Omega-3 Extraction at SeaDragon

July 2016

A fish oil refinery capturing Omega-3 oils from by-products of the fishing industry

SeaDragon Ltd of Nelson has just commissioned a $10 million plant designed to refine omega-3 fish oils and expects to build up to full capacity of 5000 tonnes p.a. over the next three years. The plant will produce single species oils from imported tuna, cod and anchovy and process local stocks of hoki and salmon. It is the first and only substantial Omega-3 plant in NZ and has the potential to add great value to NZ fishing industry by-products.

In the past decade Omega-3 fish oil has become highly favoured as a health food supplement said to benefit heart, brain and many biological processes in the body, and many people take fish oil capsules daily. Most of the world’s production of omega-3 oil comes from the anchovy fisheries of Peru and Chile and contrary to popular belief, almost nothing has been produced in NZ. However, that has changed recently with the commissioning of Seadragon’s $10 million refinery. Last December the key was turned on the new plant and the company has now produced its first batch of high quality oil.

This significant event has been a long time coming. Its origins go back to Nelson entrepreneur Angus McNeil who in the 90s established the Seasmoke brand and was operating MacCure Ltd that he later sold to King Salmon. In 1996 he started to extract oil from shark livers but found that the oil was contaminated with smoke products. In 2000 he imported New Zealand’s first commercial scale molecular distillation plant and began producing high grade shark liver oil (also known as Omega-2) that had a substantial component of squalene and other active compounds. Squalene is reputed to be anti-inflammatory, an antioxidant, an immune system booster and useful in the treatment of cancer.

In 2004 McNeil sold the company to a group of former AgResearch staff who renamed it SeaDragon Marine Oils Ltd. Within a few years they outgrew the location and so moved to another site with much greater capacity, but the move coincided with the 2007 financial downturn and the company struggled for some years.

In 2012 the company decided to invest in a purpose-built Omega-3 refinery to take advantage of the growing market for the oil and New Zealand’s clean, green/deep blue, sustainable, traceable and ethical fishery. It was listed on the stock exchange to facilitate raising capital. Unfortunately what was thought to be a $4 million plant ended up costing $10 million, which put considerable strain on management and shareholders.

The new plant was commissioned in December 2015, and with new management and governance personnel it is slowly building towards its ultimate capacity. Board chairman Colin Groves says that the company is going through a major transition through increasing the business tenfold and adding processing complexity.

“The original factory just did one product, shark liver oil, producing between 300 and 500 tonnes per year. The new one can produce 5000 tonnes of Omega-3 and it can handle different species such as hoki, cod, tuna and anchovies,” he says.

“It has just produced its first batch of tuna oil and we are gradually increasing throughput. Although it is designed around processing anchovies they are in short supply because of El Niño, but that is not a problem because we will process more tuna.”

The company is also processing salmon through the Omega-2 factory – salmon oil doesn’t require the sophistication of the new plant. Both salmon and hoki raw materials will come from the NZ fishing industry and so are tightly controlled, traceable and sustainable. Hoki has the added advantage of being Marine Stewardship Council Certified. Tuna will come mainly from Pacific countries and anchovies from Peru. Cod is of North Sea origin.

“Most of what we buy in is unrefined oil from fish that are processed on the boats at sea. When they come into port they pipe it into containers that come to us. The crude oil is fairly stable and it is even more so once it is processed,” says Colin.

“Our supply chain can be weeks from the time that the fish is caught to the time we receive the crude oil, so we use two tests to make sure that it is within the oxidation guidelines put out by the Global Organisation for EPA and DHA.”

Processing in the new plant involves three stages: in the first the crude oil is neutralised using a mixture of citric acid and caustic soda to remove free fatty acids; in the second, bleaching earth is added to bind toxins, dioxins and other unwanted compounds and then removed; in the third stage the oil undergoes a deodorising process in which steam is sparged up through the oil under a vacuum which removes any odour containing compounds. The final result is a light yellow, odourless and tasteless oil with no indication that is a fish product.

“We are currently running a batch system and, although there are parts of the processes that could be continuous, deodorising is a batch process and that is the rate determining step. You heat the oil, you sparge steam through it and then cool it down and put it in other containers,” says Colin.

“We will process one species at a time to produce species specific oils. The oils from different species have different properties and the market wants more and more traceability so we produce a pure oil of known origin. Blending species confuses the perception of oil purity so we will leave it to others down the value chain to blend if they want to.”

“Also from our point of view there are different margins and profitability across the species. Tuna gives us the highest gross margin, then salmon, then hoki. Anchovies give the least profit. The issues we face are that supplies are limited, fish supply is seasonal and the fish have different levels of oil at different times of the year. So we process tuna when it is available, then add hoki which is good for our purposes only for about three months of the year, then salmon, and if there are gaps left then we would process anchovies.”

Salmon is different from the other species in that it can be processed in the Omega-2 plant. It is cold pressed, which preserves its astaxanthin content and gives it the characteristic pink colour.

Colin makes the point that no extra fish need to be caught to supply the new refinery and that it will allow the fishing industry to go substantially upmarket with their byproducts.

“Fish quotas are not increasing significantly so we need to add value to what we have got. We can really help the New Zealand fishing industry earn a premium by turning a low-value by-product into a human health food but they need to ensure that all their fish handling and processing is done in a way that makes the byproducts fit for human consumption,” he says.

“New Zealand produced oils will be of the highest quality, traceable and true to label. Some fish oils currently sold in New Zealand may not be entirely true to label because when you compare the ratio of the Omega-3 oils with the typical ratio coming from the species named it doesn’t necessarily stack up.”

For SeaDragon, the Omega-3 market is a whole new business with a completely new set of suppliers, a new manufacturing process and a whole new set of customers, and Colin believes it will be two or three years before the plant is operating at capacity.

“It is quite difficult to get oil stocks from fish that have got the correct attestations, that they are EU eligible or Chinese eligible, kosher certified or halal certified. Our end consumers are very demanding so for us as new kids on the block we have to have wide elbows and convince these suppliers that they should begin with us rather than with the already established competitors,” he says.

“We think we have a good chance of succeeding and what makes us different is the whole New Zealand story. Everyone is always interested in what we are doing that is New Zealand sourced, caught around New Zealand, processed in New Zealand and it will have 100% New Zealand on the label.”

“Competing for tuna on the world markets is a harder game although we seem to be making good progress. Our advantages are that we are closer than other producers to the fastest growing markets for Omega-3 and we have a lot of water around us. The world market is growing at a few percentage points per annum, and Asia has double-digit growth so it’s a good business to be in.”

“Being closer to China than our competition is a bonus and the Chinese love anything from Australia and New Zealand – you can walk into pharmacies in China and they have Australasian sections so even if we were sourcing tuna from the South Pacific it has to meet New Zealand regulations and be manufactured to New Zealand standards, and that helps to differentiate it from other commodities.”