Friday, March 02, 2012

Neste Renewable Diesel Plants Reveal Feedstock Channel

Finland’s Neste Oil Corporation (NEF: F) brought its fourth renewable diesel plant on-line in September 2011, earning bragging rights to the world’s largest facility of its kind.  Located at the Port of Rotterdam, the plant has the capacity to produce 800,000 metric tons of renewable diesel that Neste brands NExBTL and claims is the “cleanest and highest-quality renewable diesel on the market today.”  Along with Neste’s three other plants already in operation in Finland and Singapore the fourth plant in Denmark brings
Neste’s total production capacity to 2.0 million metric tons per year.

Start-up Date
September 2007
Porvoo, Finland
200,000 tons/year
September 2009
Porvoo, Finland
200,000 tons/year
November 2010
800,000 tons/year
September 2011
Rotterdam, Denmark
800,000 tons/year

Neste’s augmentation of renewable fuel production capacity is also impressive against the total production capacity in the world.  The Renewables 2011 report published by REN21 reported 19 billion liters in total renewable diesel production in 2010.  Two of Neste’s plants came on-line subsequent to that production measure period, adding another 2.5 billion liters in production capacity and potentially increasing renewable fuel production by 13% if both its Singapore and Rotterdam plants operate at full capacity.

It is worth noting the location of Neste’s two largest plants  -  bustling ports with easy access to ocean and rail shipping lines.  Leadership at Neste are not small thinkers.  They apparently view the renewable energy industry the same way they have viewed the fossil fuel stream  -  globally.  With access to rail and ocean shipping services, they are in a better position to source feedstock and distribute final production  -  in volume.

Neste positioning itself as a large producer of renewable fuel, begs the question of feedstock supply.  Investment in upstream supply seems a logical next step after investment in production capacity.   So far upstream supply has remained highly fragmented and localized and investment in the segment is limited to the large agriculture producers such as Archer Daniels Midland (ADM:  NYSE) and Tyson Foods (TSN:  NSYE). 

In my view, investors need to consider upstream supply both in terms of potential bottleneck in the renewable fuels industry as well as an investment opportunity.  As new production capacity comes on line, those who control the feedstock supply become more powerful in setting prices or in controlling ownership of production.  Darling International (DAR:  NYSE) is the largest independent food by-products recycler and presents a unique upstream play.  Waste Management (WM:  NYSE) is one of the largest handlers of municipal waste.  I expect these two independent upstream suppliers to take on new value as renewable fuel production takes off. 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. Crystal Equity Research has a buy recommendation on DAR shares.  DAR, WM, Neste, and ADM are included in Crystal Equity Research’s Alternative Energy Indices in the Waste-to-Energy, Ethanol and Renewable Diesel Groups of the Beach Boys Index.

1 comment:

alternative investments said...

I agree on these. In fact, I have owned WM for several years and consider it an excellent long term hold!