Neste Oil to build world's largest biodiesel plant in Singapore

December 3, 2007

Finnish company Neste Oil have announced that they intend to construct the world's largest biodiesel plant in Singapore at a cost of €440 million. The NExBTL facility will be Neste's third such project, and is intended to have a maximum capacity of 800,000 tonnes a year.

Demand for biofuels is expected to rise greatly over the next few years, as they are often cited as a good way to reduce greenhouse gas emissions, and are viewed as a renewable alternative to crude oil which has been at record high prices in recent months.

The site has been strategically selected to be close to Malaysia and Indonesia, both of whom are leading world suppliers of palm oil, which is intended to be the main fuel for the plant. Between them they account for 80% of global production. However, the use of palm oil is controversial, as some environmental scientists and campaigners believe using it will have a negative effect as increased demand in turn causes higher food prices and greater levels of deforestation.

Earlier this year, Greenpeace attempted to stop a palm oil tanker ship destined to Neste's existing biodiesel plant in Porvoo, Finland, but failed to stop the delivery. In addition to the Porvoo plant, which began operations earlier this year and is at its capacity production of 170,000 tonnes, Neste plan a second plant to open in 2009.

The new plant will increase demand for palm oil, as it will require 200,000 hectares of palm oil plantations to supply the million tonnes of oil it requires per annum. "The new plantations are to be set up mainly in Indonesia, and increasingly in swamp rain forests," said Greenpeace's Lauri Myllyvirta. When such terrain is cleared of trees, the peaty soil begins to dry out. "In the years that follow, it releases all of the carbon that had been stored in it", Myllyvirta continues. He concludes that he believes palm oil cultivated in such conditions produces ten times the carbon dioxide emissions of fossil fuels. Jarmo Honkamaa, director of Neste's biofuel sector, countered these claims with his belief that the gas balance remains positive and points to Neste statistics which say biodiesel diesel produces 40-60% less greenhouse gas emissions than standard diesel.

Another potential problem has been highlighted by Citigroup, who voiced concerns that Neste may not be able to complete the project on time and within the intended budget. Recently, Neste added a standard diesel production line at their Porvoo refinery. This was finished this year, approximately one year late and at an actual cost of €750 million, versus a budget of €500 million. Neste CEO Risto Rinne said in response, "we have learned our lesson," regarding the miscalculations on the new facility, and said that this knowledge, coupled with that obtained during construction of the Porvoo biodiesel plant, had been factored into calculations regarding the Singapore plant.

Construction on the third facility will start early next year, and is scheduled to end in 2010. Neste said in a statement that the investment was "part of Neste Oil's strategic goal of becoming the world's leading renewable diesel producer."