Neste Oil becomes Chief Monster as renewable diesel becomes biofuels monster

December 3, 2010 |

Every year in the 50 Hottest Companies in Bioenergy, we see a lot of new entrants who have seized the attention of subscribers and selectors with their jazzy technologies, name investors, and starling commercial potential. Last year, for example, companies like Joule, Synthetic Genomics and Gevo rocketed up the lost like bulleted hits on the Billboard charts. This year will be no exception – for as we tally the final votes, we see companies like Butamax, Terrabon and SG Biofuels heading up the list or joining for the first time.

But this year, we also will see that subscribers and selectors in the 50 Hottest Companies in Bioenergy really woke up to the value of some companies and some sectors, and no more so than the potential in renewable diesel.

Why renewable diesel is hot – and who

It is as hot a sector as you can image, with companies such as LS9, Amyris and Virect offering different paths to the same goal: converting sugars to a drop-in diesel, as well as jet fuels.

Another path has been the hydroprocessing technology offered by UOP, which has been utilized in partnership with Solazyme and Sustainable Oils, among others such as Terasol, to produce nearly all of  the renewable jet fuel and marine diesel being currently tested by the US Navy and Air Force.

But the volumes produced by these undeniably hot but undeniably early-stage companies are small, to date. The “heat” on these companies is a reflection of their promise in their respective futures, rather than in the revenues they are producing today.

The renewable diesel producers at scale today

In renewable diesel there are two companies that are getting it done, in terms of putting fuel on the street in meaningful volumes. Those are Dynamic Fuels and Neste Oil. Dynamic, which is a JV of Tyson and Syntroleum, has just this year completed construction of a 75 million gallon plant in Geismar, Louisiana. It represents more than half of the actual advanced biofuels production in the US today.

Bigger even than that is Neste Oil, which debuted its first NExBTL facility in Finland, at its Porvoo refinery in summer 2007. Its second facility came on stream there in 2009. They both have a capacity of 190, 000 tons per year – or a combined capacity of 130 million gallons.  Last month, Neste started up the world’s largest NExBTL plant in Singapore, with a capacity of 800,000 t/a, or 240 million gallons. It has a similar-sized facility under construction in Rotterdam, which is due to be commissioned in the first half of 2011. In all, that’s 600 million gallons of advanced biofuels capacity coming online by 2011.

It’s a multi-feedstock strategy. Any combination of animal fats, waste oils and virgin vegetable oils will do. The company had found itself, over in Singapore, targeted as a part of the general havoc over sustainable palm oil, but it is certainly using palm only within a group of feedstocks.

What’s Neste Oil’s edge?

What is Neste’s processing technology? It’s the catalytic hydrogenation of plant oil, which transforms a triglyceride into its corresponding alkane. They remove oxygen from the oil; so, the diesel is not an oxygenate like traditional transesteried biodiesel. The product is a clear and colorless paraffin, with a good cetane number (85 to 99), chemically identical to ideal conventional diesel. It requires no modification or special precautions for the engine. They are also capable of refining their oils into jet fuel.

Neste and Lufthansa

On Friday, a source tipped us off that a major announcement was coming in the European aviation sector. By Monday, the word was out that Lufthansa was utilizing Neste Oil’s NExBTL jet fuel in a six-month commercial trial, which would  run a 50 percent blend of conventional jet fuel and renewable jet in one engine, and conventional jet in the other. The flights will be in the Frankfurt-to-Hamburg run. Lufthansa has been looking around for a while for a partner, and they had made it clear that they wanted not only lower greenhouse gas emissions: they wanted a partner in sustainability. Their choice of Neste says a lot about the company’s navigation of the palm sustainability challenge.

The challenge for most of the advanced biofuels industry is getting to scale. For Neste, they are already there – for them, the challenge is cost, for their product in their current technology is competitive with $140 oil. It’s advantages – its here now, and is a drop-in replacement for jet or diesel.

A conversation with Neste Oil CEO Matti Lievonen

BD: How did the partnership with Lufthansa evolve?

ML: We started to discuss the opportunity with lufthansa 6 months ago. They
wanted to know the sustainablity of the feedstock, and of course we planned very carefully with Airbus and Lufthansa.

BD: What are the opportunities beyond this trial?

ML: The fuel is very compatible with existing kerosene, so we’ll spend 6 months with the commercial flights, collecting data. I’m sure we’ll expand with Lufthansa, and with
other air companies, we have an ongoing discussion. For now, we have the only only product you can manufacture on industrial scale.

BD: Should we expect to see this only in Europe, or elsewhere?

ML: In Europe’s short-haul market for the short terms. Increasingly in europe I expect that we’ll be in the consideration for also the long-haul markets.

BD: What are the key factors for expansion?

ML: Emissions trading, for one. For airlines, like lufthansa we need to prove our sustainability.

BD: How important a signal to the market was Lufthansa’s adoption, especially with regard to the sustainability of palm oil as a feedstock?

ML: It’s very important. Its a good sign that we could prove those sustainability criteria. Of source, crude palm oil is only one of the elements for us. We are using the sterene also, the non-edible oil, as well as animal fat, and rapeseed oil. Out technology can use all feedstocks, such as canola, soy, and algae. We’ve tested small amounts of algae, but as you know it is not available on a large scale. That appears to be a “5-10 years away” technology.

BD: How big will aviation be as a distrubution channel for your fuel?

ML: In the five year range, the normal auto traffic will dominate, but we expect that later on aviation will take the bigger part.

BD: Does California look like an important market for you, given the restrictions imposed by the state’s Low Carbon Fuel Standard?

ML: The whole of the USA and Canada will be important for us, and California is a very important market there.

BD: How fast do you expect to expand beyond your current capacity?

ML: That very much depends on the crude oil price. If the price of oil is $70, then this product is double in price, and we will be used within mandated markets -such as Europe and the US. But if oil prices start to rise, other markets open to us. So the main driver will be the oil price. By 2035 it is estimated that if countries do not do anything about renewables, the oil price will rise to $135.

BD: Short term prospects for expansion in aviation fuel?

ML: It will depends on how the emissions trading and carbon free aviation will develop. In year two, we will feature in blends, for short haul traffic inside Europe and USA. If there is a rapid change in the market, we have the to double capability in rotterdam, and also expand in North America. We have the technology and the project management to do it.

BD: If you do expand, will you build, own and operate, or look to establish strategic partnerships.

ML: We haven’t disclosed our strategy in this area, but  if you look at expansion, its generally good to have strategic partners, but today we have our own plants.

BD: What about feedstocks?

ML: Our strategy is to diversify. In Asia, we have a program to use their crude – waste feedstocks oils from Vietnam. Also animal fat coming from Australia and New Zealand. The biggest part of our R&D is for the new feedstocks, but in practice there is not really new feedstocks available such as algae.

BD: Are you as dependent on the cost of feedstocks in your fuels as, say, the biodiesel industry traditionally was?

ML: The oil feedstock is not as big for us as for biodiesel. For example, we are using a lot of hydrogen, and we have more complicated technology.

So there you have it. Or, not quite. For Neste has announced that it will is merge its oil products and renewable fuels products into a single division, to create greater operational efficiency, and for serve their customers more effectively by giving them one clear point of contact at Neste Oil. Matti Lehmus, currently Executive Vice President, Oil Products, has been appointed Executive Vice President, Oil Products and Renewables. Neste’s Deputy CEO and Executive Vice President, Renewable Fuels, Jarmo Honkamaa, will leave the company.

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