World's largest renewable diesel refiner says cost of fuel is way more than anticipated

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


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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