Neste Oil Oyj will soon begin making low-emissions diesel at a 550 million-euro ($998.8 million) plant in Singapore, ramping up production of renewable fuels that may provide a third of earnings after 2012, a company official said.

“We’re very close to start-up,” Jarmo Honkamaa, deputy chief executive officer of Neste Oil, Finland’s only petroleum refiner, said yesterday in a telephone interview. “We’re well on time and within the budget” for the project, which uses plant and animal products as feedstock.

 

Neste is investing more than 1 billion euros together in the Singapore plant and a second one to open in Rotterdam next year as it banks on government mandates in Europe and North America to boost sales of “clean” diesel, which pollutes less than petroleum-based diesel fuel.

 

After 2012, biofuels may contribute a third of Espoo-based Neste’s earnings before interest and tax, or Ebit, Honkamaa said. “The renewable fuels business has this year not contributed anything to the bottom line, because it has been negative numbers,” he said.

Honkamaa’s estimate is reasonable and represents a return on investment of about 15 percent in 2013, Antti Koskivuori, an analyst at Evli Bank in Helsinki with a “reduce” rating on the stock, said in an interview.

 

“They’re expecting the difference in price between renewable diesel and palm oil to be similar on average to where it′s been in the past three to five years,” Koskivuori said.

Most of the raw materials for the Singapore plant -- initially palm oil and later also animal fats -- have been contracted already, with a mixture of 2- to 3-year, 1-year and 3-month agreements reached, the executive said, declining to name the providers. A similar mix of sales agreements for the finished product is set, he said.

 

“It will be a gradual ramp-up of production,” Honkamaa said. “In the first month we’ll get to around half of maximum capacity, and in the second month we will be getting close to the full capacity” of 800,000 metric tons a year. Honkamaa declined to say what date production will begin.

 

The plant in Rotterdam, which will have the same volume as the Singapore refinery, is on course to open “by next summer” and will come in “some tens of millions of euros below” its original price tag of 670 million euros, he said.

 

The markets first will be mainly in Europe and then in North America, Honkamaa said. “We may have some deliveries this year but significant volumes will come next year.”

 

Going forward, Honkamaa said he expects markets in Asia to grow as well as California.

“We are talking with some of the players in the Asian market. Japan is an interesting market, maybe South Korea,” he said. “We’d love to see some volume staying in Singapore, and in the longer term China is interesting.”