The Straits Times / The Business Times News on Hyflux

Hyflux to enter used-oil business in Saudi Arabia

By Joyce Teo
May 9, 2007
The Straits Times

It will hold 41.5% stake in oil recycling firm Lubrec; seeks bigger presence in the Mid-East

WATER treatment group Hyflux is joining forces with a Saudi firm to ramp up its presence in the booming oil recycling business.

Hyflux and the Saudi Economic and Development Company (Sedco) will each buy a stake in Lube Oil Re-refining Company (Lubrec), a Saudi Arabian used-oil collector and recycler that runs a recycling plant in Jeddah.

The collaboration is Hyflux's first investment in Saudi Arabia, but the firm, better known for its work with water, wants a bigger presence in the Middle East, said chief executive officer (CEO) and president Olivia Lum.

High crude prices have made recycled oil, which is used for such purposes as engine lubrication, economically viable and a fast-growing industry.

Mr Shuaib Ahmed, CEO of Sedco, a private wealth management and investment firm, said at the signing ceremony for the deal yesterday that more Hyflux-Sedco joint ventures will be rolled out. The deal involves the two fims buying into Lubrec. Hyflux did not disclose its financial commitment.

The firms will each hold a 41.5 per cent stake with Lubrec owning the rest. They will spend $45 million to upgrade and run an existing Lubrec plant, a project that will be spread over two phases lasting three years.

Phase one, to be ready in the first half of next year, will allow the plant to process 24,000 tonnes of lube oil or lubricants using membrane technology. This will be doubled in phase two.

Used oil will be collected from Lubrec's network of shipyards, power plants and other facilities in the power, petrochemical, marine and automotive industries.

There is lots to collect. Saudi Arabia is one of the world's largest consumers of lubricants, with about 350,000 tonnes consumed last year.

The used oil generated exceeds 200,000 tonnes a year but re-refining capacity is only at 80,000 tonnes, said Ms Lum. That means the bulk is discarded, with some exported, said Sedco. But if not properly disposed of, it can pose an environmental hazard.

The end-product from the recycling will be priced at 60 per cent to 80 per cent of oil prices, or about US$700 per tonne, according to Sedco.

There is a ready market, given the continued lube oil deficit in the Middle East, North Africa and South Asia markets, said the firms.

Hyflux already has a hint of the demand to come. Chief investment officer Sam Ong said it is discussing two major deals that could absorb the entire initial supply, one of which is with Saudi Aramco, the world's largest state oil firm.

'Being in one of the largest lube oil markets in the world will help us in all of our lube oil businesses elsewhere,' said Mr Ong. In the next three to five years, Hyflux could see its used oil business contribute as much as its water treatment unit to its bottom line.

Hyflux has committed $100 million to oil recycling. Apart from Singapore, it is developing recycling centres in Bangalore, India and Beijing and Taizhou, China. It is in talks to open more centres in South-east Asia.

Mr Ong said it is seeking more space in Singapore as its existing facility limits its used-oil recycling capacity to 6,000 tonnes a year. 'We hope to at least double the capacity,' he said.

A new space would also enable the firm to explore an environmental hub concept here, he said.

Sedco said it will seek to expand the used-oil recycling business to selected markets in the Middle East and North Africa regions in partnership with Hyflux. These could include Egypt, Algeria, Turkey and Pakistan.

Hyflux expects oil recycling, which it has identified as a new growth pillar, to contribute positively towards its financials from next year onwards.

Its shares closed two cents up at $2.80 yesterday. Trading was halted at 3.30pm and resumed at 4.45pm.