -- for the

export of FOC to be profitable. Exports took place only when the trade could

be undertaken profitably and BP (Kwinana) report that it was possible for a

period of 12-18 months to pass between the periods when burner fuel oil was

exported.

As noted earlier the current market for exports is more favourable than it was

during this period. A discussion on the future possible price path for oil, and

hence burner fuel oil products sold into the international market is presented

later in the report.

When access to the required pipeline infrastructure was no longer available BP

(Kwinana) were initially interested in developing new pipeline infrastructure

but ultimately new infrastructure was not developed.

Export history 2004 to 2007

The pipeline that linked the Kwinana storage tanks to the BP (Kwinana)

Refinery passed through a site owned by mining company Rio Tinto where

HIsmelt® technology is used to produce basic pig iron products. The pipeline

was not within an easement and in 2004 permission to use the pipeline for

transporting ULO from the storage tanks to the refinery was withdrawn. In

2004 Western Power constructed a replacement pipeline but refused

permission for Wren Oil to use the pipeline.

Exports therefore ceased not because it became uneconomic to export FOC or

because of changes to regulations that limited exports, but because access to

part of the required export infrastructure was no longer available.

Following the withdrawal of permission to use the pipeline Wren Oil and BP

(Kwinana) spent considerable time investigating alternatives that would allow

exports to resume. For example, in 2005 BP (Kwinana) began investigating a

plan to upgrade a tank and a truck unloading gantry so that Wren Oil could

deliver direct into the BP (Kwinana) Refinery complex, but in about September

2006 decided not to proceed with the option. During this period used oil

began to accumulate. Although material was accumulating in storage at this

time, as initial indications were that BP (Kwinana) intended to ultimately re-


establish exports it was not thought the accumulating material would be a long

term problem.

Ultimately BP (Kwinana) decided that it would not in fact resume purchases of

ULO to produce FOC for export. Unfortunately by the time BP (Kwinana)

made this decision existing storage facilities were approaching capacity.

Export market 2008 onwards

Exports of ULO from both Wren Oil and Nationwide Oil have resumed using

infrastructure owned by Shell. Current practice is to export product to Vitol in

Singapore. As noted earlier in the report, Vitol blend approximately 600,000

tonnes of material a month for use in power generation and bunker fuel

applications and so could easily absorb the entire flow of used oil generated in

Western Australia if required.

Since December 2007 substantial volumes of material have been exported to

Vitol. The volume of product exported is the residual after subtracting

mainland Western Australian sales and sales to Christmas Island. If domestic

sales or sales to Christmas Island fall, the amount exported will increase. If

domestic mainland sales or sales to Christmas Island increase, the amount of

time between export shipments to Vitol will be longer, but export shipments

will continue. As noted previously it is understood that the pricing formula for

shipments to Vitol involves applying a discount to the Singapore 180 cst

residual fuel oil spot price.

3.3.6 Used oil market summary

While difficult to establish hard estimates for virgin oil consumption in

Western Australia the actual level of consumption is thought to lie somewhere

between 59M litres and 65M litres. The range for used oil recovery rates

implied by these estimates is between 57 percent and 66 percent.

The waste generation maps produced (Figure 8 and Figure 9) show that the

local government areas that have a high level of mining activity or a high

concentration of light industrial activity are the areas where most of the used

oil collected is generated. It is difficult to define hard boundaries for the share

of used oil generated from different industries, but reasonable estimates appear

to be: between 37 and 41 percent for the mining sector; between 35 and 38

percent for the metropolitan industrial sector; between 18 and 20 percent for

the regional industrial sector; between 3 and 5 percent for the marine sector;

and approximately 2 percent for the local government sector.


Figure 13 Sources of used oil in Western Australia

Mining (37 to 41 percent)

Metro industrial (35 to 38 percent)

Regional industrial (18 to 20 percent)

Marine (3 to 5 percent)

Local government (approx. 2 percent)

Note: Industrial includes the automotive sector. Actual shares represent midpoints of indicated range.

Data source: Based on Information provided by collection companies.

The final destination for used oil products today is somewhat different to that

which existed prior to the closure of the export infrastructure in 2004. Again it

is difficult to be precise in allocating the volumes of used oil to different

markets, but relative to the late 1990s there is a clear difference between the

amount of used oil destined for use in applications in mainland WA and the

amount sent to offshore markets.

In Figure 14 the label (H) is used to indicate the historical share and the label

(C) is used to indicate the current time period share. In the figure end use for

used oil collected is separated into four categories: water and waste, internal

use by recyclers, mainland WA markets, and non-mainland WA markets. As

can be seen in Figure 14, the key difference between the historical market

situation and the current market situation is the rise in the importance of the

non-mainland WA market and the corresponding fall in the importance of the

domestic mainland market. The relatively large range of values for the non-

mainland market reflects the flexible nature of export supply contracts.

Figure 14 illustrates an important feature of the market for used oil products

and also serves to highlight a critical risk area. The offshore market has been

an important historical market for used lube oil products and the importance

of this market is greater today. Any disruption to the ability of oil recycling

companies to ship product to non-mainland WA markets would therefore

cause a significant disruption to what is currently a well functioning and orderly

used oil collection system.


Figure 14 Used oil final market destination

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0

Water and waste (H)

Water and waste (C)

Internal use (H)

Internal use (C)

Mainland markets (H)

Mainland markets (C)

Non-mainland WA (H)

Non-mainland WA (C)

Percent

Fall in mainland WA market share

Rise in non-mainlandmarketshare

Note: Approximate market shares only. The data and includes volumes sold to Austral Bricks which will cease at the

end of 2008.

Data source: Based on information provided during the consultation process.

Characteristics of the current operating environment 36

4 Characteristics of the current operating environment

This chapter describes, in general terms, the used oil collection process, the

current storage available, and the reprocessing technology used by the two

reprocessing companies.

4.1 Collection process and infrastructure

The key industries that generate used oil indicated that since collection

restarted with the collection levy in place, collections are generally working

well. Once on-site storage is full, generators of used oil report that they call

their service provider and the used oil is collected. In remote regions there is

in some cases an understandable delay in collections as collections can only

take place once the volume of material to be collected in the region reaches a

reasonable level. Regional locations are generally happy with such

arrangements. In the metropolitan region collections are generally very quick.

The key aggregation and refinery locations were identified in Figure 2 and

Figure 3.

4.1.1 Used oil collected from the private sector

Larger automotive chain stores and mining companies, generally speaking,

have more complete processes for ensuring used oil is not contaminated and

also generate a greater volume of used oil for collection. These companies are

therefore the most profitable companies to collect used oil from. They are also

the companies with the greatest capacity to put in place additional temporary

storage in the event of a disruption to collection services. As such, when

selecting a sample of companies to investigate current collection services it was

thought a selection of small independent firms spread across the metropolitan

region and in representative regional areas would be a sample of the least

profitable collection sites. If these least profitable locations report no

difficulties with collections it implies the entire collection system is working

well.

In 2007 the IAME surveyed member firms regarding the current state of used

oil storage at their premises. The survey responses were made available by

IAME for this project, and the firms that responded to the survey formed the

basis of the companies sampled. Additionally, contact details were provided

for IAME member firms in Albany, Kalgoorlie, and Narrogin and these firms

were also contacted for details on used oil collections. The companies sampled

were therefore largely from the automotive sector.


All of the large operators contacted indicted that current collection services

were operating well and that there was no back log of uncollected product.

Small operators generally reported that collection services are currently

working well, but some operators did indicate that they were having some

trouble with collection of contaminated oily waste products.

Regarding the volume of used oil generated, business operators indicted that

volumes were generally either stable or increasing slightly. This has been

attributed to better economic times, which has allowed a greater proportion of

the population to service their cars, and a general increase in the number of

cars on the road. Mining industry volumes are largely a function of production

which is generally increasing.

Large car service operators have noticed a modest increase in the demand for

semi-synthetic or synthetic oils. Demand for such products is a function of the

requirements of car manufacturers.

The nature of the charge operators reported for collections varied slightly from

business to business but most reported a charge of 15 cents per litre plus a

minor administration fee. The collection charge was in general passed on to

consumers, although some operators indicated that they had absorbed the cost.

Some operators expressed frustration at the collection charge, especially in

light of the PSO levy on virgin oil products, which they thought was meant to

cover the cost of appropriate disposal of used oil.

Operators generally report having limited storage options should collections

suddenly stop. All small operators contacted indicated that they had no

capacity to cope should collections stop. Larger operators indicated that they

would purchase additional storage drums until collections started once more.

A small number of operators reported purchasing equipment such as heaters

or parts cleaning equipment that use oil as a fuel. Such equipment uses only a

very small fraction of the total waste oil generated at a given site.

In general, regional collections have also resumed and stockpiles are no longer

an issue. Some operators did however note that collections were contingent

on there being sufficient product in the region for the service provider to make

a trip and that this occurred approximately every 10 months or so.

An outline of some of the information collected from commercial operators is

provided in Table 9.

38

Ch

ara

cte

ristics o

f the

cu

rren

t op

era

ting

en

viro

nm

en

t

Table 9 Select details from automotive commercial operations that generate used oil

Company Purchased Oil

(L pa)

Storage

(L)

Used oil generated

(L pa)

On site storage

capacity

Collection

charge

Impact of

charges

Past volume

trends

Future volume

trends

Contingency

plan

Small metro 1,140 1,050 1,140 1,000l approx. $10/month Absorb Stable Stable None

Small metro 450 450 450 200l Drums confidential Pass on Stable Stable None

Small metro 4,800 3,300 4,800 200l Drums $450/200l Pass on Stable Stable None

Small metro 3,600 2,000 3,200 1,000l confidential Absorb Stable Stable None

Small metro 2,400 3,000 2,400 200l Drums .75c/l Pass on Stable Stable None

Small metro varies 600 3,600 500l 22c/l + admin charge Pass on Stable Stable None

Small metro 40,000 3,500 40,000 5,000l 15c/l Pass on Stable no comment None

Small metro 2,400 1,600 2,000 200l Drums 15c/l Pass on Stable Stable None

Small metro 12,000 2,500 12,000 1,000l 15c/l Pass on Stable Stable None

Small metro 7,200 8,150 7,200 450l confidential Pass on Stable Stable None

Small metro 3,600 2,000 3,600 2,000l 15c/l Pass on Increase Stable None

Small metro 4,000 1,000 4,000 200l Drums confidential Absorb Stable Stable None

Small metro 7,200 2,500 7,200 1,000l 15c/l Pass on Stable Stable None

Small metro 7,200 2,400 7,200 1,800l 15c/l Pass on Increase Increase None

Small metro 3,600 2,000 3,600 1,000l tank + drums 15c/l Pass on Stable Stable None

Small metro 1,200 1,500 1,200 1,000l tank + drums fixed fee + per litre Absorb Stable Stable None

Small metro 4,800 2,800 4,800 1,000l tank + drums 15c/l Pass on Stable Stable None

Small metro 1,800 1,000 1,800 200l Drums 15c/l Pass on no comment no comment None

Small regional 7,200 not sure 7,200 3,000l 19.5c/l Pass on Stable no comment None

Small regional 6,000 not sure 6,000 5,000l 18c/l Pass on Stable Stable None

Small regional 7,200 not sure 7,200 200l Drums confidential Pass on Stable Stable None

Small regional 21,600 not sure 21,600 10,000l 1c/l Pass on Stable Stable None

Small regional 4,800 not sure 4,800 1,400l confidential Pass on Increase Stable None

Small regional 9,000 not sure 9,000 5,000l confidential Pass on Stable Stable None

Large metro 300,000 21,600 300,000 28,800l confidential Pass on Increase Increase Drums

Large metro 12,000 18,000 24,000 2,200l $7,200pa Pass on Increase Increase Drums


4.1.2 Local government sector collections

The Western Australian Local Government Association (WALGA) recently

surveyed member organisations regarding the current state of used oil

collection services. In total there were 55 responses to the survey, of which 34

percent were from organisations located in the metropolitan area. In some

cases the response was from the one of the cross LGA bodies, such as the East

metropolitan regional council, and in other cases the response was a joint

response from several LGAs. Multiple responses also appear to have been

received from some LGAs. Details for the organisations that returned

questionnaires are provided in Table 10.

Table 10 Respondents to the WALGA used oil survey

Respondent Respondent Respondent

City of Armadale Shire of East Pilbara City of Melville

Shire of Augusta-Margaret River East. Metro. Regional Council Shire of Menzies

Town of Bassendean Shire of Esperance Town of Mosman Park

City of Bayswater Shire of Exmouth Shire of Mt Marshall

City of Belmont City of Fremantle Shire of Mundaring

Shire of Boddington Shire of Goomalling Shire of Murray

Shire of Broome Shire of Halls Creek Shire of Northam

City of Bunbury Shire of Harvey Shire of Northampton

Bunbury-Harvey Reg. Council Shire of Irwin Shire of Plantagenet

Shire of Busselton Shire of Jerramungup Shire of Quairading

City of Canning City of Joondalup City of Rockingham

Shire of Capel Shire of Kalamunda Shire of Roebourne

Shire of Chittering City of Kalgoorlie-Boulder City of South Perth

City of Cockburn Shire of Koorda City of Stirling

Shire of Collie Shire of Kwinana City of Swan

Shire of Dalwallinu Shire of Laverton Shire of Trayning

Shire of Dandaragan Shire of Leonora Town of Vincent

Shire of Dardanup Shire of Manjimup City of Wanneroo

Shire of Donnybrook - Balingup City of Mandurah Shire of Wongan-Ballidu

Town of East Fremantle Shire of Meekatharra Shire of Wyalkatchem

Note: As some responses were a joint response from several LGAs the total number of respondents listed in the table

(60) is greater than the number of competed survey forms (55).

Data source: Pers. Comm. WALGA

Used oil collection service providers

In the survey, details were sought regarding the used oil collection service

provider for each LGA. As the sample is not complete it is necessary to

interpret the information with caution. Although, assuming the sample of

respondents is representative of the entire local government sector, it appears


Wren Oil is the most significant player in terms of local government

collections. A summary of the responses to the question regarding the supplier

of used oil services to LGAs is shown in Table 11. Additional detail obtained

during interviews suggests that Wren Oil is the major service provider to Local

Government.

Table 11 Companies that collect oil from local government in WA

Company Number of respondents

using company

Percentage of respondents

using company

Wren Oil 37 67

Nationwide Oil 10 18

Unanswered 8 15

Note: The figure for Nationwide Oil includes one respondent that indicated TPI (the owner of Nationwide Oil) and one

respondent that indicated Environmental Recovery Services who use Nationwide Oil equipment.


Collection frequency and satisfaction with service

The WALGA survey also sought information on the frequency of collections.

Used oil is collected every four to eight weeks for 13 percent of respondents,

every three to six months for 44 percent of respondents, yearly for five percent

of respondents, and as required for 22 percent of respondents. As 83 percent

of respondents indicated they were satisfied with the service provided, it seems

reasonable to suggest that frequency of service is generally appropriate12.

Table 12 Frequency of oil collection

Frequency Number of respondents Percentage of respondents

3 to 8 weeks 7 13

3 to 6 months 24 44

Yearly 3 5

As required 12 22

N/A or unknown 4 7

Unanswered 5 9


Preferred supplier arrangements

Many local governments have indicated that they are dissatisfied with paying

the current 15¢ per litre charge for used oil collections. One possible strategy

in negotiating better terms for collections of used oil from the local

government sector is for WALGA to instigate a preferred supplier

12 Unfortunately, from the data provided it was not possible to disaggregate responses into

metropolitan and regional LGA groupings. It is however reasonable to assume that it is regional LGAs that face longer times between collections.


arrangement across the sector. All but two respondents to the survey indicated

that they would be willing to participate in a preferred supplier type

arrangement.

As the thrust of a preferred supplier arrangement would be to lower the cost of

used oil collection services, it may seem surprising that not all respondents

indicated their willingness to participate. Further consultation revealed that

some LGAs have entered into contracts that last several years and so are not in

a position to join a preferred supplier arrangement in the immediate future.

Over the longer term, providing the paper work and administrative burden

requirement to participate in the scheme is low, and the savings substantial,

these LGAs would presumably join the scheme when their existing contracts

expired.

Used oil stock piles at LGAs

At the time the survey was conducted, five respondents indicated that they had

a backlog of used oil that required collection, and one respondent indicated in

the comments that although they did not have a stock pile at the moment a

build up of used oil was a regular occurrence.

A further interesting comment was made by one respondent that unless the

depositor paid a 25¢ per litre deposit they would not accept the used oil at the

depot. It is not clear from the information available, but the respondent is

presumably from a location where it is feasible to man and fence the material

receiving facility. One respondent indicated that the stock pile of used oil

awaiting collection was approximately 21,000 litres. From the information

collected it was not possible to determine if the existence of the stock pile was

because the LGA in question could not get the used oil collected, or was

because they were unwilling to pay to have the material collected.

In September 2008 the Shire of Merredin was not currently accepting used oil

from Shire residents at its facilities. The reason for not accepting material is

however not because the two oil storage locations in the Shire are full, but

because the Shire is currently unwilling to pay for used oil collections. Shire

policy regarding used oil is however under review.

Used oil storage capacity at LGAs

As the amount of used oil generated within different local government areas

varies substantially, the extant of storage capacity across the local government

sector also necessarily varies substantially. Details are shown in Table 13 for

storage capacity of the local governments that responded to the survey. It is

noted in SWB (2008, p. 18) that collection and storage facilities across the State

have improved as a result of the Transitional Grant funding programme.


Table 13 Storage capacity

Storage capacity (litres) Number of respondents

Less than 3,000 9

3,000 to 5,999 19

6,000 to 11,999 12

12,000 plus 4

Unanswered 11


Source of material

The oil collected from local government is either used oil brought to the depot

by residents, used oil generated internally by LGA activities, or in some cases

used oil brought to the depot by local industry. Approximate amounts of oil

collected annually from the general public, internally generated, and from

industry are presented in Table 14.

Table 14 Oil collected annually from the general public, internally generated, and industry

Oil Collected From the general public Internally generated From industry

Litres Number of LGAs Number of LGAs Number of LGAs

Less than 1,000 3 9 13

1,000 to 9,999 17 15 7

10,000 to 30,999 9 1 3

31,000 to 74,999 2 1 0

80,000 plus 4 0 0

Unanswered 22 30 31


Other survey comments

A range of additional feedback was collected as part of the survey and some of

the points raised by respondents are detailed below.

Paying for a service is difficult for some LGAs that are already under financial

pressure. There were multiple suggestions regarding who should pay for the

service, including: the Commonwealth, the oil companies, and the PSO levy.

Regarding the level of service provision, a diverse range of comments were

made ranging from very positive comments through to other comments that

collections took place only with a substantial delay.

4.2 Storage and related infrastructure

Nationwide Oil have storage capacity in Welshpool (1ML) and Kalgoorlie

(2.5ML) and currently have only a very limited amount of used oil in storage.


In addition to storage at their Picton site (2.3ML) Wren Oil currently lease

storage tanks in North Fremantle (Shell) and Kwinana (Verve Energy) and so

have access to additional storage facilities (22ML). Currently Wren Oil has

only a very small amount of used oil in storage across all of the facilities they

have access to.

In the case of both the Verve Energy storage tanks and the Shell storage tanks

these facilities will not be available to store used oil in the medium term. The

owners of these storage facilities expect that they will be able to use the storage

they currently provide for internal purposes within two years. The Shell

facilities are especially important as without the infrastructure provided by

Shell it would not be possible to export or sell burner fuel oil to the Christmas

Island Phosphate company.

As the storage facilities provided by Shell and Verve Energy will not be

available in the medium term, Wren Oil and Nationwide have committed to

building new storage and export infrastructure on a site located within the

Bunbury Port. As there is a strong economic incentive for the infrastructure to

be built, it is extremely probable that the planned infrastructure will be

complete and operational within two years, which includes the time required

for all regulatory approvals. Three 4,000 tonne storage tanks are to be built on

the Bunbury site. The total storage capacity available to Nationwide Oil and

Wren Oil will therefore for be approximately 20M litres. Based on the current

volumes of used oil that are generated in Western Australia storage capacity in

the future will be approximately 7-8 months worth of supply.

4.3 Reprocessing and technology

The current approach taken to reprocessing used oil by Wren Oil and

Nationwide Oil and the proposed future approach is outlined below.

4.3.1 Current approach to reprocessing used oil

Current practice at Nationwide is to reprocess used oil using a dehydration

type approach. A stylised representation of the approach used is presented in

Figure 15.


Figure 15 Stylised representation of Nationwide used oil reprocessing approach

Untreated used oil storage

Waste water for treatment

De-watered and filtered oil storage

Low grade burner fuel (90-95 percent)

Light fuel for internal use (5-10 percent)

De-water and filter process

Water vapour

Gas vapour

Distillation process

Used oil arrives

Current practice at Wren Oil is to reprocess used oil using a Thin Film

Evaporation Refinery approach. A stylised representation of the approach

used by Wren Oil is shown below in Figure 16. It is worth noting with respect

to future possible market developments that the Thin Film Evaporation

approach used by Wren Oil can produce the feedstock for a Hydrotreatment

lube-to-lube re-refining plant.


Figure 16 Stylised representation of Wren Oil used oil reprocessing approach

Used Oil Composition

Used oil arrives

Filters

Storage tanks

Primary process dehydration and centrifuge

Sludge for class II disposal

Filtered oil to brick works, kilns

Fuel oil storage

Processed oil for TFE

Waste water for treatment Front End Distillation

Skid

Gas oil Diesel

TFE Distillation Skid

Heavy bottoms

Light lube cut

Heavy lube cut

Gas oil and diesel fuel for internal use

High grade burner oil

Bottoms

Oil

Distillate

Light Ends

Water

Gas Oil

FRONT

END

TFE

5- 10%

<5%

2%

10-20%

70-80%

10-20%

DB50 Burner Oil/ FOC

4.3.2 Future approach to reprocessing used oil

Substantial progress has been made by Wren Oil and Nationwide on a Joint

Venture agreement. Should the agreement be formalised, and there is every

reason to believe that an agreement will be formalised in the very near term,

the volume of used oil collected by the Joint Venture would be sufficient to

support the establishment of a lube-to-lube recycling plant in Western

Australia.

Provided the PSO payment remains at the current level of 50 cents per litre,

both Joint Venture partners have indicated that they are committed to the

establishment of a lube-to-lube recycling plant in Western Australia. The first

priority regarding the construction of new infrastructure for the Joint Venture

is the installation of new storage tanks at the Bunbury Port site and

construction of pumping and pipeline infrastructure to allow the loading of

burner fuel oil on to tankers.

The construction of a lube-to-lube plant on the existing Wren Oil Picton site is

the next proposed activity. Wren Oil has identified an appropriate area for

construction of a lube-to-lube plant within their existing Picton footprint.


Nationwide, as operator of a hydrogenation lube-to-lube facility in NSW, has

experience with the operation of lube-to-lube facilities.

Nationwide have indicated that the re-refined base lubricating oil currently

produced at the existing plant in NSW has no trouble meeting the required

technical specifications for base lubricating oil. Re-refined base lubricating oil

produced in Western Australia would be predominantly exported via the

Bunbury port infrastructure.

For a lube-to-lube plant to be operational in Western Australia within 2-4 years

requires both the economics to stack up and that the Joint Venture operate

smoothly.

For the economics to stack up requires the return on the additional capital

invested to be greater than the return available from continuing to supply

burner fuel oil products.

Both Wren Oil and Nationwide have indicated that they expect to complete

negotiations over the Joint Venture during 2008. Notwithstanding the

intentions of the parties and their existing close collaboration to service

offshore markets, it is worth commenting on some of the detail that requires

negotiation and agreement in any joint venture arrangement. This serves to

highlight the range of points where agreement must be reached, and illustrates

why such negotiations can be lengthy. It could be noted that a substantial

investment of time at the initial stages of a Joint Venture means that

disagreements later in the process are less likely.

General legal and establishment considerations of joint venture

For any joint venture there are General Legal considerations such as the legal

name of the venture, business registration, name of the venture partners etc.,

that must be met. If one of the joint venture partners is likely to seek grants or

other assistance from government agencies then there may be further specific

general legal requirements.

The Reason for establishing the joint venture needs to be clearly set out and

agreed by both parties in the agreement. Additionally, the overall Objectives of

the joint venture and the Terms and Scope of the operation must be articulated.

The Roles, Responsibilities, and Obligations of each party to the agreement need to

be set out in detail. And while it is hoped that the joint venture operates

smoothly, the consequences of failing to meet the obligations and

responsibilities, including the Grounds for Termination of the agreement, and the

processes to be used for Dispute and Conflict resolution must also be clearly spelt

out at the outset.


The role of the Board, including: authority, voting power, process for replacing

directors etc., needs to be set out. The Management Structure, including the

extent of managers’ authority must be defined, and the general Reporting

requirements for management to the board and the venture partners must be

established.

Financial specific considerations for a joint venture

Both the Percentage Interest and the details of the Contributions to the joint venture

must be documented. In addition to the assets contributed, the ownership of

the assets, details for disposal and transfer of the assets and how the assets are

to be used and maintained needs to be specified.

The time required to complete such a task should not be underestimated.

Wren Oil and Nationwide are proposing to combine the assets of existing

operations. So that the percentage interest in the ownership of the Joint

Venture can be worked out, it is therefore necessary to undertake a

comprehensive valuation exercise of the assets of both operations. As the

respective company assets are spread all over the State, such an exercise is an

onerous undertaking. It is further complicated in that it is also necessary for a

valuer to assess each specific vehicle that is part of a currently operating

collection fleet.

The Establishment Cost of the joint venture and how each venturer is to

contribute to these costs must be determined.

Regarding Equity contributions, not only do the required initial amounts need

to be established, but the process for how/whether additional equity can be

brought in to the venture must be agreed. The framework setting out how

equity can be transferred between partners and possible new partners, and the

restrictions placed on transfers must also be established.

The required Return on Capital contributions should be established at the outset.

How the On-going Costs of the venture are to be allocated to the venture

partners must be specified in the agreement. The allocation of Profits and Losses

must also be determined.

Summary comments

Although the detail that must be specified in a Joint Venture agreement is

substantial, the long-term viability and operational success of any venture

requires an investment in a comprehensive agreement document. Without

underestimating the time required for such an undertaking, it should be noted

that joint venture agreements are common and that a variety of essentially off-

the-shelf standard low cost joint venture agreement products exist.


4.4 Institutional and legal controls

4.4.1 Waste and Resource Recovery Act

If current arrangements (or extensions to current arrangements) fall short of

achieving the desired standard of management for used oil in Western

Australia, the Waste Avoidance and Resource Recovery Act 2007 (WARR Act)

provides head powers for a unilateral response to improve the management of

used oil in Western Australia, particularly through the making of regulations as

allowed by Schedule 3 of the WARR Act. Details in relation to the matters in

respect of which regulations may be made are shown in Box 1.

Box 1 Matters in respect of which regulations may be made

Division 1 — General

1. Providing for the form and content of any notice.

2. Providing for the keeping, inspection and production of reports, records, returns,

registers and other information.

3. Providing for the imposition of fees and charges.

4. Providing for the recovery of expenses incurred by the CEO or a local government.

5. Prescribing offences under the regulations and penalties for the commission of

those offences not exceeding $10 000, with or without a daily penalty of not more

than $1 000.

6. Providing for review by the State Administrative Tribunal of decisions made under

the regulations.

Division 2 — Waste collection and facilities

7. Regulating the operation of waste facilities, and the treatment, storage, processing,

recycling or disposal of waste at waste facilities.

8. Regulating the use of receptacles for waste.

9. Regulating waste services.

10. Regulating the transportation of waste.

11. Regulating the creation, collection, storage, handling, processing, recycling and

disposal of waste.

12. Providing for waste collection permits.

13. Regulating the issue by local governments of approvals to collect local

government waste.

14. Providing for the provision of information relating to the operation of waste

facilities and the transportation of waste.

15. Prohibiting the disposal to landfill or other waste facilities of specified waste or

classes of waste (including any products that are or have been included in an


extended producer responsibility scheme).

Division 3 — Product stewardship

16. Making provision in relation to assisting in the negotiation of, and assessing the

implementation and operation of, product stewardship plans.

17. Regulating the implementation, operation and enforcement of extended

producer responsibility schemes.

18. Without limiting the Interpretation Act 1984 section 43(8)(d), exempting persons or

products, or classes of person or product, from all or any of the provisions of the

regulations applying to extended producer responsibility schemes, and specifying

circumstances in which and conditions subject to which an exemption applies.

19. Without limiting item 17, requiring a person who manufactures, distributes or sells a

product to do all or any of the following —

(a) provide consumer information on the use and disposal of the product and its by-

products;

(b) operate collection facilities for the product and its by-products;

(c) collect or accept the product and its by-products for disposal from a consumer of

the product;

(d) dispose of the product in accordance with the regulations.

20. Without limiting item 17, prescribing products for which a fee, deposit or bond for

the collection, recycling or disposal of the product must be paid and —

(a) regulating the collection of the fee, deposit or bond; and

(b) regulating the circumstances in which the fee, deposit or bond and a refund of

the fee, deposit or bond will apply; and

(c) providing for the amount of the fee, deposit or bond or refund; and

(d) providing for the time at which the fee, deposit, bond or refund must be paid.

21. Concerning the control and management of fees, deposits or bonds paid under

the regulations including —

(a) requiring the person who collects the fee, deposit or bond to forward the fee,

deposit or bond to a person specified in the regulations; and

(b) making provision as to who is empowered to hold the fee, deposit or bond and

where the fee, deposit or bond must be held; and

(c) providing for the application of the fee, deposit or bond and interest from the fee,

deposit or bond.

22. Providing for the establishment of, and regulating the operation of, collection

facilities for products and their by-products.

23. Requiring a producer of a product to formulate and implement a management

plan with respect to the product, specifying the matters to be dealt with in the

management plan, providing for approval of the management plan and requiring

compliance with the management plan.

24. Providing for proof of payment of fees, deposits or bonds under the regulations


and its evidential status.

Data source: Waste Avoidance and Resource Recovery Act 2007

As can be seen, the range of areas in which regulations could be made are

extensive, can be applied at the collection point or to the recycler, and could

include such matters as: notification relating to storage capacity through time;

requiring recyclers to have available at any point in time a certain storage

capacity margin; and the establishment of appropriate fees and charges as

required, where the concept of a bond would not appear to be excluded.

For a number of reasons, a cautious approach to setting regulation is, however,

warranted. First, regulation can be costly to administer and costly to comply

with for business. Second, it is possible for regulation that is not well thought

out and discussed with industry to have unintended consequences. Third,

unilateral action by any one Australian jurisdiction can be open to challenge

due to issues associated with Australian law and policies. Examples of laws

and policies that need to be considered include the Commonwealth of Australian

Constitution Act (especially section 92), the Mutual Recognition Act 1992, the Trade

Practices Act 1974 and National Competition Policy.

The unencumbered flow of goods and services between Australian

jurisdictions is an area previously highlighted by stakeholders and government

as an important consideration. Any new unilateral measure needs to be formed

in such a way as to be compatible with Australian legislation and policies that

relate to unencumbered inter-jurisdictional trade.

4.4.2 Emissions controls

It is notable that the current remaining substantial domestic users of recycled

fuel oil product are located in areas that are currently sparsely populated, and

that these areas are likely to remain sparely populated into the future.

Standards for emissions do however vary across the world and the emission

standards that apply across the European Union are of particular interest. The

Waste Incineration Directive (WID) agreed by the European Parliament and the

Council of the European Union in 2000 set new standards for the incineration

of waste that gradually came into force. Used oil based burner fuels are

covered by the directive.

The purpose of the directive is noted in DEFRA (2008, p. 5) as limiting the

environmental impact and human health risk associated with the incineration

of waste. The directive came into full force in the UK in January 2006. As a

practical matter the directive reduced the number of compliant large users of

recycled oil based burner fuel to only those operations, such as cement and

lime kilns, where operating temperatures are very high. Other historical large

users of recycled fuel oil in the UK, such as power stations and the like, would


need to retrofit plant with emissions abatement technology if they wished to

continue to use recycled fuel oil.

The market demand curve for a product is found as the horizontal sum of the

individual firm demand curves. As such, a reduction in the number of

individual firms with a demand for a product results in a fall in the industry

demand curve. Holding everything else constant, a fall in the market demand

curve will result in a fall in the market price of the good. The extent of the fall

depends on the slope of the supply curve, the slope of the demand curve, and

the reduction in the number of individual firms that demand the good.

Markets, it should be noted, are dynamic and constantly evolving. In relation

to the WID, the view expressed in ODH (2003, p. 32) is worth noting as it

appears to have very accurately predicted the future developments that took

place in the UK.

New regulations can lead to unintended consequences as businesses find ways of

delaying or defeating the objectives sought by the regulators. In the case of WID it is

likely that those benefiting from the existing market for the use of waste oil as a fuel

substitute will give considerable thought to how to preserve the status quo. It may be

possible for example to treat waste oil in such a way that it could be considered to be

a product and not a waste. A simple atmospheric distillation process may be sufficient

to achieve this transformation, possibly something even simpler such as neutralisation

with other physical/chemical treatments. Such elegant solutions may make

commercial sense yet could be frustrated by legal objections.

In response to the WID the UK based OSS Group developed a product they

refer to as Clean Fuel Oil (CFO) that is produced to British Standard BS 2869;

2006 Fuel oils for agricultural, domestic and industrial engines and boilers. As such, the

OSS Group put forward the case that CFO was not a waste but a specified

product. The UK Environmental Agency initially disagreed that CFO was a

product, and in 2007 the Court of Appeal -- OSS Group Ltd v Environment

Agency -- considered the question of whether or not used lube oil can be

transformed so that it is no longer a waste but a product. The court found

that:

…it should be enough that the holder has converted the waste material into a distinct,

marketable product, which can be used in exactly the same way as an ordinary fuel,

and with no worse environmental effects…

As such, the UK Court of Appeal has set a clear principle regarding what is

required before used lube oil ceases to be a waste and becomes a specified

product. Since the ruling considerable effort has been invested in establishing

a Quality Protocol for burner fuel derived from used lube oil. As of November

2008 discussion was proceeding between industry and the UK Environmental

Authority by way of a Technical Advisory Group to establish the specific

details of the Protocol. The approach taken, as outlined in Regulation of Waste


Oil: Interim Arrangements 1 August, has been to specify the same standards

required of virgin heavy fuel oil products. The remaining area to be resolved

relates to the appropriate testing regime for the measurement of the Ash

content of the product13.

In the face of tighter emission controls it appears that the UK oil recycling

industry has been able to respond by applying new technology to the recycling

process to generate a product that is no longer a waste but legally recognized as

a new burner fuel product. The recognition of the burner fuel as a product

rather than a waste relies on the principle that the product be, in practical

terms, indistinguishable from the substitute virgin product. This being said, it

is possible the UK court decision could be challenged by other European

states, who are concerned with chlorine levels in used oil and the impact this

could have on dioxin emissions (see Part B report for further details on this

matter).

4.4.3 Export controls

Australia signed the Basel Convention on the Control of the Transboundary Movements

of Hazardous Waste and their Disposal (Convention) in 1989, and it came into

force in May 1992.

Under the terms of the Convention, Australia is required to:

− minimise the generation of hazardous waste

− ensure adequate disposal facilities are available

− control and reduce international movements of hazardous waste

− ensure environmentally sound management of wastes and

− prevent and punish illegal traffic14.

Paragraph 1(a) of Article 1 to the Convention defines waste to include those

items listed in Annex I to the Convention that additionally contain one of the

properties listed in Annex III to the Convention. Annex I includes:

• Waste mineral oils unfit for their originally intended use

• Waste oils/water, hydrocarbons/water mixtures, emulsions,

which meet the further test of also having a property from Annex III, the list

of Hazardous Characteristics, namely flammability.

13 Environment Agency website www.environment-

agency.gov.uk/business/444304/1765106/1765136/1782311/1862147/1862167/# [accessed 27 November 2008] and OSS Group website www.ossgroupltd.com/index.php [accessed 27 November 2008]

14 DEWHA website www.environment.gov.au/settlements/chemicals/hazardous-waste/conventions.html [accessed 6 November 2008]


The legislation Australia operates under to meet the requirements of the

convention is the Hazardous Waste (Regulation of Exports and Imports) Act 1989.

The legislation defines hazardous waste to include anything classified as

hazardous waste under the Convention. As such, a lay reading of the

legislation would suggest used lube oil is defined as a hazardous waste.

As noted in ACG (2001), the intention of the Convention is that hazardous

wastes not be transported overseas, even for reprocessing where that

reprocessing takes place in a non-OECD country. While it is possible to apply

for a permit to export hazardous waste from Australia the process is long, and

there is considerable doubt as to whether an export permit would be granted.

To date it is understood that no permits have been granted to export used lube

oil from Western Australia.

So that an export permit is not required it is necessary to blend the used oil to

a specified fuel product standard before it is sold overseas. However, a lay

understanding of the attributes of the FOC previously exported by BP

(Kwinana) and the DB50 product currently exported by Wren Oil could lead

one to view these products as not especially dissimilar to used lube oil. As

such, regardless of the view taken about whether it is appropriate or not to

include used lube oil as a hazardous waste that should not be exported, it is

possible to imagine that current practice regarding exports may at some point

in the future be questioned.

With current recycling approaches and technology any restriction on the ability

export used lube oil derived burner fuel oil products would represent a

significant market disruption that would put the functioning of the current

collection system under considerable strain.

4.4.4 National Product Stewardship for Oil (PSO) programme

Oil sold in Australia is subject to the Product Stewardship (Oil) Act 2000. The

objective of the Act are:

(a) to develop a product stewardship arrangement for used oils; and

b) to ensure the environmentally sustainable management, re-refining and reuse of

used oil; and

(c) to support economic recycling options for used oil.

In broad terms the program operates with oil producers paying a 5.449¢ per

litre levy on oil and synthetic oil products and used oil recyclers receiving a per

litre benefit depending on the specific product they produce.

The full range of supporting legislative arrangements for the PSO are outlined

in PWC (2008, p. 18) and are:

• Product Stewardship (Oil) Act 2000


• Product Stewardship (Oil) Regulations 2000

• Excise Tariff Amendment (Product Stewardship for Waste Oil) Act 2000

• Customs Tariff Amendment (Product Stewardship for Waste Oil) Act 2000 and

associated regulations

• Product Stewardship (Oil) (Consequential Amendments) Act 2000

• Product Grants and Benefits Administration Act 2000

• Appropriation (Supplementary Measures) Act (No. 2) 1999.

Benefit rates

The value of the benefit received by used oil recyclers depends on the type of

product produced. Details on the specific benefit payments by product type

are shown in Table 15. Almost all the used oil collected in Western Australia is

ultimately sold as a product eligible for the low grade industrial burner fuel

benefit payment.

Table 15 Benefit payment rates

Category Benefit ¢ per L

Re-refined base oil (for use as lubricant, hydraulic, transformer oil) 50

Other re-refined base-oils 10

Fuel standard compliant diesel fuels 7

Diesel fuel extender (filtered, de-watered and de-mineralised) 5

High grade industrial burning oil (filtered, de-watered and de-mineralised) 5

Low grade industrial burning oil (filtered and de-watered) 3

Data source: www.oilrecycling.gov.au/benefits.html [accessed 21 October 2008]

Sustainability of the PSO

As can be seen by considering the benefit payment rates in Table 15, as the

proportion of used lube oil that is re-refined into base lube oil increases, the

financial viability of the PSO system comes under threat. To illustrate the

potential problem Table 16 shows indicative details for the volume of money

collected under the scheme and the amount that would be required to be paid

out if TPI proceed with all planned lube-to-lube plants, including the proposed

joint venture in Western Australia with Wren Oil. The figures in the table are

indicative only, but are robust enough to show that the PSO scheme is not

sustainable with even a modest increase in the volume of re-refined base oil

produced in Australia.


Table 16 Indicative implications of expansion of lube-to-lube refining

Details 2006 2007 2008 2009 2010 2011

($M) ($M) ($M) ($M) ($M) ($M)

Indicative PSO Levies Collected 25+ 25+ 27.5 29 30.5 32

Less

Indicative Current PSO payments 20 18 16 14 12 12

NSW Hydro lube-to-lube 0 13.5 18 18 18 18

Vic. Hydro lube-to-lube 0 0 13.5 18 18 18

Qld Hydro lube-to-lube 0 0 0 13.5 18 18

WA Hydro lube-to-lube 0 0 0 0 13.5 18

Balance 5 -6.5 -20 -34.5 -49 -52

Data source: PWC (2008) and Pers. Comm. Gary Watson.

Future of the PSO

The Product Stewardship (Oil) Act 2000 requires the Department of the

Environment, Heritage and the Arts (DEWHA) to review the operation of the

Act every four years. PriceWaterhouseCoopers (PwC) are currently

undertaking the second review of the Act. The objectives of the review are

reproduced in Box 2, and as shown, the sustainability of the system is

something that will be addressed as part of the review.

Box 2 Objectives of the PSO review

The legislative review of the Act will determine the following:

• The effectiveness and appropriateness [of] the Act, regulations made under the

Act, and associated provisions of customs and excise legislation, including an

assessment of:

– the adequacy, efficiency, and equity of the existing levy-benefit arrangements;

– the adequacy and appropriateness of existing benefit categories and rates

• Where the review identifies any deficiencies in the operation of the Act, the review

will identify:

– feasible alternatives to the current legislative provisions, including:

-- more appropriate categories and definitions, and

-- the level(s) at which the levy and benefit payments could be

appropriately set

– the different stakeholders likely to be affected, and how they may be affected

by the alternatives

– analyse, and as far as practicable, quantify the benefits, costs and overall

effects of the alternatives

– recommend a preferred course of action.

Data source: PwC (2008, pp. 81-2)

Submissions to the review can be provided up until Friday November 7th.


4.4.5 Transitional funding programme

Between July 2000 and June 2007 an oil recycling transitional funding

programme was in operation. Total funding for the programme was $34.5M

and the objectives for the programme were as follows:

− ensure a sustainable used oil recycling industry

− accelerate the uptake of used oil from urban and rural Australia

− facilitate industry and community involvement to achieve the objectives

of the PSO, and

− to the extent possible, address special difficulties that remote Australia

has in the recovery and management of used oil for recycling15.

In the 2005-06 round of funding two WA projects were funded. Specifically,

funding of:

− $400,000 was provided to a project investigating using used oil residue

product in road bitumen (Wren Oil involved in project). This project

has been delayed for a number of reasons, particularly related to gaining

Part V licence approvals for the bitumen blowing plant. Whilst these

approvals have been granted, they have imposed a higher cost on the

project than originally anticipated. The project partners are currently

assessing how and when to proceed with this study.

− $70,000 for a project to develop the infrastructure needed for the

collection of marine oil in the Abrolhos Islands (WA Department of

Fisheries).

In the 2006-07 round of funding one WA project was funded. Specifically, the

Shire of Mundaring received a grant of $7,700 so that it could install a waste oil

collection unit at a Shire transfer station.

15 Objectives reproduced from www.oilrecycling.gov.au/assistance.html [accessed 1 September

2008].

Future possible operating environment developments 57

5 Future possible operating environment developments

This section discusses possible changes to the future operating environment

including the probability of the change occurring, the timeframe involved, any

barriers to the change taking place, and the impact of the change.

5.1 Local government joint tender

WALGA have called for tender responses for the provision of used oil

collection services to all of local government so this no longer represents a

possibility but a reality. Wren Oil is the major collector of used oil from the

local government sector and so is the operator that would be most impacted by

the loss of used oil collected from the sector if a third party was to be awarded

the contract. The local government sector as a whole is however only a

relatively minor source of used oil. Although the tender process is not

complete, the intent is that on average local government will pay less for used

oil collection services in the future.

5.2 Loss of key storage infrastructure

Within two to three years 22M litres of storage infrastructure currently leased

from Verve Energy and Shell is not likely to be available. Both Shell and

Verve Energy have indicated that they are not in the business of providing

used oil storage facilities long term and that their preference is for used oil not

to be stored in the tanks they currently lease for this purpose. In the case of

Shell, access to storage was provided on the explicit understanding that storage

would be required only on a temporary basis. In the case of Verve Energy,

terms are such that Verve must provide only three months notice before the

storage is withdrawn.

The minimum economic size for the transport of fuel oil products to

Singapore and Christmas Island is in the order of three to four million litres

per load. To service these markets it is therefore necessary to have access to

substantial storage infrastructure. It is also necessary to have access to

equipment to pump the burner fuel oil onto a tanker. Should access to storage

tanks and pumping equipment be withdrawn prior to the installation of new

infrastructure in Bunbury, regular used oil collection services may be

jeopardised.

The used oil collection companies and the current providers of storage have

open lines of communication and the most probable outcome is an orderly


transition from the current arrangements to one where used oil is largely stored

in appropriate tanks and exported from a site within the Port of Bunbury.

5.3 Development of new export infrastructure at

Bunbury Port

Notwithstanding some radical unforeseen circumstance, new storage and

export infrastructure at Bunbury Port is expected to be operational within one

to two years. An appropriate site has been identified within the land identified

for development in the Bunbury Port Master plan, and negotiations regarding

terms for a lease are progressing.

There is a strong economic case for the development of export infrastructure

at Bunbury. As it is in the economic interest of the providers of used oil

collection services to develop new infrastructure at the Bunbury Port it is

difficult to foresee the circumstances that would cause the infrastructure to be

not built.

It can also be noted that the provision of storage by Shell was conditional on

Shell management being satisfied that the storage provided would not be

required long term. The used oil collection companies must therefore have

been able to present Shell management with a plausible plan to develop

alternative storage and export infrastructure.

The development of the infrastructure will improve the economics of used oil

recycling in Western Australia and also mean that access to infrastructure for

servicing non-mainland WA markets is secure. The overall security of the used

oil collection service in Western Australia will be significantly enhanced by this

development.

Further, the development of an ability to export is a precondition for the

development of a lube-to-lube reprocessing plant in Western Australia.

5.3.1 Emissions trading

Details on the emissions intensity of used oil based burner fuels are not

available. Details are however available for refinery fuel oil used in stationary

energy generation and these figures represent a good approximation to the

emissions footprint of used oil derived burner fuel. Details are shown in

Figure 17 for the CO2 emissions from different fuel sources per GJ of energy.

As can be seen from the figure the level of emissions per unit of energy is

higher for fuel oil than for natural gas, but not dramatically so.


Figure 17 Fuel combustion CO2-e per GJ for select fuel source

93.1

69.2

60.7

69.0

69.5

73.1

59.9

0 20 40 60 80 100

Black Coal (electricity WA)

Crude Oil

Natural Gas Liquids

Heating Oil

Automotive Diesel

Fuel Oil

Liquid Petrolem Gas

Kilograms of emmisions per GJ of energy

Data source: DoCG (2008) National Greenhouse Accounts (NGA) Factors

The actual impact this would have on relative prices depends on the actual per

tonne carbon permit price, but it does suggest that once a price is established

for emissions there will be a small change in relative prices that favours natural

gas over fuel oil.

5.4 Competing products

The international market for burner fuel oil is well established and deep. The

price of heavy refined burner fuel is highly positively correlated with the price

of virgin crude oil. While the calorific content and other technical properties

of used oil based burner fuel is similar to that of virgin oil burner fuels, current

practice is for products such as DB50 to be sold at a discount to the prevailing

refined burner fuel oil spot price.

The price for natural gas paid by large industrial customers in Western

Australia is typically set via long term contracts. Historically the price of

natural gas in Western Australia has been substantially lower than the

international price, but this is something that has changed recently and prices

are moving closer to the international price.

5.4.1 Western Australian natural gas market supply

Historically large industrial users of gas located in Western Australia have been

able to secure supply for prices between $2.60 and $3.70 per gigajoule. Over

the last 18 months the Western Australian market has witnessed some high

priced domestic gas contracts being written relative to historical price levels.

These contracts were for relatively small volumes and short terms to mining


customers which faced liquid fuel alternatives and as such, cannot be

considered to be a good indicator of prices to long term major users.16

ACIL Tasman’s view of the potential range for future ex-field prices has

however widened considerably over the last 12 months. We now see the

potential range of ex-fields prices extending from around $4/GJ at the low

end, up to as high as $10/GJ.

We see there being five main drivers for wholesale gas prices going forward:

• Upstream developments and level of supply competition

• Cost factors influencing upstream developments

• Export parity linkages

• Demand competition

• Potential for government intervention.

Upstream developments

The timing and development of new sources of supply will be a key driver for

growth in gas consumption and pricing dynamics. Large developments such as

Gorgon and Wheatstone require significant volumes to underpin project

viability. The need to secure volumes for such projects has the potential to

reverse the recent upward price trends in gas prices. The Gorgon project,

which has faced multi-billion dollar capital cost blowouts17, has expanded in

planned size by 50 percent since initial planning in part to offset the massive

capital cost.

To the extent that domestic gas prices have risen, and continue to rise, it opens

up opportunities for other sources of supply currently considered not

economically viable. ACIL Tasman expects to see a significant supply-side

response should price levels rise considerably. Sources such as deep tight

Perth Basin resources, Whitcher Range, the Canning Basin and even coal seam

methane all become possible development options for suppliers if prices rise

substantially18.

16 The impact of the Apache Energy gas disruption is considered a transitory event and so is

not considered as part of the analysis of gas prices.

17 The original construction cost estimate in 2003 was $11B and is now thought to be closer to $30B.

18 In June 2008 Alcoa and Latent Petroleum announced a joint venture to develop the Warra tight gas field in the Mid West.


Export parity linkages

For a number of the supply sources in WA, directing gas into LNG

manufacture is not an option. For example, there is presently no means by

which gas from John Brookes or Perth Basin can access the international LNG

market. For these sources, despite the assertions to the contrary by producers,

LNG is not an alternative use, and so the international LNG price is not an

appropriate benchmark for pricing.

Two developments could potentially change this situation:

• If the viability of small-scale liquefaction technology was proven to be

successful (a number of proposals have emerged – including four proposals

for plants in Gladstone based on coal seam gas). This would potentially

unlock fields which are currently too small to service world-scale LNG

facilities – not just in WA, but right across the globe. While this may

increase exposure to global prices for small fields, the increase in LNG

supply sources world-wide may place downward pressure on LNG prices.

• Whether Woodside proceeds with plans to develop a second Pluto train

with the intention of creating a tolling facility for surrounding fields.

Again, this would create a path to export markets for producers who

currently appear to be constrained to domestic gas sales. Fields which

provide suitable candidates for LNG tolling include Chevron’s

Wheatstone19 and Santos/Apache’s Julimar/Brunelo fields.

Demand competition

Western Australian and East coast domestic gas prices have historically

demonstrated a significant level of price divergence, depending on market

sector, load characteristics, customer’s capacity to pay, and alternative energy

options.

As a result of the commodity cycle and resultant mining boom in Western

Australia, there is an unprecedented level of demand for energy associated with

mining projects. However, a one-step move to prices of $10/GJ both in the

market and politically, would be hard to sustain. It is therefore more probable

that a move toward this level (and perhaps even higher) will occur in a series of

steps over the next five to ten years, particularly if substantial new domestic gas

sources are slow to emerge. Just how far prices rise, and how quickly, will

depend on a range of factors: what happens with oil prices (and therefore to a

large extent LNG prices), how the prospects for new domestic gas supply

develop (including Gorgon and Pluto), what directions environmental policy

takes, and so forth.

19 ACIL Tasman notes that recent media releases by Chevron indicate plans to construct a

wholly owned LNG development based on the Wheatstone field.


Government intervention/environmental policy

Clearly a push for higher gas prices across the board is likely to result in a low

uptake of gas for power generation, and a consequent return to coal as the fuel

of choice for base and intermediate load power generation. Burner fuel oil will

necessarily also look more attractive as a fuel source, although the view of

recyclers is that regional power stations are unlikely to return to using burner

fuel oil.

An outcome that sees a major reversion to coal for power generation following

the introduction of emissions trading would be politically difficult and there

may well be a push to intervene to restrict new coal entry. If this happens, and

if gas prices are allowed to move toward the next available fuel/technology

alternative for base load generation (liquid petroleum fuels) there will be a level

of increase in electricity prices that is likely to be politically unacceptable.

Gas price summary

There is much uncertainty surrounding the future price of gas in Western

Australia for large industrial users. It is relatively certain that long term

contract prices will no longer be struck at rates approaching $2 a gigajoule, and

also relatively certain that many long term contracts will be struck at rates

substantially less than $10 a gigajoule, however, exactly where between these

two levels is unclear.

5.4.2 Crude oil market

Natural gas is one key substitute product, virgin residual fuel oil is another. As

the price of residual fuel oil is directly related to the price of crude oil, and the

price of used lube oil burner fuel sold offshore is directly related to the price of

residual fuel oil, the long term price path for crude oil also informs on the long

term price path for used lube oil burner fuel type products. Forecasting short

term movements in the price of oil is not likely to be an especially productive

exercise. Insights can however be gained by considering some long term

official forecasts and discussing the underlying drivers of oil prices and the

assumptions that support the official forecasts.

Perhaps a natural starting point for discussion is to recall the experience

following the oil price spike experienced in the 1970s. Following a period of

stable low oil prices throughout the 1950 and 1960s the price of oil rose

substantially during the 1970s, much the same way, and to the same level in

real terms, as it has risen over the past five years. Following the oil price

increase in the 1970s the price of oil then fell throughout the 1980s and

remained low throughout the 1990s. History therefore suggests that it would

be reasonable to expect lower oil prices going forward.


Using year 2000 constant US dollars, the US Energy Information

Administration (EIA) and the International Energy Agency (IEA) both

forecast the real price of a barrel of oil to move within a band of between $40

and $50 a barrel out to 2030. Official forecasts would therefore seem to

support the view that longer term, the price of oil should be substantially lower

than the average price experienced during 2008, but will not be as low as that

observed during the 1990s.

Kaufman, et al., (2008) have however suggested that the assumptions that

support the EIA and IEA forecasts for the reference case understate the

potential for prices to remain high. The specific assumptions they challenge

relate to:

• Possibly gains in production in non-OPEC countries

• Energy efficiency gains

• The internal stability of the OPEC cartel, and

• Whether alternative forms of energy will emerge to challenge oil.

The thrust of the arguments advanced, and supported with evidence, in

Kaufman, et al., (2008) are that the EIA and IEA have overestimated:

− the capacity of non-OPEC countries to expand output

− the prospects for alternative fuel sources, and

− the potential of energy efficiency gains,

while at the same time underestimated:

− demand growth, especially in Asia as the car fleet grows, and

− the ability of the OPEC cartel to remain disciplined.

The sharp slowdown in economic activity in the second half of 2008 and the

likely continued slower world growth in 2009 mean there is considerable

uncertainty about the oil price in the short term. Over the longer term world

economic growth will pick up again, and the issues Kaufman, et al. have raised

concerning the assumptions that underpin the official long run forecasts may

re-emerge. This suggest that additional to the reference case it is worth

considering what the upper bound official estimates for the world oil price

look like.

Figure 18 provides details on the EIA nominal US dollar estimates of the

world oil price. In the figure the solid blue line represents the realised annual

average world oil price. The dashed blue line starts in 2009 and plots the EIA

reference case forecast for the price of a barrel of oil. As can be seen in the

figure, under the reference case assumptions the nominal price of oil falls

substantially over the next five years before once more starting an upward


climb. Under the reference case assumptions the nominal price of a barrel of

oil in US dollars in 2030 is $113.

Figure 18 EIA forecasts for the world oil price in nominal dollars

69

186

171

113

0

40

80

120

160

200

19

80

19

90

20

00

20

10

20

20

20

30

$US per barrelUpper estimate

Inflation price trend

Lower estimateActual price history

Reference estimate

Data source: EIA (2008) International Energy Outlook 2008

Nominal dollar prices will however rise with inflation, and over long periods of

time the inflation effect can be substantial. To assist with making comparisons

between real and nominal dollars the green dashed line plots a reasonable

nominal price path such that the price of oil stays at around the average 2008

price level in real terms. For the 2030 US dollar price of oil to be at a level

comparable to the 2008 price in real terms, a barrel of oil would need to cost

around $171. The reference case therefore assumes that the real price of oil in

2030 will be substantially less than the 2008 average price.

As with the other estimates, the upper bound price series estimates see prices

falling over the next few years before starting to rise once more. In broad

terms the upper estimates for the price of oil foreshadows real prices returning

to the average 2008 price by around 2020 and then moving slightly higher.

The arguments of Kaufman, et al., (2008) suggest prices between the reference

case estimates and the upper bound estimates.

The lower bound estimate is worth including in the projection plots as it

provides an indication of just how uncertain forecasting oil prices over the

long-term is. The EIA range of estimates for the price of a barrel of oil in

nominal US dollars in 2030 is $186 - $69 = $117.


Crude oil price summary

Price movements for crude oil, residual fuel oil, and used lube oil burner fuels

all move together. As such, by considering the prospects for the price of crude

oil it is possible to gain an understanding of the likely price path for products

such as DB50 and FOC, or even re-refined base lube oil. There is considerable

uncertainty about future oil prices but it seems unlikely that we will see a return

to the very low prices for fuel oil products observed during the 1980s and

1990s. A moderate to high world oil price, which is thought the most likely

scenario, is a positive indicator for those selling reprocessed used oil products.

5.5 Bitumen applications

In 2005-06 funding of $400,000 was provided from the used oil Transitional

Funding pool for a project to investigate using ULO in road bitumen.

Wren Oil and road maker RNR Contractors Pty Ltd of North Fremantle have

a project in Western Australia for the manufacture of valuable bitumen

substitutes from vacuum tower bottoms (VTB). The VTB is the used oil

residue that remains after entrained water, petrol, diesel and lubricating oil

fractions are distilled from used oil in Wren’s Thin Film Evaporator.

The Bitumen Blowing Process

The bitumen blowing process is an oxidation process that takes place when

controlled amounts of diffused air are blown through hot bitumen held at set

temperatures over specified periods of time. The air contact causes a reaction

in bitumen allowing acceptance of the VTB, and the manufacture of a new

product called Asphalt Rich Binder (ARB).

Pilot trials

Progress on the project has not been as fast as initially hoped. In August 2006

a pilot bitumen blowing unit manufactured by E-Asphalt™ was installed at

Wren Oil to perform trials by blowing VTB into bitumen of various grades.

Beginning 19 September 2006, engineer and bitumen expert Gustavo Bachetta

from E-Asphalt spent 19 days testing 38 blends of Wren Oil VTBs and new

bitumen supplied by RNR. The testing involved blowing the blends in the

pilot bitumen blower at the Wren Oil Refinery in Picton WA.

The E-Asphalt lab tests indicate that ARB can meet Australian Standards for

bitumen and can be used as a substitute for bitumen or a modifier to bitumen.

It can be further processed by emulsifying it or adding polymer to it.


New milestones

As the project was delayed it has been necessary to negotiate new project

milestones. Negotiations have progressed, and new milestones have been set

that involve the commissioning of the bitumen blowing plant at RNR

Contractors Pty Ltd North Fremantle site around March 2010.

DEWHA has indicated that a WA steering committee for the project will

include a Main Roads WA representative.

Market Access

Since approximately 8,000 tonnes of VTB will be generated by a lube-to-lube

refinery each year, it is important that the Main Roads WA and local

government market is open to the use of ARB for road making. Without a use

for this product, either in bitumen, as heavy fuel oil, or as exports, the viability

of a lube-to-lube refinery in Western Australia will be threatened.

Regarding market acceptability of new road products, it is worth noting the

experience of the C&D recycling industry in having recycled crushed concrete

accepted as a road base or sub-base aggregate.

While Main Roads WA created a technical standard for the use of recycled

material as road base and sub-base, and C&D recyclers are capable of

delivering cost effective product, almost all individual local government road

tender documents have continued to call exclusively for virgin aggregate only.

The market for recycled aggregate as road base has therefore remained very

small despite recycled aggregate being both technically proven and cost

competitive.

Summary of findings 67

6 Summary of findings

Since the storage crisis in 2007 when used oil collections temporarily ceased,

the market for used oil derived products has evolved substantially. New

markets for burner fuel oil that are outside mainland WA have been found, and

the stockpile that began accumulating in 2004 has been completely cleared.

Generators of used oil broadly report that collection services are operating

well, and the probability of a sudden sustained disruption to collection services

is unlikely. An analysis of consumption and collection data indicated that the

recovery rate for used oil in Western Australia is relatively high by international

standards.

The storage facilities currently provided by Shell and Verve Energy will not be

available in the medium term, and so Wren Oil and Nationwide Oil have

committed to building new storage and export infrastructure on a site located

within the Bunbury Port. Consultant engineers to design the storage and

export infrastructure have already been engaged. As there is a strong

economic incentive for the infrastructure to be built, it is extremely probable

that the planned infrastructure will be complete and operational within two

years. Specifically, three 4,000 tonne storage tanks are to be built on the

Bunbury site and the total storage capacity available to Nationwide Oil and

Wren Oil will then be approximately 20M litres. Based on the current volumes

of used oil that are generated in Western Australia storage capacity in the

future will be approximately 7-8 months worth of supply.

Provided it remains possible to export used lube oil derived burner fuel

products, markets for burner fuel oil over at least the medium term, but

probably much longer, are positive. The ability to export burner fuel products

long term is however not certain. Australia is a signatory to the Basel Convention

on the Control of the Transboundary Movements of Hazardous Waste and their Disposal,

which means a permit is required to export used lube oil. So that an export

permit is not required it is necessary to blend used lube oil to a specified fuel

product standard before it is sold overseas. It is possible to imagine a future in

which the current practice regarding blending used lube oil prior to export as

burner fuel was questioned.

With current recycling approaches and technology any restriction on the ability

to export used lube oil derived burner fuel products would represent a

significant market disruption that would put the functioning of the current

collection system under considerable strain. The cost of transport means that

interstate transport of used lube oil is significantly more expensive than

shipping to South East Asia.

Summary of findings 68

Nationwide Oil and Wren Oil are however progressing negotiation of a joint

venture agreement and the joint venture has indicated that it is committed to

the development of a lube-to-lube re-refining plant in WA. The prospects for

products produced from such plants are positive over the long term. The

viability of a lube-to-lube re-refining plant in Western Australia is however

dependent on the continuation of a PSO payment for re-refined lube oil.

A-1

A Data appendix

The supply chain overview developed was based on the following raw data

files.

Table A1 Used oil collection summary by LGA boundary

LGA 2004-05 2005-06 2006-07 2007-08 Average

Albany (C) 295,241 301,675 361,020 399,475 1,062,170

Armadale (C) 378,530 306,535 229,880 801,251 1,337,666

Ashburton (S) 1,249,800 1,370,570 2,171,855 1,424,900 4,967,325

Augusta-Margaret River (S) 42,700 56,860 72,225 32,530 161,615

Bassendean (T) 131,710 124,300 108,410 120,990 353,700

Bayswater (C) 655,910 559,445 534,995 552,854 1,647,294

Belmont (C) 1,032,247 1,190,204 1,133,820 1,277,840 3,601,864

Beverley (S) - - - - -

Boddington (S) 151,450 191,650 329,450 433,520 954,620

Boyup Brook (S) - - - 3,000 3,000

Bridgetown-Greenbushes (S) 86,500 123,950 33,800 44,705 202,455

Brookton (S) 14,400 4,900 12,100 21,400 38,400

Broome (S) 93,820 10,175 83,615 137,300 231,090

Broomehill (S) 21,700 - - - -

Bruce Rock (S) - 1,100 2,200 6,500 9,800

Bunbury (C) 674,709 931,080 897,022 767,465 2,595,567

Busselton (S) 378,655 192,050 229,320 253,316 674,686

Cambridge (T) 16,200 17,650 12,050 13,150 42,850

Canning (C) 1,075,111 1,104,132 1,121,382 1,243,196 3,468,710

Capel (S) 89,900 64,400 100,200 133,400 298,000

Carnamah (S) 215,550 292,150 311,450 278,850 882,450

Carnarvon (S) - - - - -

Chapman Valley (S) - - - - -

Chittering (S) 75,205 107,613 98,885 119,440 325,938

Claremont (T) - - - - -

Cockburn (C) 854,561 773,055 887,960 750,359 2,411,374

Collie (S) 589,770 790,950 775,767 823,770 2,390,487

Coolgardie (S) 494,350 399,648 506,231 547,787 1,453,666

Coorow (S) 7,500 9,000 5,700 7,850 22,550

Corrigin (S) 11,400 4,300 10,400 - 14,700

Cottesloe (T) 8,600 10,450 7,950 7,080 25,480

Cranbrook (S) - - - 4,900 4,900

Cuballing (S) 3,000 - - - -

Cue (S) 37,745 25,800 - 14,150 39,950

A-2

LGA 2004-05 2005-06 2006-07 2007-08 Average

Cunderdin (S) 12,400 12,920 9,445 8,225 30,590

Dalwallinu (S) 12,400 12,920 9,445 8,225 30,590

Dandaragan (S) 189,965 176,200 141,500 138,720 456,420

Dardanup (S) 7,250 9,100 19,400 13,775 42,275

Denmark (S) 5,000 1,200 12,005 12,670 25,875

Derby-West Kimberley (S) 1,640 10,865 84,000 52,200 147,065

Donnybrook-Balingup (S) 16,400 24,100 19,300 26,000 69,400

Dowerin (S) 3,800 11,000 3,025 7,675 21,700

Dumbleyung (S) 2,700 1,500 800 4,000 6,300

Dundas (S) 96,700 128,579 112,761 199,757 441,097

East Fremantle (T) 3,600 1,500 1,950 2,050 5,500

East Pilbara (S) 1,842,150 3,242,500 3,847,775 3,590,158 10,680,433

Esperance (S) 182,805 176,305 180,910 242,960 600,175

Exmouth (S) 25,625 44,810 63,625 73,925 182,360

Fremantle (C) 479,560 602,395 436,900 361,815 1,401,110

Geraldton (C) 1,300 6,100 1,200 - 7,300

Gingin (S) 65,350 110,450 112,100 158,850 381,400

Gnowangerup (S) 20,500 9,910 6,820 7,000 23,730

Goomalling (S) 15,250 12,900 3,200 15,660 31,760

Gosnells (C) 1,069,528 1,132,210 1,038,556 1,127,800 3,298,566

Greenough (S) 300,020 334,800 356,313 410,220 1,101,333

Halls Creek (S) 7,050 7,470 - - 7,470

Harvey (S) 92,400 128,395 127,080 158,335 413,810

Irwin (S) 46,400 50,250 27,350 30,350 107,950

Jerramungup (S) - - 7,000 - 7,000

Joondalup (C) 164,210 199,248 180,970 205,890 586,108

Kalamunda (S) 595,430 586,036 598,075 675,855 1,859,966

Kalgoorlie/Boulder (C) 2,220,753 2,594,458 2,509,238 2,572,921 7,676,617

Katanning (S) 39,950 35,885 24,305 41,160 101,350

Kellerberrin (S) 6,100 25 5,000 - 5,025

Kent (S) - 4,000 - 3,000 7,000

Kojonup (S) 13,600 10,300 7,700 10,200 28,200

Kondinin (S) 21,500 10,500 29,015 93,500 133,015

Koorda (S) 3,100 - 410 6,615 7,025

Kulin (S) 3,400 - 7,900 6,600 14,500

Kwinana (T) 589,718 404,180 531,865 620,260 1,556,305

Lake Grace (S) 31,800 16,700 17,600 25,550 59,850

Laverton (S) 379,000 359,000 423,000 563,850 1,345,850

Leonora (S) 840,600 1,335,300 1,412,110 1,540,400 4,287,810

Mandurah (C) 289,130 312,255 366,695 390,635 1,069,585

Manjimup (S) 57,200 100,100 60,600 91,935 252,635

A-3

LGA 2004-05 2005-06 2006-07 2007-08 Average

Meekatharra (S) - - - - -

Melville (C) 429,140 453,605 428,655 420,345 1,302,605

Menzies (S) - - - - -

Merredin (S) 48,515 51,275 49,940 81,625 182,840

Mingenew (S) 12,000 - 7,550 - 7,550

Moora (S) 29,750 34,450 28,100 22,650 85,200

Morawa (S) 2,000 3,500 - - 3,500

Mosman Park (T) 8,450 11,850 12,405 6,550 30,805

Mount Magnet (S) - - - - -

Mount Marshall (S) 7,500 - - 19,500 19,500

Mukinbudin (S) 3,000 26,600 5,000 600 32,200

Mullewa (S) - - - - -

Mundaring (S) 72,715 91,230 63,820 64,465 219,515

Murchison (S) 173,675 242,600 230,300 300,850 773,750

Murray (S) 67,704 94,990 219,075 382,370 696,435

Nannup (S) 6,400 6,400 6,400 6,400 19,200

Narembeen (S) - - - - -

Narrogin (S) 35,855 31,650 47,850 33,570 113,070

Narrogin (T) - - - - -

Nedlands (C) 37,205 36,820 50,422 35,845 123,087

Ngaanyatjarraku (S) 494,300 453,040 257,105 236,605 946,750

Northam (S) 155,070 265,280 144,130 126,755 536,165

Northam (T) - - - - -

Northampton (S) 9,600 13,200 5,000 21,900 40,100

Nungarin (S) - - - - -

Peppermint Grove (S) - - - - -

Perenjori (S) - - - - -

Perth (C) - - - - -

Pingelly (S) - - - - -

Plantagenet (S) 37,400 25,150 42,650 55,350 123,150

Port Hedland (T) 1,366,886 1,526,499 2,920,295 2,439,207 6,886,001

Quairading (S) 6,500 - - - -

Ravensthorpe (S) 24,640 10,600 22,760 26,855 60,215

Rockingham (C) 493,735 736,657 713,106 785,204 2,234,967

Roebourne (S) 718,576 916,798 444,771 897,256 2,258,825

Sandstone (S) 207,400 124,650 100,500 92,550 317,700

Serpentine-Jarrahdale (S) 58,800 60,550 69,434 55,840 185,824

Shark Bay (S) 7,600 7,600 7,600 7,600 22,800

South Perth (C) 40,900 37,300 24,610 25,425 87,335

Stirling (C) 1,092,940 1,201,410 1,189,372 1,158,557 3,549,339

Subiaco (C) 141,100 130,740 130,215 151,975 412,930

A-4

LGA 2004-05 2005-06 2006-07 2007-08 Average

Swan (C) 1,353,727 1,462,216 1,610,289 1,750,979 4,823,484

Tambellup (S) - 200 - 205 405

Tammin (S) 2,000 4,400 - - 4,400

Three Springs (S) 4,000 800 - 6,000 6,800

Toodyay (S) 11,000 16,225 9,950 8,750 34,925

Trayning (S) 4,000 800 - 6,000 6,800

Upper Gascoyne (S) 244,540 64,250 179,500 69,500 313,250

Victoria Park (T) 301,530 322,340 329,335 407,480 1,059,155

Victoria Plains (S) 18,000 4,300 1,700 2,300 8,300

Vincent (T) 834,987 680,305 607,108 599,827 1,887,240

Wagin (S) 15,100 21,650 12,500 16,800 50,950

Wandering (S) 101,440 101,440 77,740 73,640 252,820

Wanneroo (C) 696,135 781,590 738,625 809,325 2,329,540

Waroona (S) 144,200 138,376 140,040 153,220 431,636

West Arthur (S) - - - - -

Westonia (S) - - - - -

Wickepin (S) - - - - -

Williams (S) 600 2,600 24,500 - 27,100

Wiluna (S) 340,015 339,600 342,600 278,105 960,305

Wongan-Ballidu (S) 20,250 34,875 22,320 37,625 94,820

Woodanilling (S) - 2,500 - - 2,500

Wyalkatchem (S) 5,200 10,400 4,800 1,950 17,150

Wyndham-East Kimberley (S) 14,580 53,562 86,120 37,865 177,547

Yalgoo (S) - - - - -

Yilgarn (S) 330,050 430,050 526,756 475,850 1,432,656

York (S) 13,400 15,500 12,200 12,300 40,000

Data source: DEC Hazardous Waste Tracking system

B-1

B Bibliography AATSC (Australian Academy of Technological Sciences and Engineering). (2004).

Independent Review of the Transitional Assistance Element of the Product Stewardship for Oil (PSO) Program. Canberra: Australian Governmnet Department of the Environment and Heritage.

ACG (Allen Consulting Group). (2001). The Hazardous Waste (Regulation of Exports and Imports) Act 1989: A National Competition Policy Review. For Environment Australia.

AIP (Australian Institute of Petroleum). (2007). Downstream Petroleum 2007. Canberra: AIP.

BSD Cardno. (2007). Technology and Market Development for Used Oil Products in Western Australia. Perth: BDS Cardno.

Cooper, J. (2003). Price Elasticty of Demand for Crude Oil: Estimates for 23 Countries. OPEC Review , 27(1) 1-8.

DEFRA (Department for Environment, Food and Rural Affairs). (2008). Environmental Permitting: Environmental Permitting Guidence: The Directive on the Incineration of Waste (NGA) Factors. London: Department for Environment, Food and Rural Affairs.

DoCC (Department of Climate Change). (2008). National Greenhouse Accounts (NGA) Factors. Canberra: Department of Climate Change.

DoIR, (Department of Industry and Resources). (2008). Western Australian Mineral and Petroleum Statistics Digest 2007. Perth: DoIR.

EEA (European Environment Agency). (2002). “Review of Selected Waste Streams: Sewage Sludge,Construction and Demolition Waste, Waste oils, Waste from Coal-Fired Power Plants and biodegradable Municipal waste. Copenhagen: European Topic Center on Waste- EEA-.

EIA (Energy Information Administration) . (2008). International Energy Outlook 2008. Washington, DC: Energy Information Administration, US Department of Energy.

Fitzsimons, D. (2005). Improving Markets for Wast Oils. In OECD, Improving Recycling Markets (pp. 44-71). Paris: OECD.

Kaufmann, R., Kardeloglou, P., & di Mauro, F. (2008). Will Oil Prices Decline Over the Long Run. European Central Bank Occasional Papers Series , No. 98, October.

PWC (PriceWaterhouseCoopers). (2008). Second Independent Review of the Product Stewardship (Oil) Act 2000. Melbourne: PriceWaterhouseCoopers.

ODH (Oakdene Hollins). (2003). Waste Oils Report 2: UK Policy Options in the Light of German and Italian Experience. London: Oakdene Hollins.

SWB (SWB Consulting). (2008). Review of the Tranitional Assistance Grants Awarded under the Product Stewardship for Oil Programme. Canberra: Department of the Environment, Water, Heritage, and the Arts.

Documents

Confidential WiP document - Waste Authority WA · PDF fileExecutive summary vi Executive summary Historical overview The typical life-cycle for lubricant oil in Western Australia has