• Sep 28th 2011 at 5:40PM
  • 17
Exactly how much does it cost to produce a ton of renewable diesel fuel? Well, according to Neste Oil, the world's largest renewable diesel firm, the answer is: way more than anticipated.

In releasing its updated future outlook, Neste Oil revealed its estimated production cost, not including feedstock, of NExBTL renewable diesel is $220 a ton (approximately $0.70 per U.S. gallon). That's up significantly from the firm's 2009 estimate of $175 a ton (roughly $0.56 per gallon).

Although Neste has not released exact figures for conventional diesel production, Sari Lehmuskallio-Eronen, communications manager of sustainability, oil products and renewables at Neste Oil, stated:
The production costs of our conventional fossil diesel are significantly lower than those of renewable NExBTL diesel. Petro-diesel is a "bulk product" produced at large refineries. NExBTL, on the other hand, is a small-volume specialty product when compared to fossil diesel. This is naturally reflected in the higher cost per unit.
Neste Oil says the increased production cost of NExBTL is mainly due to elevated utility costs and the rising price of hydrogen. It's unlikely that either of those costs will drop, so NExBTL probably won't get cheap any time soon.
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Neste Oil's Capital Markets Day and short-term outlook

21.09.2011

Neste Oil is hosting a Capital Markets Day today, 21 September, in Rotterdam in the Netherlands. The event will feature management presentations covering areas such as Neste Oil's strategy, vision, and the latest developments in Oil Products and Renewable Fuels. An update on the company's financials will be also presented. The event will conclude with a visit to the recently commissioned renewable diesel facility in Rotterdam.

The main message of the Capital Markets Day is that Neste Oil remains fully committed to its strategy. The company has an updated vision of being 'the preferred partner for cleaner traffic fuel solutions' and will implement this through five value creation programs: Profitable growth, Productivity, Renewable feedstock, Customer focus, and Winning culture.

Leverage ratio and return on average capital employed after tax (ROACE) remain Neste Oil's key financial indicators. The target leverage ratio is 25-50% and the long-term ROACE target is 15%. Neste Oil's dividend policy remains unchanged and calls for a payout equivalent to at least one third of the company's comparable net profit.

Renewable fuels

Neste Oil has now completed its major program of investments in new renewable diesel production capacity, and the latest addition to its portfolio, the Rotterdam plant, came on stream earlier this month. The focus of the Renewable Fuels business from now on will be on achieving full capacity at all plants and making the business profitable.

Short-term outlook

Neste Oil has partially updated its short-term outlook, which was previously published in connection with the interim report for January-June 2011 on 28 July 2011.

Updated outlook:

- Neste Oil's reference refining margin averaged USD 4.6/bbl between July and mid-September, compared to USD 4.46/bbl in the second quarter
- Neste Oil's partly owned base oil facility in Bahrain is in the commissioning phase, with a start-up scheduled later in 2011. The market situation in high-quality base oils is positive, and the Bahrain plant is expected to reach maximum utilization quite rapidly after start-up
- Renewable Fuels' fourth-quarter sales volumes are expected to increase compared to the third quarter
- As a result, Renewable Fuels' comparable operating profit is anticipated to improve in the fourth quarter compared to the previous quarters, although the segment will remain loss-making
- Production costs of NExBTL renewable diesel, which were estimated at USD 175/t in 2009, have been updated to USD 220/t, mainly as a result of higher utility costs.

Unchanged outlook:

- Production Line 4 at the Porvoo refinery will be off-line for four weeks in the fourth quarter, due to decoking maintenance
- Oil Products' full-year 2011 comparable operating profit is set to be higher than in 2010
- Renewable Fuels' third quarter is expected to be weaker than the second quarter, as high unit costs and the start-up of the Rotterdam plant will impact results
- Renewable Fuels' third-quarter sales volumes are expected to be roughly double those booked during the second quarter
- Oil Retail's performance is expected to be similar to that in 2010
- Neste Oil's full-year fixed costs are estimated to be approximately EUR 650 million and cash investments EUR 300 million


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    • 1 Second Ago
  • 17 Comments
      krisztiant
      • 3 Years Ago
      Looks like replacing the fossil fuel in our vehicles with bio-, renewable fuel is becoming a dead-end. Production is too expensive, needs more energy than can be gained, needs more cropland / various feedstocks than we actually have or are able to use etc. Then what to do? Established theory: Generating energy inefficiently in our vehicles from primary energy resources (even from biodiesel) is a no go, instead, we'll use stored energy (energy carriers)* which allow us to decouple energy generation and use (so the primary energy source no longer travels with the vehicle). Solving the efficient renewable energy generation problem is way easier at large-scale (with controlled / no pollution) than in moving individual "contraptions" (aka cars). Additionally: no more "fuel crisis" since we replaced fuel with stored energy (i.e. energy carrier) in our vehicles. * Energy carriers: electricity and hydrogen does not occur naturally in quantity (must be generated from other energy source), therefore, they are energy carriers, not primary energy sources.
      • 3 Years Ago
      What is the cost to send our armies to the Middle East to keep "real" diesel available? Perhaps we should grow our own and bring our boys home.
      DonaldM
      • 3 Years Ago
      One has to understand the share of fuel cost that comes from 1. Lifting (drililng and pumping) 2. Transportation 3. Refining 4. Distribution 5. Taxes and fees Fake diesel has high refining costs. Distribution costs are the same. Lifting cost is nothing. Transportation cost (collecting all that used french fry oil to turn into fake diesel) is higher.
      • 3 Years Ago
      If they are producing fake Diesel for 70 cents per gallon and thought it would cost 56 cents for gallon and real Diesel is cheaper to produce, but they won't say by how much, then how come I'm paying $4.18 for diesel? How much does it cost to produce a gallon of gas?
        • 3 Years Ago
        Jim, the breakdown of diesel at the retail level is around: Crude Oil = 39% Refining = 17% Mktg - Dist. = 25% Taxes = 19% Geographically, the price of crude can be very volatile and change by almost 100%!
        • 3 Years Ago
        Jim, one other comment, notice that the article says production costs, not including feedstock! Production costs is refining only, not the acquisition of the crude!
      paulwesterberg
      • 3 Years Ago
      Their costs are high because of the high cost of hydrogen? But hydrogen is the cheap clean energy fuel of the future, you just get it from natural gas... its like totally renewable.
        2 Wheeled Menace
        • 3 Years Ago
        @paulwesterberg
        Just remember.. the only emission product from hydrogen is flocks of white doves and ice cream. Plus, Letstakeawalk thinks hydrogen is pretty cool.
          Letstakeawalk
          • 3 Years Ago
          @2 Wheeled Menace
          Currently, most hydrogen is produced primarily for specific industries (such as the oil/fuel, and pharmaceuticals, and other chemical processes). Much of the hydrogen is made by the end users themselves, which explains why they'd be unwilling to sell their own supplies. There's a huge amount of hydrogen made every year, and the buyers are pretty steady in their demands - but there's not a lot of over-capacity in the production. Hence, a current lack of a competitive market that would force hydrogen prices down. However, there is a continually increasing demand for hydrogen. Even beyond its potential use as a fuel for FCVs. This is why it's vitally important - even if you don't support FCVs - that we (meaning the Feds) support fundamental research into hydrogen production methods. Ensuring a steady supply of an increasingly valuable commodity gas is just as important as reducing our demand for imported energy. Increasing production, while transition from methods such as SMR to more renewable sources (especially photo-electrochemical and biological sources) is also a fundamental necessity if we are to move away from fossil fuels into a renewable powered future. http://www.eia.gov/oiaf/servicerpt/hydro/appendixc.html
          Letstakeawalk
          • 3 Years Ago
          @2 Wheeled Menace
          Thanks. A large percentage of our modern fertilizers are made from hydrogen. Wouldn't it be nice if that hydrogen was supplied from sources other than fossil fuels?
          Marco Polo
          • 3 Years Ago
          @2 Wheeled Menace
          @2WM Er;....sorry buddy, but it's never wise to mock guys like LTW! The trouble is, he really does know what he's talking about! I've got my doubts on the commercial viability of FCV's, but I wouldn't write them off altogether, and I certainly wouldn't doubt LTW's technical knowlege.
          2 Wheeled Menace
          • 3 Years Ago
          @2 Wheeled Menace
          I'm not doubting his knowledge. Just talking smack. :) I respect his knowledge and am not writing off FCVs, but i think they are highly unlikely to mature much as well.
      JP
      • 3 Years Ago
      Biomass is more efficiently used when burned in generating plants to create electricity for EV's than going through the energy intensive process to turn it into liquid fuel. http://www.technologyreview.com/energy/22628/ The same is true for natural gas if you do the math. As Krisztiant says below: "Generating energy inefficiently in our vehicles from primary energy resources (even from biodiesel) is a no go"
      Bankerdanny
      • 3 Years Ago
      They are producing fake diesel for 70 cents PLUS the cost of the material being refined (oil in the case of regular diesel). So at $100 a barrel for oil, that's $2.38 per gallon (a barrel = 42 gallons). Therefor, assuming the non-petroleum base costs the same $2.38 (and I'm sure it costs more, but just for the example let's assume it doesn't), it would cost Neste $3.08 per gallon to make the biodiesel. Then there is shipping, then there are wholesale and retail markups, and of course, substantial taxes. Voila, $4+ fuel. I believe gas actually costs more because more refining is involved.
      Dan Frederiksen
      • 3 Years Ago
      yeah what's with the hydrogen? if they have to add hydrogen from a fossil fuel it hardly seems renewable.. and higher utility cost? does that mean they use coal powered electricity as well? super douches? and what's with the price claim? how is 220$ per ton in any way problematic?
        Letstakeawalk
        • 3 Years Ago
        @Dan Frederiksen
        Even conventional crude oil needs to have hydrogen added in order to produce gasoline... (I thought a genius would know this?)
      Marco Polo
      • 3 Years Ago
      Not on DF's planet......
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