Oil Leasing Fundamentals

World at the hand

The new concept of Oil Leasing is interesting combination of Oil related know-how, IoT based maintenance solution and combining the interests of customer and client.

Oil Leasing by definition

The Oil Leasing concept means that customer is buying the service of oil that it is suppose to deliver (for example lubrication, heat transfer, power transfer, insulation) instead of kilograms of oil. There is rising international interest towards circular economy and chemical resource management in which leasing solutions seem are very interesting and application in use of oil is most promising.

Benefits of buying oil as service

There are several obvious benefits to buy oil as service. Oil as we understand it, is not a simple product, it requires quite a lot of knowledge to produce, refine, sell/buy and use. Also the waste products are not simple to handle. However, if applied correctly the leasing model provices huge benefits for all. Let’s us go through the benefit for all related parties – oil user, oil service provider and environment.

Benefits for oil user

The better reliability is the most important benefit for oil user. The better reliability is based on oil condition monitoring, oil maintenance and state-of-the-art work methods and of course oil know-how. Also if applied correctly the leasing is cost effective method for user.

Most important benefit, a better reliability arises from better oil condition monitoring which is applied in almost every Oil Leasing solution. The IoT based oil condition monitoring will follow constantly the oil condition and tracks the changes 24/7. The unexpected change will launch a further investigation and possible problems are properly addressed immediately. When oil condition monitoring is applied, the oil condition is constantly at the range of recommendations of the equipment manufacturer, which in turn produces even better reliability.

However the oil condition monitoring itself is not enough but oil maintenance is also important factor in concept. Oil maintenance is forgotten aspect since it is usually seen as competitor and option for oil change but this is not the case – oil maintenance is required always in every case when oil is used. Oil maintenance contains monitoring of additives contained in the oil, the monitoring of contaminants, the removal of foreign materials and management of the oil aging process. The goal of the oil maintenance is to keep different aspects of oil condition within accepted boundaries with reasonable maintenance efforts. Oil change is applied only if the expected costs of maintenance exceeds the oil change costs.

In short oil users benefits are:

  • Better reliability
  • Lower operational costs
  • Capital is free for better uses
  • Secure and carefree
  • Ecological since resource consumption is reduced

Benefits for oil service provider

Oil Leasing concept provides also benefits for Oil Leasing provider. Oil Leasing provider may concentrate to optimize the oil condition monitoring and maintenance without internal pressure to maximize profits by equipment unit or other similar piece based sales. In ordinary service business the sales is based on the worked hour or unit whatever which in case is in conflict of interests of buyer and seller. In case of Oil Leasing, the conflict of interest is by passed with contract that defines fixed payment per month for oil use.

Oil Leasing provider may therefore aim to maximize the oil useful lifetime and adjust the oil maintenance efforts to meet desired oil condition level. Also some problems with oil may be treated with different equipment that are quite expensive for one time use investment but extremely useful if they may be used at different locations. With Oil Leasing contract, provider may optimize the use of their equipment and create clear benefits for customer.

Oil Leasing provider have also incentive to address the weakening trend of oil condition that would lead to severe collapse of oil condition if left unattended. Several aspects are influenced if oil condition is weakening without attention. The contaminants may cause equipment damage, oil pillage and other problems that endanger the profitability of Oil Leasing contract. The provider have incentive to maintain the oil in condition that will keep gears running and to do that as cost effective as possible.

Also for Oil Leasing provider the interesting issue is the knowledge management. The know-how of oil condition is sensitive issue and requires experienced wide variety of knowledge. The purchase of knowledge, such as oil know-how, is tricky, since buyer has always worse possibilities to evaluate the value of knowledge if knowledge is sold with standard consultant agreement. If knowledge has to be applied in to practice, it is wise to let those who can to do the applying . In the end of the game customer wants to have the implications of knowledge and have incentive to pay for the results. With oil Leasing contract customer is paying for the results, not just empty words. In the other hand this is also a benefit for Oil Leasing provider since there is no uncertainty discount on price of know-how.

Benefits for environment

Oil Leasing contract provides massive benefits for the environment with extreme decrease of oil consumption. The aim of the oil condition monitoring and oil maintenance is to extend the life-cycle of the oil and therefore reduce the consumption of the oil.

The actual reduction is based on fact that oil change interval is defined commonly with the smallest common nominator with huge safety margin. With the oil condition monitoring and maintenance the safety margin is managed and only oil actual condition will matter when defined the usage of oil. With reasonable condition monitoring and maintenance work, the oil life-cycle is extended without endangering the quality of Oil Leasing service.

Conclusion, everybody wins in future

By reducing consumption and increasing work, the environmental benefits are clear by the terms of reduced oil consumption. Customer will get even better reliability and cost decrease and Oil Leasing provider may employee themselves with the marginal between.

The obvious question is that what are requirements of Oil Leasing contract and which kind of oil system it is applicable. Answer is that it is always tailored to meet every customers’ and their equipments’ needs. For customer the Oil Leasing costs are fixed per month so the estimated benefits at income statement, balance sheet and cash-flow statement may be calculated in the very beginning. If seen applicable the contract also may have terms and options for goals to meet for example to by-pass some problems that occur sometimes in target system.

The Oil Leasing requires openness and trust between the parties and aims to quarantine this by combining the interests of both sides. Business model is clear and benefits are tied. There is no reason not to expect that Oil Leasing is the main trade method for hydraulic, lubrication, insulation and heat transfer oil in future.

 Lisätietoja

Mikko Oksanen, puh. 0503086554, email. mikko.oksanen(a)fluidintelligence.fi

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