Singapore. The Finnish operator of the world's largest renewable diesel plant, which opened Tuesday in the western industrial district of Tuas, has started investing heavily in research to find new materials to be turned into biofuels.
As the price of crude palm oil continues to surge, Neste Oil is looking for alternatives to the commodity which currently makes up 45 per cent of its feedstock - its single largest raw material input.
Its S$973 million renewable diesel plant was opened by Deputy Prime Minister Teo Chee Hean.
At the opening ceremony, the firm's chief executive Matti Lievonen told the media the company has begun committing about 80 per cent of its annual research and development budget into finding new sources of feedstock.
It is looking for ways to convert new raw materials, such as microbes, algae and wood waste, into biofuels, he said.
However, it will be quite a while before such research comes to fruition. "It will take another six years at least before algae can be used as feedstock. Microbes could take a shorter time but there aren't huge volumes of microbes that you could get from the market," Lievonen said.
Teo said in his speech that the Government is working to strengthen the capabilities of local research institutes in the area of biorenewable feedstock. These efforts could help Neste identify new sources of feedstock, he added.
The plant, with a capacity of 800,000 tonnes a year, is the biggest renewable diesel facility in the world.
Besides palm oil, the plant also uses by-products of palm oil production from Malaysia and Indonesia, as well as waste animal fat from Australia and New Zealand, to produce its renewable diesel, which Neste Oil claims is the cleanest diesel fuel on the market today.
It is being sold in Europe and North America, where governments have adopted biofuel mandates, under which sellers of transportation fuel have to ensure that part of the fuel they sell is biodiesel.
No country in Asia has adopted such a mandate yet, and while this remains the case, Lievonen said Neste Oil is unlikely to start marketing its biodiesel in the region: "Asia in the next five years is not going to be a big market for us."
Biodiesel is more expensive than conventional diesel, and fuel sellers have little incentive to buy biodiesel if they are not required by law to do so.
Lievonen added that he has a "very positive" outlook for refining margins in 2012 and 2013, as the firm has started output from its Singapore plant and is in the midst of building another one in Rotterdam of the same capacity as the one here.
Neste's profits from processing crude oil into products such as fuel and diesel averaged $8.50 a barrel last year, Lievonen said, declining to give margin levels this year. There is potential for diesel margins to improve because of gains in industrial output, he added.