Citing improved market conditions, Luberef said Tuesday that it is considering keeping open its API Group I base oil plant in Jeddah, Saudi Arabia, which has been slated to close.
Officials with the Saudi Aramco subsidiary disclosed their current thinking about the facility during an earnings call with stock analysts.
The Jeddah plant, one of two owned by Luberef, has capacity to produce 275,000 metric tons per year of Group I base stocks. It is the smaller and less advanced of Luberef’s two refineries. The other, located in Yanbu, has capacity to make 1.025 million of mostly Group II but also Group I oils.
The Yanbu plant has been the focus of Luberef capital investment the past decade, undergoing an expansion and upgrade in 2017 that added ability to make Group II. Another project now underway is designed to boost capacity by 230,000 t/y and add capacity to make Group III oils.
Meanwhile, the company had said it planned to cease refining at Jeddah. A 2022 initial public stock offering prospectus said the facility would close in 2026.
On Tuesday, however, officials discussed how the profitability of Luberef’s base oil business has improved since the end of last decade. Normalized crack margins for 2024 for base oils produced at both refineries was 1,742 riyals per ton (U.S. $464/t based on Wednesday’s exchange rate) – down from the preceding three years, which included a peak of SAR 2,484 in 2022 but up significantly from 2018-2020, including a 2019 trough of SAR 1,083/t.
“Current market conditions support continued operation [of the Jeddah refinery] under existing terms,” the company said in its presentation.
Printed documents for the presentation did not say if officials have scuttled the idea of closing Jeddah. They noted that the current land lease and feedstock supply agreements with Aramco expire in 2026. The Jeddah plant gets most of its feedstock from Aramco, and Luberef has submitted a request to Saudi Arabia’s Ministry of Energy for feedstock supply. The company also noted that Aramco is studying how to optimize port facilities, including those at Jeddah.
Aramco is working to improve Luberef’s margins by selling more into more lucrative markets. In 2024, 90% of its sales by volumes were to the Middle East, India and Africa. Aramco wants to boost Group I and II sales to Europe, which saw another Group I plant close last year as it went from being a large net exporter of Group I to importing that grade.
Luberef’s net income for 2024 fell 36% to SAR 972 million on higher sales volume but thinner margins. Sales volume rose 4% to 1.3 million tons, while revenue increased 6% to SAR 10 billion.