1 Aug 2019 (Argus Media) Finnish refiner and renewable diesel producer Neste began a $1.4bn expansion of its Singapore refinery this week, which will increase its renewable fuel capacity by 1.3mn t/yr to 2.3mn t/yr and raise its global output to 4.5mn t/yr by 2022. In this interview, edited for clarity and length, president and CEO Peter Vanacker discusses the expansion and where he sees the renewables market going.

What markets are Neste targeting with this Singapore expansion?

Given our 10-year experience in producing renewable diesel, we have decided to expand into renewable aviation fuel as well as renewable polymers and chemicals.

This new production line will be able to serve all these different markets from a technology point of view, and the plant will be around 50pc focused on road transportation fuels, while the remainder will focus on producing jet fuel and polymers.

We have not yet set a target for biojet production and are more focused on developing the market, so we will monitor this progress before deciding how much of each we will produce.

Currently, pretty much the entire 3mn t/yr of Neste's worldwide production is road transportation fuels, but we have built a capacity of 100,000 t/yr for renewable jet fuel made from 10 types of waste residues, such as animal fat and used cooking oil (UCO), which we are buying on a global basis.

Is Neste planning more expansion?

We think the market demand for road transportation fuels alone will quadruple by 2030, not including aviation fuel and polymers.

We have plants in Finland and the Netherlands, so we may have space there to increase our capacity by building a new line. And, of course, we will look to the US to see what we can do there.

Europe is still our biggest market, taking more than 50pc. Scandinavia, especially, is at the forefront of renewable regulations. Across the ocean, California is the main market, with some demand in Canada as well.

So how big are you expecting the biojet market to be?

The International Air Transport Association (Iata) has self-imposed targets for sustainable growth from 2020. The global jet fuel market currently consumes 300mn t/yr and is seeing 2-3pc/yr growth, so the volumes of renewable jet fuel needed will only go up, although airlines can also use other methods to maintain the 2020 levels, such as through the use of carbon offsets and more efficient planes.

Norway has already introduced a 0.5pc renewable jet fuel mandate. Sweden has made similar proposals and Finland is looking intensively into it. California now includes aviation under its low-carbon fuel standard (LCFS) and renewable jet fuel is included in its latest EU RED II regulation.

We have signed 50 initial agreements globally with various airlines and airports and signed our first sales contract with Air BP, focusing on their airports in Sweden and one in France.

Given the high cost of renewable jet fuel, what policies would you like to see to promote its use?

Our bio-jet fuel is about three times as expensive as fossil jet fuel, so it is important to have mandates and incentive systems in place. An example in road transportation is California's LCFS programme, where those emitting CO2, or with excess deficits, need to buy credits from companies with low carbon footprint, or with excess credits, to offset high-emitting fuels.

The number of waste biodiesel producers is rising. How do you plan to tackle the issue of feedstock supply, especially with countries such as the UK excluding UCO and tallow from aviation incentives?

As the largest producer of renewable diesel in the world we are also the largest buyer of wastes and residues, so we have good transparency of these markets. With the current consumption rate, there is around 30mn t/yr of waste and residues available. If we lose around 20pc in manufacturing yield, that means we can produce around 24mn t/yr of renewable products out of this. Current global waste biodiesel production is around 4mn t/yr and with all the investments coming on line, there will be around 10mn-11mn t/yr by 2022, so I do not see an immediate concern that there will not be enough waste or residue available.

In addition, we are developing more markets to give value to their waste and residues. For example, we have just established Neste China in Shanghai to educate people that there is value in waste. But it is not as simple as just asking restaurants for their UCO. There needs to be processing and audit systems in place.

We are also looking at new sources such as lignocellulosics and waste plastics. But these will not comply with the technology we have in place, so we will have to develop a new technology to turn these into renewable fuels.

With lower-quality feedstocks, CO2 emissions reduction is higher because what is the next best alternative? But lower-quality feedstocks demand a lot from our technology, so we need to be at the forefront. We also need to make sure anything we use do not conflict with food supply or contribute to deforestation.

Around 80pc of Neste's feedstock is waste but a sizeable chunk is palm oil or palm-based products. With increasing sentiment against these products, is there an effort to move away from them?

We have substantially moved away from crude palm oil (CPO). We started out with 100pc, but we now use less than 20pc and we do not need it in our mix, so we refuse to buy it if it is not sustainably sourced. We go back to the mills and if there is a conflict, then these companies are banned. We publish on our website where everything comes from.

We also need to make a distinction between CPO, which is also used for food, and its residue Pfad. If CPO is sustainably produced, then Pfad should count as waste.

But countries such as Italy have stopped counting Pfad as waste and no longer double count it towards their biofuel mandates.

There is a difference of opinion in what counts as waste. We track 100pc of the CPO we consume and around 50pc of the Pfad that we use, which is much more complex because of the different steps in the supply chain, but we are increasing traceability back to the plant.

We keep defending Pfad although it is a residue, but what do you do with it if you do not use it other than burn it?

Does Neste's purchase of palm oil that is traceable to the mill count as low indirect land-use change (ILUC) under the new EU RED II?

New criteria are being put in place as to what counts as low ILUC, so we are looking into what we can do to comply. For example, we are looking at sourcing from small holders that fall within the new regulation.

As for traceability, there is an investigation ongoing in Europe regarding mislabelled biodiesel/feedstocks as waste to be double counted, and there are numerous calls to tighten the sourcing and auditing of these products and even to get rid of double counting completely to stop fraud.

What would you like to see done about this?

Double counting is definitely good. We need to look at the bigger problem. If we do not act, we may have only about 12 years to avoid a climate crisis, based on reports. We should not overanalyse because of bad things that happened because of some criminals. We have 900mn t of fossil-based diesel being consumed every year and 300mn t of jet fuel consumed every year, so that is the big problem. Different solutions will be needed, and we must keep the incentives. Otherwise, the industry will stop investing.