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SINGAPORE: Neste to build $814 mln Singapore biofuel plant

by Tarmo VirkiThe Guardian
November 30th, 2007

Finnish refiner Neste Oil said on Friday it would spend 550 million euros ($814 million) to build the world's largest biodiesel plant in Singapore to meet growing but controversial demand for biofuels.

Neste said the plant would have a design capacity of about 20,000 barrels per day, and use mostly palm oil as its raw material, though it can use also soy oil or animal fats.

"The investment forms part of Neste Oil's strategic goal of becoming the world's leading renewable diesel producer," the firm said.

Neste said the use of biofuels is seen growing rapidly over the next few years and that its biodiesel, branded NExBTL, is the cleanest renewable fuel around.

While Neste believes using its proprietary technology is the best way to do business, the market has voiced scepticism over its ability to manage large investment projects, as the refiner has faced major teething problems with its key unit producing conventional diesel at its refinery in Porvoo, Finland.

"For now at least the market will rightly be left wondering if the Neste Oil management can be trusted to project manage any material investment programmes -- and this goes to the heart of its ambitious, biodiesel ambitions," Citigroup said in a note.

The use of biofuels made from crops such as maize, sugarcane and vegetable oils is expected to rise rapidly in developed economies and is seen by many as a way to cut emissions of greenhouse gases and provide an alternative fuel source to crude oil, which has been pushing $100 a barrel this year.

Some environmentalists, however, dispute the greenhouse gas emissions benefits of biofuels and are alarmed by deforestation to increase palm oil output and the effect on food prices.

On Sunday environmental group Greenpeace tried to prevent a tanker bringing palm oil to Neste's first biodiesel plant, which is now running at full capacity of 170,000 tonnes, in Porvoo.

Construction of the plant in Singapore, which is close to major palm oil producers Malaysia and Indonesia, will begin in the first half of 2008, with completion due by the end of 2010.

Palm Oil Price Boost

The announcement is expected to boost prices of palm oil, which have more than doubled since January 2006, a Malaysian industry analyst said on Friday.

"We are already facing supply constraints and not even able to meet the demand from the food sector," said M. R. Chandran, an independent consultant and former head of Malaysian Palm Oil Council. "It is very good news for the market."

Soaring feedstock prices have squeezed the margins of biodiesel producers in Asia and only large producers like Neste Oil will survive, he said.

"Obviously now it is the volumes game, it is like the refinery sector. Margins are so small that you have to have the volumes in order to be economically viable," Chandran said.

The news about the biodiesel plant came on a day when the world's largest palm planter Sime Darby relisted on the Malaysian stock exchange at a 36 percent premium to its indicative price, after merging with two other palm-oil groups.

Environment Worries

Neste said it was committed to only using palm oil certified by the Roundtable on Sustainable Palm Oil (RSPO), a system approved in November 2007, which would probably be available from the early part of 2008 onwards.
Greenpeace said the certification scheme was not enough.

"It does not matter if there are certificates or not. Growing demand is leading to accelerating destruction of rain forests," said Juha Aromaa, Greenpeace spokesman.

Shares in Neste Oil were up 1.2 percent at 24.05 euros at 1447 GMT, against the DJ Stoxx European oil and gas index, up 0.7 percent.

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