The Future of Biofuels: Achieving Targets and Remaining Competitive

Jarmo Honkamaa – Neste Oil Deputy CEO and Executive Vice President, Renewable Fuels

European Refining Markets – 27 September 2010, Brussels

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Oil RetailMarket leader in Finland and a significant player in the St. Petersburg area in Russia, Estonia, Latvia, Lithuania, and Poland

Renewable FuelsPremium-quality Renewable Diesel based on Neste Oil’s proprietary technology

Oil RefiningTwo refineries in Finland with an annual output of about 14 Mt/a of petroleum products

Neste Oil - Three business areas

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Our goal is to be the world’sleading producer of Renewable Diesel

The big picture in energy consumption

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Megatrend - Increasing demand on energy and challenge with climate change

Transportation

Source: EIA 2007 ja IEA 2008

• Energy consumption increasing by 50% in next 25 years

• Majority of growth from transportation

• Urgent need for new energy sources

• Energy supply will have to be based on multiple energy forms and technologies

• New feedstocks are needed, e.g. bio mass, new biobased raw materials, waste etc etc

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Market drivers for Renewable fuels

Climate change – need to reduce Greenhouse Gases Eg. The EU has a mandatory 10% energy content based target for

biofuels for 2020

The desire to reduce our dependence on Crude OilPrice volatilityThe need to improve security of supply

In practice, all industrialized countries have targeted increasing their use of biofuels

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Further topics on biofuels…

Markets are and will be based on regulation

Several sustainable biofuel sources needed due to limited feedstock options

Product quality and local air quality impact should not be compromised due to biofuels

Compatibility – multiple infrastructures and/or engine types pose a challenge

How to remain competitive

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Level field for competition globally

Technology neutrality

Aligned and unbiased targets and regulation

Clarity and consistency in industry requirements “Uncertainty is killing business”

… to ensure that competitive solutions will be implemented

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Feedstock

Bottleneck at the moment

Significant activities in the development of new feedstock

Both short-term and long-term new feedstock solutions expected and needed

Also local small-scale solutions are encouraged with a clear regulative framework

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Feedstock development

Algae,

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Sustainability

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Sustainability

Environmental GHG emission savings Responsible land use

Economic Job creation

Social Economic growth in developing areas

Pre-condition for the business

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We participate in developing better sustainability standards• e.g. through RSPO, RSB, and RTRS*

We require highest sustainability standards from our Suppliers• Close continuous monitoring and co-operation with suppliers• Requirement of full compliance to sustainability criterias, laws and

standards eg.• Neste Oil’s sustainability criterias • Regional criterias like EU Renewable Fuels Directive RED

• Full traceable supply chain requirement

We are highly active in new feedstock development

*) RSPO=Roundtable on Sustainable Palm Oil, RSB= Roundtable on Sustainable Biofuels, RTRS=Roundtable on Responsible Soy)

Strong commitment to highest standards of sustainability

Neste Oil approach today

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Neste Oil's approach on sustainable biofuels

Real GHG savings over the entire life cycle

Sustainable feedstock and full traceability

Lower tailpipe emissions

NExBTL renewable diesel

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NExBTL is the world’s best and cleanest diesel

GHG emissions 40-80% lower than those of fossil diesel

Significantly lower levels of other tailpipe emissions

Meets automotive manufacturers’ toughest specifications

Can be used in all diesel engines as such or as a blend

Compatible with existing distribution systems

Flexibility in raw materials

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≈ 0< 10< 10Sulfur content (mg/kg)

StableStableUnstableProduct stability

≈ 43

≈ - 5

≈ 53

≈ 835

Sulfur-freediesel fuel1)

≈ 38

≈ - 5

≈ 51

≈ 885

Biodiesel

≈ 44Heating value (lower) (MJ/kg)

≈ - 5 ... - 50Cloud point (°C)

≈ 84 ... 992)Cetane number

775 ... 785Density at +15°C (kg/m3)

NExBTLFuel properties• CO2 reduction• Cleaner emissions• No implications for

existing car pool• No need to relax

specifications to achieve high bio content

• Distribution within existing oil refinery logistics

• No need to compromise fuel quality

NExBTL characteristics

NExBTL properties justify premium value

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• No blending restrictions• All emissions reduced• No "use by" -date• Net calorific value 44 MJ/kg• No implications for end-users• No implications for vehicle

technology

NExBTL renewable diesel

• Maximum blend of 5% to 7 %• NOx increase• Limited storing possibilities• Net caloric value 37-38 MJ/kg• Problems with engine cleanliness • Ash formation blocks exhaust after

treatment filters

FAME biodieselFatty acid methyl esterHydrocarbon

NExBTL has superior product quality

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NExBTL renewable diesel has been tested extensively in normal truck and bus use with excellent results from all the tests

• Buses in Greater Helsinki• Trucks operating in arctic conditions in Canada • Trucks and buses in Germany

In the capital area of Helsinki, 10 % NExBTL blend routinely sold to end-customers

NExBTL - a proven technology already in use

A proven solution for reducing CO2 emissions without having to replace or modify existing vehicles

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NExBTL renewable diesel in Finland

Neste Green diesel, containing a minimum of 10% NExBTL renewable diesel, already available

Neste Green 100 diesel, containing 100% NExBTLrenewable diesel is currently in trial use The first time that a premium-quality

100% renewable diesel is being used in ordinary cars

Neste Bio Heating Oil 3 contains 3% NExBTL renewable diesel

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NExBTL projects are proceeding according to plan

0250,000500,000750,000

1,000,0001,250,0001,500,0001,750,0002,000,000

2007 2009 2010 2011

nam

epla

te c

apac

ity t/

a

Porvoo I Porvoo II Singapore RotterdamPlant Capacity Investment Status

Porvoo 1 190,000 t/a €100 million Onstream

Porvoo 2 190,000 t/a > €100 million Onstream

Singapore 800,000 t/a €550 million Start-up in Q4/2010

Rotterdam 800,000 t/a €670 million Start-up in the end of H1/2011

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NExBTL advantages for the refineries

NExBTL enables higher blend ratio up to 30 % within EN 590 (density) and up to 100 % within the US specification a flexible way to meet higher blending requirements beyond 5 / 7 % works also well in colder climate, cloud point can be adjusted to at

least down to - 50 C

NExBTL gives significant logistical advantages full pipeline fungibility no need for special logistics

NExBTL gives flexibility into diesel blending gas oil streams can be upgraded into diesel streams in order to assess full NExBTL potential in a refinery it needs to be

introduced in a refinery LP-model, where NExBTL can offer significant savings in refinery optimization, especially in smaller/less complex refineries

refining the future

Thank you!

Appendix

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Bio-jet

NExBTL plants can produce renewable aviation fuel

Commercial aviation consumes over 200 million tonnes of kerosene and produces roughly 680 million tonnes of CO2*– And very few alternative modes of long-haul transport in sight

Aviation is an interesting future market for high quality renewable fuels– What is needed?

1. A ‘biojet’ specification2. Incentives or a mechanisms equal to those of renewable on-road fuels

* Source: ATAG, 2008 data

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The Bio-component meets the ASTM specification D7566 for XTL jet components

There are no aromatics• The reason for lower density• Less toxic• Aromatics are needed for fuel system seal swell →

blend / add

There is very little sulphur (< 5 ppm)• Less emissions, less wear

Neste Oil’s BiojetThe Product Characteristics

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• A 50/50 Joint Venture between Neste Oil and Stora Enso• Target to develop BTL-technology to convert wood residues to traffic

fuels and commercialize it• Demonstration plant at Stora Enso’s Varkaus Mill in Finland started up

in 2009, commercialization planning ongoing• The project combines expertise from Neste Oil, Stora Enso, and VTT

Forest Biomass

REFINING INTO

TRAFFICFUEL

Joint Venture

Heat

DryingCrude FT product to refining,

Gasifier

Gas purification to Ultra Clean Gas

Fischer-Tropcsh Synthesis

Example on feedstock R&D:JV to develop fuels from forest residues

Illustrative

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• NExBTL renewable diesel is being tested in about 300 buses in Greater Helsinki

– Joint project between Neste Oil, Helsinki Region Transport (HSL), Proventia and VTT Technical Research Centre of Finland

• Lower emissions from using 100% NExBTL:– NOx approx. -10%– Small particulates approx. -30%– CO approx.. -35%– HC approx. -40% – Polyaromatics over -50%

Source: VTT

NExBTL testing, an example: Optibio Clean Air project, Finland

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• Over 75 different size of trucks and buses took part in the trials, which lasted for 10 months

• Trials were primarily sponsored by the Canadian federal government, the Alberta provincial authorities, and Shell Canada

• Solid performance of NExBTL• Possible to operate even at -44 C

NExBTL testing, an example: Alberta renewable diesel program, Canada

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• 14 Mercedes-Benz trucks and buses have used 100% NExBTL renewable diesel for around a year

• Trials include Daimler, public transport company Stuttgarter Strassenbahnen (SSB), Deutsche Post DHL, and the energy company OMV

• Test results have shown that the use of NExBTL reduces emissions significantly compared to fossil diesel

NExBTL testing, an example: Heavy fleet testing in Stuttgart, Germany

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Sustainability

• Neste Oil has developed a system that enables it to track all the palm oil that it uses

• This system provides data on exactly where and how its palm oil is produced

• Neste Oil’s palm oil supply chain has been audited by SGS

REFININGPLANTATIONS SAPLINGS CULTIVATION PRESSINGHARVESTING TRANSPORTATION

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Algae

Harvesting waste and biomass gasificationOther microbes

Nonfood vegetable oil

Extensive R&D to expand feedstock base

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NExBTL renewable diesel in Finland

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Neste Oil has been accepted, for the third year in a row, into the Dow Jones Sustainability World Index

• Economic dimension best in the industry • Environmental dimension good • Social dimension better than average within the industry

Sustainability

refining the future

Thank you!