SINGAPORE: Neste to build $814 mln Singapore biofuel plant

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

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

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.
AMP Section Name:Energy
  • 183 Environment

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