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Oil-sludge-processing industry overview
By R-A Business staff | Published  10/19/2010 | Market analysis | Unrated
Proper treatment can convert all kinds of slop oil into valuable, marketable products.

Three to five percent of all crude oil produced is ultimately unusable. When transported in ships or stored in tanks, sludge settles to the bottom of the vessels and containers. It cannot be drained from the tanks and must be removed and hauled away at considerable expense. That expense is, in part, the cost of hiring crews to remove the sludge from the tanks. A greater part of the expense is the disposal fee associated with the environmentally-unfriendly material.

Large volumes of sludge are also formed at refineries and oil extraction sites. Accidents in the transportation of oil and petroleum products also add to environmental contamination. The problem is common to all oil-producing countries. The situation with sludge accumulation in Russia presents an opportunity for American oil reclamation companies. Russia’s vast territories and its seemingly inexhaustible natural resources have produced significant environmental problems for the country. In a less-than-wise regime of environmental protection and resources conservation, large open spaces and easily accessible raw materials made the situation perverse on a national scale.

Oil reclamation overview

At the present time, several methods of processing and disposing of slop oil are used in Russia: thermal, mechanical, biological, and chemical. Each method of processing has its advantages and disadvantages, and it is a common practice to utilize a combination of the four methods to maximize the output of usable oil from sludge.

Historically, the largest volumes of sludge were found in regions, where extensive oil extraction operations took place, first along the Volga River and then, starting from 1970, in Western Siberia. Today, the largest slop oil “reserves” in Russia are found in Western Siberia, Tatarstan, Bashkortostan, and Orenburg region.

Sludge exists in many different forms: slop stored in large reservoirs at oil refineries, contamination of ground and water as a result of pipeline accidents, as well as heavy unprocessed oil waste at oil extraction sites.

The Russian market for slop oil disposal and reclamation continues to grow in response to increasing fees for storing sludge and environmental fines imposed on oil producers, transporting companies, and refineries. Storage of slop in a reservoir costs from RUR 500 to RUR 1 000 (USD 20 to USD 40) per cubic meter depending on the region.

Most major oil companies, with notable exception of Slavneft and Surgutneftegaz, subcontract for sludge remediation and disposal.

The equipment used in Russia to reclaim oil is both foreign-made and domestically-produced. Russian-made incinerators cost around USD

300 000, Russian-made centrifuges and decanters cost USD 700 000. Foreign-made separators and decanters cost from USD 1.5 million to USD 4 million, foreign-produced thermal-processing devices also cost from USD 1.5 million to USD 4 million. Complete custom-made sludge-processing systems with foreign components start at USD 5 million.

Little competition exists on the market today, as a single company could target a specific type of sludge, work with its well-defined client base, and get the product for processing from a particular place. The market has not reached saturation. Most companies in the business are not only disposing of sludge and reclaiming oil, but are also cleaning reservoirs and working to remediate oil-contaminated soils.

The volume of services provided on the market is more than USD 90 million. Because foreign-made equipment is expensive, companies prefer to use Russian-made equipment and utilize biological and chemical methods of treatment.

Generally, a tender system is used to get jobs from major oil companies. Tenders are ordinarily conducted in the spring and early summer. Such practices, however, make it more difficult to work in distant regions, where sludge can be recovered only during the warm months of the year, such as Western Siberia. Technological problems there include below-capacity operations in the summer months and cessation of production activity in the winter.

Sources of sludge

The Russian oil and gas industry is the third largest contributor to the accumulation of industrial waste in the country, with waste volumes only 10 to 15 percent behind ferrous and non-ferrous metallurgy.

At the present time, storage reservoirs at Russian refineries hold millions of tons of toxic and even radioactive sludge. The widespread use of incinerators in dealing with the accumulation of waste oil also creates environmental hazards for the country. In many cases, the easiest solution is selected to deal with sludge, i.e. burying the waste in a nearby industrial zone. The number of abandoned oil well sites in Russia is 7 000.

In Russia more than 3 million tons of sludge is formed annually.

1. Oil production companies – more than 1 million tons of sludge and contaminated soils

2. Refineries – 0.7 million tons of sludge

3. Oil terminals – 0.3 million tons

4. Other sources, including railroad, airports, sea ports – 0.5 million tons


Pipeline accidents

The length of pipelines delivering oil from one processing location to another (such as from the point of extraction to a refinery) is over 350 thousand kilometers. The length of long-distance delivery pipelines for shipping petroleum products is 66 thousand kilometers. 40 percent of these long-distance pipelines have corrosion damage. Only 7 percent of the pipelines have been in service less than 10 years, 25 percent from 10 to 20 years, 34 percent from 20 to 30 years, and 34 percent over 30 years. Oil pipelines cross water more than 85 thousand times.

The enforcement of environmental regulations in the Western part of the country is lax. With the low number of environmental inspector, a single inspector would need to take care of more than 5 million hectares (2 million acres).

Every year, 50 to 60 thousand pipeline accidents take place in Russia. Around 300 accidents per year result in the leaking of over 10 thousand tons of oil.

According to different sources, the total amount of oil lost in extraction and transportation is 5 to 15 million tons. In the case of long-distance pipelines, several thousand tons of oil could be spilled in a short time. At least 1 percent of the oil transported by a pipeline is spilled in the event of an accident before automatic flow-blocking mechanisms are activated.

Around 30 percent of the oil spilled ends up in rivers and lakes – 4 to 5 million tons a year. If the oil is spilled on land, the oil settles at a depth of 20 to 30 cm, and the soil cannot be used until it is fully remediated.

Every year, there are 3 to 4 accidents per 1 000 kilometer on long-distance pipelines. The volume of losses is significantly higher than the loss from spills at refineries and accidents on pipelines transporting oil from one production location to another. The largest pipeline accidents in recent years included a large accident in Komi in 1994, when more than 100 000 tons of oil was spilled. In 1993, a pipeline accident at Tyagan, Tyumen region resulted in the spillage of 420 000 tons of oil.

Sludge accumulated in storage

Reservoirs containing slop oil are huge. In Western Siberia, there is more than 3 million tons of slop. In Tatarstan, there is over 2.5 million tons, and in Bashkortostan the 700 slop reservoirs contain 2 million tons of sludge.

Disposing of oil waste in drilling

Contaminating substances (nitrates, mercury, cadmium) have been found lying in the snow over 2 kilometers away from the production site. In drilling a well 4 kilometers deep, more than 500 cubic meters of waste and over 6 000 cubic meters of liquid oil waste is produced and placed in “temporary” storage. The reservoirs are not disposed of.

Where disposal does take place, the sludge accumulated in drilling is disposed of at a special site, where the extraction of drilling chemicals from the waste takes place. Further, the drilling waste is mixed with sorbents and cement, as a result of which insoluble hydroxins are formed. Building materials are made from the oil waste that can serve for road construction, laying the foundation for drilling rigs, as well as constructing houses.

The service of disposing of sludge in a city is better compensated than in remote areas. In Western Siberia, fees reclaiming companies charge for disposing of 1 cubic meter of slop oil are from RUR 700 to RUR 5 000 (USD 28 to USD 200). Close to a refinery, the fee could be as high as RUR 9 000 per cubic meter and more (USD 360).

Sludge at refineries

There are currently 27 refineries in operation in Russia with the total capacity of 300 million tons. Russian refineries produce 63 percent of petroleum product (exclusive of Mazut and gases) from the oil that is delivered for processing (compared to 85 to 90 percent in the West). Light petroleum products output from 1 metric ton of oil in Russia stands at 53 percent, compared to more than 90 percent in the West. The average capacity of a Russian refinery is 12 million tons a year (in the U.S., there are 190 refineries with capacities of 3 to 5 million tons a years). Most refineries in Russia are located in big cities, including Moscow, Ufa, Yaroslavl, and Ryazan.

As a consequence of recurring accidents involving the spills of oil and petroleum products, the site over which a refinery sits and the adjacent land are heavily contaminated. For instance, at the Saratov Refinery, where the sludge storage reservoirs cover more than 150 hectares, the content of oil in groundwater is 7.2 grams per liter.

Existing technology for disposing of sludge

The first step in the process of disposing of the sludge is reclamation. In order to extract as much oil from the sludge as possible, a combination of chemicals and deemulsifiers is used. The collection of the topmost layers of oil is conducted with the use of pumps and barges. The separation of the sludge is done with a centrifuge. The oil recovered is then delivered to a refinery or sold on the market. Hard particles, from which oil cannot be recovered, must then be disposed of. The ways of disposing of hard particles include:

Thermal: incinerating unusable sludge (hard hydrocarbons-based substances mixed with water and emulsions) and harnessing heat and gases.

  • Dehydration of sludge – the cleaned water is returned to the environment, and the hard particles are buried.

  • Use of consolidating solutions for turning the sludge into a solid state. The solids can then be used in building projects

  • Use of sludge as heat source

  • Biological remediation

Typical slop-oil reclamation setup

Operations

Oil companies in the European part of Russia operate under a more stringent environmental regime than companies in Western Siberia. The most widespread practice of Russian sludge-recovery operators is as follows: if there is a major industrial accident or if the storage facilities of a refinery reach the maximum limit, the oil company owning the contaminated product conducts a tender to contract out for sludge reclamation. The company winning the tender (as a rule, it is an established company that has already worked in the region and has all the necessary registration papers completed), sets up its equipment and prepares the sites for running its operations.

The usual practice in the field is such that the oil recovered from the reclamation activity is returned back to the oil company that retains possession of the hydrocarbons. The secondary waste products (Mazut, asphalt, paraffin, etc.) remain in the possession of the reclamation company.

Securing the ownership of the oil by the reclaiming companies is difficult because the reclaiming companies in a majority of cases would need to acquire a license for oil extraction in order to sell the product.

Cost of slop disposal

Oil companies pay for the disposal (reclamation and subsequent disposal of secondary wastes) of sludge at a rate that varies depending on the level of environmental soundness of the technology. In Western Siberia, for example, companies charge RUR 1 500 to RUR 4 000 (USD 60 to USD 160) per cubic meter for planting oats on a sludge field. For using centrifuges and bioremediation of the remaining product, the cost is RUR 4 000 to RUR 5 000 (USD 160 to USD 200). Innovative technologies, such as ultrasound treatment cost RUR 7 500 (USD 300) per cubic meter.

The more populated the region containing the sludge reservoirs is, the greater the likelihood of fines imposed by environmental authorities becomes, and the higher the payment for slop disposal services is provided. In the Moscow region, the fees companies charge for sludge remediation is from RUR 4 000 to RUR 6 000 (USD 160 to USD 240) per cubic meter.

Factors of market growth

From the point of view of sludge reclaiming companies, the main factor that would spur the industry’s development is increased environmental regulation. Though the situation on the market doesn’t change rapidly now, there are signs that significant developments can take place in the near future.

In view of the ubiquity of waste disposal sites, the rapidity of waste generation, and the diverse consistency of wastes that can have serious ramifications for human health and the environment, the government has made waste management one of the most important priority items on its agenda. Providing for the environmental security of the country and ensuring the well-being of citizens is considered to be absolutely critical.

The scale of the environmental catastrophe that could happen if no actions are taken led the Russian government to take up the waste issue during the January 2008 session of the President’s Security Council. During that meeting, President Medvedev and Prime Minister Putin made their recommendations for creating a waste management industry in Russia.

Members of Russia’s Federation Council have been working actively in formulating plans for developing the waste management sector. Several hearings of the Federation Council’s Committee on Defense and Security were devoted to waste management. Section meetings on environmental safety were also organized. From December 3, 2009 to December 5, a special All-Russian Conference was held focusing on the subject of forming a new waste management industry.

Companies currently on the market

At this time, close to 80 companies in Russia are engaged in slop oil reclamation. They have a well-defined geographical area. The number of companies on the market and the volume of reclamation work they carry out show that there are considerable opportunities for market expansion.

Most companies are engaged in slop reclamation, disposal, tank cleanup, and soil remediation.

Because imported equipment is expensive, companies prefer to use locally-built equipment.

There is no public or private investment support for companies to use the best equipment available in remediating sludge.

One of the constraining factors for the development of the industry is that it is less costly to the oil companies to pay fines for contaminating the environment than to clean the oil.

The reclaiming companies are not well informed of the market opportunities – i.e. location of slop reservoirs, their volume, and how they are being used.

In 2008, the market expanded by 14 percent with the formation of 10 new companies. Market growth subsided in 2009, but will likely resume as oil prices continue to rise.

Market potential for slop oil recovery

The generation of sludge in Russia in 2008 was 2.5 million cubic meters. The volume of sludge actually disposed of was 1.2 million cubic meters, only 47 percent of the total volume generated. The volume of sludge accumulated in Russia in storage as of the second half of 2009 was 18.7 million cubic meters.

The volume of the market of slop disposal services in Russia is USD 300 million a year. However, in view of the fact that the analysis did not include slop reclamation operations conducted in regions that lack active oil extraction and refining operations, the true market volume is likely to reach USD 500 million a year.

Every year, the growth potential for the market is USD 230 million if one would take into account only the newly-formed sludge. The cumulative market potential – considering reclaiming sludge presently held in storage at refineries and disposal reservoirs – is USD 2 billion.



Research based on data compiled by AT Consulting Company, Moscow
www.atconsult.ru

Amin Seidov, Director
(495) 220 1935
Amin.Seidov@atconsult.ru

Stanislav Avgust
Stanislav.Avgust@atconsult.ru

Filip Pronin
Philipp.Pronin@atconsult.ru

 



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