Building a biofuels ecosystem in OmanAugust 24, 2023
Maher Al Habsi, CEO of Wakud, talks to The Energy Year about the key challenges and solutions in making biofuels more competitive in Oman and the company’s operations. Wakud converts waste products into high-quality biofuels and aims to build a biofuel ecosystem in the Middle East.
How did the company launch its activities in biofuels?
The company was established in 2020, but we have been collecting used cooking oil since 2005, together with our partner Talal Hassan. We are a local SME that aims to build a biofuels ecosystem in the Middle East, starting with Oman. We began constructing our plant in Khazaen Economic City, in Barka, in early 2021, and in the middle of the pandemic, we managed to commission it. It represents one of the largest and most technologically advanced biofuels facilities in the GCC region.
Wakud has been pioneering the waste energy industry in the sultanate using cooking oil. We are helping create awareness about its benefits and are supporting Oman’s move towards a more circular economy while generating in-country value. We are already collaborating with seven local SMEs which help us collect raw material across the whole nation.
What are the main segments that you are targeting for the supply of your refined product?
There are four main industrial segments which represent the main target uses for our biodiesel. The first one is transportation and logistics, which includes trucks and vehicles. The second one is marine, which includes tugboats, ships and marine construction equipment. The third one is power generation since a significant part of Omani electricity is still coming from diesel generators, and we aim to replace that diesel. Finally, there is the heavy machinery and upstream equipment, such as rigs, which are among the greatest consumers of diesel in Oman. We foresee that the bulk of the demand for our product will come from the upstream sector, which is using a lot of diesel also to power their camps and facilities.
What are the key challenges in making biofuels more competitive in Oman?
The greatest challenge is the economics: diesel in Oman is subsidised. The price of diesel, as we speak today [November 2022], in Oman is 258 baisa per litre [USD 0.67], while international prices are around 400-450 baisa per litre [USD 1.04-1.17]. Most countries that are trying to push decarbonisation (from Europe to the US) are actually taxing fossil fuels beyond the international base prices with government taxes and duties. By contrast, the government here is incentivising people, in our view, to consume more fossil fuels.
For the upstream sector specifically, if you look at all the major upstream operators for the last two to three years, they have made windfall profits because of the spike in oil prices – even before the crisis in Ukraine. The fact that there is a blanket subsidy across fossil fuels makes it very challenging for companies like us to be competitive.
Apart from companies that are exporting to international markets because they have a push from their international partners to decarbonise, as of today there are no direct motivations for businesses operating exclusively within Oman to reduce their carbon emissions because it does not make economic sense for them to do so. That is why, for example, there is no push from the local private sector to take more concrete steps on investing in renewables because the government itself is doing all of the investing in renewable energy for the grid.
There are many incentives for FDI and to attract new, large investors which have a emissions-cutting plan to start operations in Oman, but there is not a single incentive for local companies that are currently operating in a business centred on reducing emissions.
What might the solutions be for overcoming these barriers?
There are several models and solutions that authorities could apply, such as a carbon tax or a carbon credit or reducing VAT for companies cutting their CO2 emissions.
The government has done a very good job by stating clear targets: reduce GHG emissions by 7%, generate 30% of electricity from renewables by 2030 and become net zero by 2050. However, in our view, the most important matter to address is to give specific targets to specific sectors. The Ministry of Energy and Minerals is working closely with upstream companies, but each organisation is trying to come up with its own solution. It does not have to be a totally homogeneous system because different entities operate in different environments and therefore must apply different solutions, but there must be interim, specific targets and a clear pathway to achieve them.
Right now, we do not have a baseline. Take the transportation sector as an example: about 18.8% of Oman’s emissions come from it, and in the past 15 years, it has been the fastest growing source of pollution. Nonetheless, there is no transparent GHG accounting framework in Oman where players are obliged to show how much they are emitting.
The bottom line regarding solutions would be for the government to give more incentives to decarbonise. The first and most important observation our customers mention is that, if they reduce their CO2 emissions by “X,” how can they monetise this reduction, and what would be the advantage of it besides showing it in their annual report?
Having said that, companies are becoming more mature, and although they do not receive an immediate monetary return, they see the long-term benefits in several ways. For example, they see benefits regarding how they position themselves with respect to their customers, namely as a sustainable player using green fuels, and moreover, they will benefit given the world trend towards more sustainable financing and investing.
Can you give us a breakdown of your operations and the main opportunities and challenges related to them?
We receive the cooking oil mostly from restaurants, catering companies and factories, but we do not collect the material. Consequently, in 2022 we started a collaboration with a young, dynamic local company called Tadweer. The company has an app where the user requests a small tank for oil, and then Tadweer will come directly to their house to deliver the tank. Once you fill the tank, you send them the collection request, and they then come directly to your doorstep.
Our major problem is that our raw material, the cooking oil, is still exported outside the country. According to our estimates, we are collecting only 2% of the total used cooking oil produced in the country.
In November 2022, we signed an agreement with Oman Aluminium Rolling Company (OARC) to supply them with a green biofuel blend, B5, which is produced in our facility. The use of this fuel will lower OARC’s direct emissions by 5% and make them the first company in Oman to use such an environmentally friendly and cost-effective fuel.
It was a strategic move from OARC because most of their products go overseas to the US. Demonstrating a sustainable approach is definitely an added value because, if you are able to reduce your emissions in your operations, you can command a better final price for your products, from aluminium sheets to steel, as in the case of Jindal, which wants to produce green steel by the end of the decade.
Before we began, basically all of the country’s used cooking oil was exported to Europe, and today the biggest share still goes there. This is challenging for us because we have to compete for our feedstock with international prices in Europe, where the market is very strong and competitive because of the incentives and the mandate stating that if you go to any petrol station and buy diesel, it is, by law, 7% biodiesel.
In other words, we have to buy our feedstock at a price that is higher than the price of diesel that our consumers pay.
At the moment, we are exporting to Europe because we have to. The last thing we want to do is produce something that is good for the environment and then put it on a ship, thereby producing more CO2 by sending it to another market.
What is preventing Wakud from capitalising more on the business around biodiesel?
We visited a new cooking oil factory in Rusayl, and its CEO stated that his plant is supplying the local market with 60,000 tonnes of cooking oil every year. Plus, there are two more new factories, one in Salalah and one in Sohar, which will raise the number to 100,000 tonnes. Finally, there is imported oil from Africa and India. Overall, there will be 200,000 tonnes of new oil, which would be enough for us and 10 more factories.
Again, we cannot capitalise on this quantity because the majority of it goes to Europe, where regulations are different. We are competing in a market where conventional energy is cheap, and no one in Oman – including the environmental authority – knows how much used cooking oil is actually being collected and how much is being exported, making assessments more difficult.
Finally, local demand is an economic challenge because there is still a lack of awareness around biodiesel. People and businesses are very risk averse and reluctant to try it out even though it has been around for the last 20 years and even though we have given them trials at the same price they pay for diesel.
What are the company’s production capabilities and the main competitive advantages of biodiesel?
We are not running our plant at full capacity, but the nameplate production capacity of the plant today is 500,000 litres per month, which is about 6 million litres of pure B100 a year. If we talk about a B5 blend, 500,000 litres of B100 can be used to make 10 million litres of B5 a month or 2.5 million litres of B20, which works with most engines without any modifications.
Oman today is consuming 175 million litres of diesel every month, not including those consumed in the shipping industry. Even if we do a 5% blend – which means 5% is biodiesel and the rest is petrol diesel – that will save you 5% in overall carbon emissions, which is roughly 21,000 tonnes of CO2 emission savings per month. However, it is premature to talk about the operative side of such operations, because we are still trying to figure out whether there would be enough demand.
We see biodiesel as a transition fuel. Most vehicles – whether road vehicles or ships – will be fuelled with alternative sources (e.g., electric, hydrogen, ammonia, methanol, LNG), and in the next 10 years, we will see the shift to these sources.
However, the point is that no one is going to change their entire fleet overnight, and biodiesel can be today’s bridging solution on the way to replacing fossil fuels with 100% green ones.
What are Wakud’s objectives for the future?
Given our low production at the moment, we are primarily focused on corporate customers. We are like a refinery. We do not expect diesel to show up in every single petrol station in the country, and we do not want to be in the logistics and distribution business. We want to play the same role as OQ plays, which produces the diesel and the petrol, whereafter marketing and distribution companies take it to customers.
Then, we want to improve the quality of our product by developing R&D partnerships with universities. We are doing this with GUtech, SQU and Muscat University. Our aim is to expand our support and collaboration with academia and to raise more awareness around the fact that waste management is a real asset that recreates value with something that was once thrown away.