UPM BIOREFINERY World Biorefinery Conference 2012, Jönköping, Sweden UPM Biofuels / Kosti Mokkila

May 2012

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Materials and energy efficiency

Renewable and recyclable products

Innovation and new businesses

Resource scarcity

Power shift in global economy

Climate change

Digitalisation

World is changing Biofore growth

and competitiveness

FOREST OF NEW OPPORTUNITIES

The Biofore Company -

UPM leads the integration of bio and forest industries

into a new, sustainable and innovation-driven future May 2012 2

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RENEWABLE FUELS MARKET

Four megatrends drive demand for biofuels

3

Energy security Climate change

Higher energy prices Rural development

Biofuels are an effective way to increase

energy security, reduce dependency on oil

imports

Together with improving fuel efficiency,

biofuels are the most important low-cost way

of reducing CO2 emissions in the transport

sector

Biofuels can create new sources of income

for rural areas. Increased competition for

arable land has raised awareness of

sustainability issues

Increasing cost for the marginal barrel of oil

(ultra deep water drilling, oil sand etc.)

supports demand for substitutes including

biofuels

May 2012

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RENEWABLE FUELS MARKET

Public policy responds to megatrends –

also outside Europe

Biofuels are needed to fight megatrends

Long-term, regulation support not needed to drive market creation as competitiveness of

biofuels improves with more mature technology and increasing fossil fuel price

Stable regulatory environment and rewarding of investors needed to drive investments

Current

regulation

favourable

Major

regulation

changes

unlikely

US (Renewable fuel

standard): Biofuels are

expected to account for

about 20% of annual fuel

consumption by 2022

EU (Renewable energy

directive): Biofuels

account for 10% of

energy content by 2020

Other countries: More

than 50 countries have

adopted blending

targets or mandates

May 2012 4

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RENEWABLE FUELS MARKET

Demand for biofuels expected to grow

Global biofuel demand is expected to grow

by 9% annually over next 10 years

European market is driven by biodiesel –

robust growth expected

66

104

15666

0

50

100

150

200

19

2008

Global biofuel

demand (Mtons)

+9%

2020

195

39

2015

132

28

2010

84

Share of

traffic fuels 6% 8% 10%

Ethanol

(cons.)

Biodiesel

(cons.)

Total

(cons.)

Total (IEA)

CAGR, 10-20

(consensus range)

7-11%

7-16%

7%

8-9%

10

30

50

Biodiesel demand, EU-27 (Mtons)

40

20

0

+7%

2020

22

2015

15

2010

11

National action plans (NREAPs)

Consensus range

753

0

20

40

60

Ethanol demand, EU-27 (Mtons)

+10%

2020 2015 2010

May 2012 5

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RENEWABLE FUELS MARKET

Demand for biofuels is growing fast

6 May 2012

(Mtonnes)

+7%

22

15

DEMAND OF BIODIESEL IN EU • Global demand will exceed supply in the next few years

• Demand in EU grows by approx. 7% yearly

• EU’s target by 2020 is – to cut greenhouse gas

emissions by 20%

– to have 10% of renewable fuels in road transport (Finland 20%)

• UPM’s markets are in the EU

11

National action plans (NREAPs)

Consensus area

50

40

30

20

10

0 2010 2015 2020

Source: Hart Global Biofuels Outlook 2010 – 2020

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RENEWABLE FUELS MARKET

EU’s Renewable Energy Directive favours

advanced biofuels

7

• EU’s Renewable Energy Directive (RED)

favours advanced biofuels

• Advanced biofuels which are produced

from lignocellulose, waste and residue

based raw materials are double counted

when calculating renewable target

• In practice, 5% of advanced biofuels

would be regarded as 10% when

calculating the renewable target

Source: Directive of the European Parliament and of the Council on the Promotion of

the Use of Energy from Renewable Sources (RED)

May 2012

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Wood raw material is the basis of many different businesses

8 May 2012

Bark and branches to

BTL (next generation

biodiesel) and energy

Fibres to pulp,

paper and composites

Lignin and fibrils

to new

products

Extractives

to Biodiesel Logs for sawn goods

and plywood

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UPM BIOFUELS

UPM’s biofuel strategy

9

Significantly less greenhouse gas

emissions

Advanced biofuels

Products are drop-in advanced biofuels – ready components for car fuel tanks

Wood based, non-food raw

materials

May 2012

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UPM BIOFUELS

Biofuels concepts

SUGAR &

STARCH

Sugar

cane Corn Wheat

Rape Palm

Fermentation

Esterification

Hydrogenation

Gasification +

FT-synthesis

Hydrolysis +

fermentation

Soy VEGETA-

BLE OILS

1G

CO

NV

EN

TIO

NA

L

2G

AD

VA

NC

ED

Tall

oil

Waste

fat Waste

Straw (Energy)

wood Pyrolysis

oil

RESIDUES

& WASTE

LIGNO-

CELLULOSE

Bioethanol No1 in production

volumes in the world

Biodiesel No1 in production

volumes in Europe

Bioethanol No comm. production

Advanced

biodiesel Few comm. plants

• Limited fuel properties

• Maximum blending 6 % in energy content

• Low sustainability

• Simple processes

• High quality fuels that complement motors (ethanol quality similar to 1G)

• High sustainability

• Advanced processes

FEEDSTOCK PROCESS PRODUCT PROPERTIES

UP

M F

OC

US

10 May 2012

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GROWTH OF

BUSINESS

EXPANDING

BUSINESS

FIRST STEPS

OF BUSINESS

UPM BIOFUELS

UPM’s biofuel vision and concepts

HYDROTREATMENT

Liquid raw materials Tall oil

First investment Lappeenranta biorefinery

THERMAL CONVERSION

Energy wood Gasification (BTL) / Pyrolysis

BTL investment Strasbourg or Rauma

FUTURE DEVELOPMENT New technologies, processes and innovative raw materials.. UPM’s own R&D activities in Lappeenranta and co-operation with strategic partners.

11 May 2012 BTL = Biomass-to-liquid

R&D = Research and Development

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UPM BIOFUELS

UPM's biofuels significantly reduce

GHG emissions compared to fossil fuels

12 May 2012

*Source: Directive of the European Parliament and of the Council on the

Promotion of the Use of Energy from Renewable Sources

0

10

20

30

40

50

60

70

80

90

100

Fossil diesel* Rapeseed biodiesel* Palm oil biodiesel(with/without methane

capture)*

UPM's biofuels

%

EU 2011

EU 2017

EU 2018

(new plants)

62

81

44

20

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UPM BIOFUELS

UPM Lappeenranta biorefinery

13

• Commercial scale industrial investment

• Total investment of appr. 150 MEUR

• Production 100 000 tonnes/a of advanced biodiesel

• Production starts in 2014

• Employes approx. 200 persons directly and indirectly

• Profitable investment

• Know-how and volumes in raw material procurement and logistics

• Mill integrated synergies in energy and infrastructure

• High quality product

• UPM’s innovative technology (technology partner Haldor Topsøe)

May 2012

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UPM BIOFUELS

Crude Tall Oil (CTO)

14

• Tall oil is a residue of pulping process

• Contains the extractive components of wood (gum, kåda)

• Distillation derivatives

– Tall Oil Fatty Acid TOFA

– Tall Oil Rosin Acid TOR

– Tall Oil Pitch TOP

• Manufactured by acidulating raw sulphate soap separated from

black liquor

• Yield 20−50 kg CTO/ t pulp

• Global production now > 1 500 000 t CTO/a

• Additional soap potential exists

• Utilization of low grade CTO

May 2012

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UPM BIOFUELS

Hydrotreatment process

15 May 2012

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UPM BIOFUELS

Chemical reactions in hydrogenation

16

• Removal of oxygen, sulphur and nitrogen –COOH –CH3

• Double bond saturation –CH=CH– –CH2–CH2–

• Aromatics to cyclic hydrocarbons (HC’s)

• Cyclic HC’s to linear HC’s

• Isomerization (linear HC’s to branched HC’s)

• Cracking (lights / gas formation)

• Reactions taking place in random order and at random yields

May 2012

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UPM BIOFUELS

Technology concept developed in

UPM Research Centre

• UPM has developed hydrotreatment process in

Lappeenranta biorefinery development centre

• R&D focus

- Technology development: hydrotreatment, feed

pretreatment process, reaction kinetics

- Proof of concepts in lab, pilot and bench scale

- Raw material mapping and feasibility evaluation

- End-product development

• Hydrotreatment piloting is done in co-operation

with technology partner Haldor Topsoe

17 May 2012

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• 2nd generation

biodiesel fully

compatible with

current diesel motors

• 80% reduction in

greenhouse gas

emissions

• High energy content

• No blend wall issues

• Technology based on

UPM innovations

• Efficient use of raw

material

• Integrate synergies

• Industrial

infrastructure

• Crude tall oil, a

residue from pulp

production

• Steady supply

partially from own

sources

• Outside food value

chain

• No indirect land-use

change

UPM BIOFUELS

Attractive growth investment based on

UPM’s competitive advantages

18

Competitive

raw material

Efficient

production process

High quality

product

| © UPM May 2012

| © UPM

SUMMARY

Ingredients for new business creation

19

Favourable

Megatrends

Profitable business

model

Support from top

management

with clear state

of will

Know-how, innovation and right partners

Sustainable

chain of

production

Good products and

growing markets

Courage to think

differently

May 2012

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• UPM will be a big player in advanced biofuels market,

revenue targeting > 1 billion €/a

• Getting really big volumes of advanced biofuels to

market necessitates effective new technologies in

converting lignocellulose to advanced biofuels

• UPM is actively developing new production technologies

with the forefront technology vendors and research

companies

Future

May 2012