MARKET DEVELOPMENT
Q&A: Neste Talks HVO, Calls for GHG Biofuels Targets
Q&A: Neste Talks HVO, Calls for GHG Biofuels Targets
29/03/2017 (Argus) - Finland-based Neste's executive vice president of renewable products Kaisa Hietala spoke to Argus recently. Topics under discussion included the headway being made in Nordic countries' renewable transport fuels markets and the assessment of biofuels blending on a basis of greenhouse gas (GHG) reductions, as well as expanding capacity for hydrotreated vegetable oil (HVO) as a renewable diesel in Europe. Edited highlights follow:
What is your outlook for renewables growth in Europe, both for Neste and in terms of the wider transport fuels market, and to what extent does policy uncertainty cloud such an outlook?
The European Renewable Energy Directive (RED) calls for 10pc share of renewables in road transport energy use in 2020. As we are currently at an around 6pc share on the average, there is built-in growth in the regulation. Different member states have chosen different routes to reach the 10pc target. For example Finland, Sweden and Norway, although the latter country is not a member, have already set more ambitious targets.
Is there the capacity in Europe to ensure a transition from first-generation to second-generation biofuels, and how can investment be encouraged in renewables derived from waste and residues?
Instead of categorisation by generation, biofuels should be assessed by their GHG reduction performance. Investment in waste and residue based production can be encouraged by consistent and long-term legislation setting ambitious targets, and by avoiding too narrow raw-material definitions to ensure availability.
What role will waste feedstocks play in the renewable fuels market how will Neste continue to expand its renewable raw material base to lower-grade waste and residues?
Our NEXBTL renewable diesel production technology enables flexible use of various renewable raw materials and we use 100pc waste and residues at our production facilities. With going to lower-quality materials we aim at increased availability of raw materials as well as economic benefits. The recent acquisition of a pre-treatment plant in the Netherlands improves our capabilities to process lower quality raw materials.
There is concern that there won't be enough waste-derived feedstock in Europe to hit future mandate targets, with around 60pc of used cooking oil (uco) demand fulfilled by imports. How might this be resolved and what initiatives is Neste taking to this end?
It is very important not to limit the range of applicable raw materials with unnecessarily strict definitions. The regulations should not just list applicable feedstocks and pick the winners, but set GHG reduction targets as well as sustainability and end product performance requirements. Industry will find the most efficient raw materials and technologies. Feedstock research and development should be encouraged.
How do you assess the prospects for HVO in Europe towards 2020? How will Neste expand its output?
The entirety of Neste's renewables sales in 2016 were HVO and 15pc of the total sales volume was 100pc, neat HVO. We are targeting to increase that share to 25pc in 2017.
The prospects for premium-quality drop-in products are good as the blending requirements continue to increase and there is growing interest to use the product in its neat form to achieve quick and efficient GHG and other emissions reductions in existing fleets.
Neste will expand its production capacity from 2.6mn t/yr to 3mn t/yr by 2020. Additionally, we are exploring the feasibility of building new production capacity in Singapore and in the US.
How do you assess competition from Eni in Italy and Total in France when they start up their HVO plants next year? How do you plan to ensure competitiveness?
HVO markets continue to grow, and Eni and Total are very welcome. They have an important role in promoting HVO product as local players. Neste is the only HVO producer with a global business model from sourcing to sales. We intend to maintain our market leadership by the capacity growth program.
Given a measured reversal in European transport dieselisation is there room to develop the Neste's presence in the sector?
Changes in diesel consumption will take time. Most diesel is used in heavy duty transportation, aviation and marine, which is a growing segment. We only source ethanol from the market for our domestic gasoline blending needs. We are focusing on drop-in biofuels, such as HVO.
Neste has sold around a third of its renewable diesel to the US but with the end of the blenders tax credit (BTC) is a greater share likely to stay within the EU now, from either Neste's European plants or Singapore refinery?
More than half of the volumes are sold on term contract basis — which gives us stability — and the rest on spot market. The US BTC has been retroactively introduced many times in the past, but we do not speculate on its return. As we have attractive markets also in Europe, it is possible that the share of European sales will increase in the short term.
The European Parliament's environment committee approved a non-legislative resolution on 9 March calling for the European Commission to phase out "the use of vegetable oils that drive deforestation, including palm oil, as a component of biofuels". How do you view this?
The share of crude palm oil was 19pc of Neste's raw material inputs in 2016. We only use certified crude palm oil, which is fully traceable to the oil palm plantations. By the end of 2015, all of our major palm oil suppliers had committed themselves to 'No-Deforestation' guidelines in their third-party sourcing.
Neste has engaged palm oil suppliers to improve their production methods and has achieved encouraging results benefiting the whole industry. We have also just recently started two new smallholder projects, which provide us ways to mitigate deforestation risks. Last year we had 33,000 Indonesian smallholders in our supply chain.
However, our focus is on expanding the use of waste and residue raw materials further.
The utilisation rate of Neste's renewable product refineries was 88pc in 2016. How will the company increase productivity through increased capacity use in 2017 and onwards and what are the obstacles to doing so?
We had a major turnaround at Rotterdam refinery in 2016 explaining the utilisation rate. Typically we will have such a major turnaround at each refinery every four-five years. We expect to run at high utilisation rates.
What is your outlook for renewables growth in Europe, both for Neste and in terms of the wider transport fuels market, and to what extent does policy uncertainty cloud such an outlook?
The European Renewable Energy Directive (RED) calls for 10pc share of renewables in road transport energy use in 2020. As we are currently at an around 6pc share on the average, there is built-in growth in the regulation. Different member states have chosen different routes to reach the 10pc target. For example Finland, Sweden and Norway, although the latter country is not a member, have already set more ambitious targets.
Is there the capacity in Europe to ensure a transition from first-generation to second-generation biofuels, and how can investment be encouraged in renewables derived from waste and residues?
Instead of categorisation by generation, biofuels should be assessed by their GHG reduction performance. Investment in waste and residue based production can be encouraged by consistent and long-term legislation setting ambitious targets, and by avoiding too narrow raw-material definitions to ensure availability.
What role will waste feedstocks play in the renewable fuels market how will Neste continue to expand its renewable raw material base to lower-grade waste and residues?
Our NEXBTL renewable diesel production technology enables flexible use of various renewable raw materials and we use 100pc waste and residues at our production facilities. With going to lower-quality materials we aim at increased availability of raw materials as well as economic benefits. The recent acquisition of a pre-treatment plant in the Netherlands improves our capabilities to process lower quality raw materials.
There is concern that there won't be enough waste-derived feedstock in Europe to hit future mandate targets, with around 60pc of used cooking oil (uco) demand fulfilled by imports. How might this be resolved and what initiatives is Neste taking to this end?
It is very important not to limit the range of applicable raw materials with unnecessarily strict definitions. The regulations should not just list applicable feedstocks and pick the winners, but set GHG reduction targets as well as sustainability and end product performance requirements. Industry will find the most efficient raw materials and technologies. Feedstock research and development should be encouraged.
How do you assess the prospects for HVO in Europe towards 2020? How will Neste expand its output?
The entirety of Neste's renewables sales in 2016 were HVO and 15pc of the total sales volume was 100pc, neat HVO. We are targeting to increase that share to 25pc in 2017.
The prospects for premium-quality drop-in products are good as the blending requirements continue to increase and there is growing interest to use the product in its neat form to achieve quick and efficient GHG and other emissions reductions in existing fleets.
Neste will expand its production capacity from 2.6mn t/yr to 3mn t/yr by 2020. Additionally, we are exploring the feasibility of building new production capacity in Singapore and in the US.
How do you assess competition from Eni in Italy and Total in France when they start up their HVO plants next year? How do you plan to ensure competitiveness?
HVO markets continue to grow, and Eni and Total are very welcome. They have an important role in promoting HVO product as local players. Neste is the only HVO producer with a global business model from sourcing to sales. We intend to maintain our market leadership by the capacity growth program.
Given a measured reversal in European transport dieselisation is there room to develop the Neste's presence in the sector?
Changes in diesel consumption will take time. Most diesel is used in heavy duty transportation, aviation and marine, which is a growing segment. We only source ethanol from the market for our domestic gasoline blending needs. We are focusing on drop-in biofuels, such as HVO.
Neste has sold around a third of its renewable diesel to the US but with the end of the blenders tax credit (BTC) is a greater share likely to stay within the EU now, from either Neste's European plants or Singapore refinery?
More than half of the volumes are sold on term contract basis — which gives us stability — and the rest on spot market. The US BTC has been retroactively introduced many times in the past, but we do not speculate on its return. As we have attractive markets also in Europe, it is possible that the share of European sales will increase in the short term.
The European Parliament's environment committee approved a non-legislative resolution on 9 March calling for the European Commission to phase out "the use of vegetable oils that drive deforestation, including palm oil, as a component of biofuels". How do you view this?
The share of crude palm oil was 19pc of Neste's raw material inputs in 2016. We only use certified crude palm oil, which is fully traceable to the oil palm plantations. By the end of 2015, all of our major palm oil suppliers had committed themselves to 'No-Deforestation' guidelines in their third-party sourcing.
Neste has engaged palm oil suppliers to improve their production methods and has achieved encouraging results benefiting the whole industry. We have also just recently started two new smallholder projects, which provide us ways to mitigate deforestation risks. Last year we had 33,000 Indonesian smallholders in our supply chain.
However, our focus is on expanding the use of waste and residue raw materials further.
The utilisation rate of Neste's renewable product refineries was 88pc in 2016. How will the company increase productivity through increased capacity use in 2017 and onwards and what are the obstacles to doing so?
We had a major turnaround at Rotterdam refinery in 2016 explaining the utilisation rate. Typically we will have such a major turnaround at each refinery every four-five years. We expect to run at high utilisation rates.