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Neste: From Soviet Oil to Global Renewables Pioneer
Introduction: The Central Question
In the industrial heartland of Tuas, Singapore, a gleaming €1.65 billion refinery towers above the port—the world's largest renewable diesel facility. The plant processes not crude oil from distant oilfields, but something altogether more humble: used cooking oil, animal fat, and agricultural waste. Its Finnish owner's shares once traded above €79, making it one of Europe's most valuable energy companies. Today, those same shares hover around €16, a brutal 80% decline from peak.
This is Neste. The story defies easy categorization.
Neste was founded in 1948 as the State petrol company of Finland with the purpose to ensure the availability of refined fuels in Finland. That original mission—energy security for a small Nordic nation caught between Cold War superpowers—has evolved into something far more ambitious. The company is the world's leading producer of sustainable aviation fuel (SAF) and renewable diesel.
How did a tiny, government-owned Finnish oil company become the global leader in renewable fuels? And what does its recent struggle tell us about the promise—and the peril—of betting an entire corporate identity on the energy transition?
The answer spans eight decades, three complete business model transformations, a proprietary technology platform that took fifteen years to commercialize, and the most volatile decade in energy markets in a generation. It's a story of geopolitical necessity, regulatory arbitrage, technology bets that defied conventional wisdom, and the boom-bust dynamics that inevitably accompany sustainability investing.
The Strategic Imperative: Post-War Finland and Founding Context (1948–1957)
A Nation Vulnerable
Picture Helsinki in the winter of 1948. The scars of the Continuation War remain fresh. Finland had fought against the Soviet Union alongside Nazi Germany, lost, and emerged with its independence intact but its economy shattered by war reparations. Trade obligations to the Soviet Union originated with the terms of its Independence from Russia in 1917, and the Second World War reparations from the 1944 Moscow Armistice that ended the Second Soviet–Finnish War.
For Finnish policymakers, energy vulnerability was existential. The country possessed no oil reserves, no refining capacity, and depended entirely on foreign companies—Shell, Esso, Gulf—for petroleum products. A single interrupted tanker shipment could cripple the nation's economy.
The ability to secure a reliable supply of oil was Finland's Achilles' heel, Uolevi Raade, the managing director of the company, explained later. For that reason, the government set up Neste, with the name meaning simply 'liquid'.
The man who would transform this modest state enterprise into Finland's largest corporation was Uolevi Raade—an industrialist whose biography reads like a Nordic epic. Tauno Uolevi Raade (5 July 1912 – 13 May 1998) was a Finnish industrialist and a long-time managing director of Neste. Raade was born in Turku, and received university degrees from Helsinki University of Technology and Åbo Akademi.
During the Second World War he initially served as a fighter pilot, but was soon transferred into the industry. In 1945, he was appointed the director of Ministry of Trade and Industry, where he planned the payment of war reparations stipulated by the Soviet Union.
The Kekkonen Connection
Raade's path to building Neste's first refinery required navigating Finland's complex post-war politics. When the plan was brought to the government for the first time in 1951, it was not accepted. Raade had to start anew. He finally managed in 1954 to convince Dr. Urho Kekkonen, the influential politician and future president of Finland, of the importance of a national oil refinery.
The relationship between Raade and Kekkonen proved decisive. In 1955, he was appointed managing director of Neste. The first oil refinery at Naantali was brought on stream a couple of years after this. Raade and his friend, Prime Minister and from 1956 President of the Republic Urho Kekkonen were responsible for promoting the project.
On December 17, 1954, the Finnish parliament authorized Neste to start building an oil refinery with 700,000 tons crude oil capacity. Raade was named president of Neste on March 1, 1955.
The parliamentary authorization represented more than industrial policy—it was a declaration of sovereignty. Finland would master the critical technology of oil refining, even as it walked the tightrope of Cold War neutrality.
Building Finland's Oil Infrastructure (1957–1980)
The Refinery Era
In 1957, the first oil refinery in Finland was built at Naantali using US technology. The Porvoo refinery was built in 1965 in Sköldvik (Kilpilahti).
The choice of American technology was deliberate—a signal of Western alignment even as Finland sourced crude from the Soviet Union. This technological bridge between East and West defined Neste's early decades. Originally, much of the oil refined was of Soviet origin, though North Sea oil was used after the collapse of the USSR.
The new refinery was commissioned in July 1957, and in 1962 its capacity was increased from 800,000 t/a to 2.5 million t/a. Raade's ambition outpaced the original plans. The extended refinery soon proved unable to meet the growing demand for petroleum products in Finland, however, and it was decided to build a second one. This was commissioned at Porvoo in 1965.
Cold War Oil Politics
Understanding Neste's formative decades requires grasping Finland's peculiar geopolitical position—a democracy with a market economy that conducted a majority of its trade with the Soviet bloc. When Finland became the Soviet Union's largest Western oil importer in 1983, executive vice president Kai Hietarinta explained by stating that "the Soviets are reliable suppliers", in light of the 1970s energy crisis. From 1980 to 1982, Soviet supply increased from 58 to 81 of Finnish oil imports.
This wasn't mere commercial convenience. Hietarinta noted that importing oil was Finland's only means to reduce its trade surplus. In the peculiar logic of Finnish-Soviet bilateral trade, buying oil balanced the books.
The arrangement produced an unexpected dividend during the 1973 oil crisis: Because of the operations of Neste, the oil crisis of 1973 had little effect in Finland. While Western Europe queued at gas stations, Finland's Soviet-supplied oil flowed uninterrupted. Energy security through geopolitical hedging had worked.
Growth and Diversification
Neste held a legal import monopoly until the market liberalization in the 1990s. This regulatory protection, combined with access to Soviet crude and American refining technology, propelled Neste's expansion.
In 1976, Finland's first skyscraper, Neste's 83.6-meter tall headquarters, was built in Keilaniemi, Espoo. In 1980, Jaakko Ihamuotila became the CEO. The building, colloquially known as "Raade's tooth" for its distinctive shape, symbolized Neste's emergence as Finland's corporate giant.
In the 1970s, Neste became Finland's largest company and had an important role in balancing the Russian trade. The company expanded beyond refining into petrochemicals, exploration, and shipping—building a diversified energy conglomerate.
The Raade era established patterns that would prove consequential decades later: a willingness to make bold infrastructure bets, comfort navigating between political systems, technical excellence in difficult refining processes, and an institutional culture that viewed energy security as a strategic imperative rather than merely a commercial opportunity.
Crisis, Merger, and Rebirth (1990–2005)
The Soviet Collapse and Market Liberalization
The dissolution of the Soviet Union in 1991 transformed Finland's economic landscape overnight. The carefully cultivated bilateral trade relationships evaporated. Neste's privileged position—guaranteed crude supply, protected domestic market—suddenly seemed more liability than asset.
In November 1995, the company was listed on the main list of the Helsinki Stock Exchange. In 1998, Neste merged with the power company Imatran Voima Oy to create Fortum Oyj.
The merger logic seemed compelling: combine Finland's national oil company with its national power company to create a Nordic energy champion. But the marriage proved unhappy. After the merger the chemical operations of Neste were transferred to the newly established company Neste Chemicals, which was sold to the investment firm Industri Kapital for $535 million.
The Fortum years (1998-2005) represented Neste's corporate identity crisis. Was it an oil company? A power utility? A chemicals manufacturer? The merged entity struggled to articulate a coherent strategy.
The Demerger
Resolution came through separation. In May 2004, Fortum's oil operations were carved out, and in 2005, Fortum Oil Corporation became a separate company called Neste Oil Corporation. Neste Oil Corporation was listed on the Helsinki Stock Exchange in June 2005.
The newly independent Neste Oil emerged leaner but strategically adrift. It was a regional Nordic refiner in a commoditized global industry, with no obvious competitive advantage beyond operational excellence. The company needed a new direction—and found it in an unexpected place: the research laboratories that had been quietly working on something transformative since the mid-1990s.
The NEXBTL Innovation: Neste's Critical Pivot (1996–2007)
The Laboratory Origins
In the mid-1990s, in a research facility at Porvoo, a small team of Neste engineers embarked on what seemed like a quixotic project. First developed in the 1990s, NEXBTL was put into process in the early 2000s and now dominates the industry. One of its inventors is Ulla Kiiski, an engineer born into a farming community in eastern Finland in 1960.
The technology these researchers developed—NEXBTL, for "next generation biomass to liquid"—would ultimately prove worth billions. NExBTL technology is the outcome of manufacturing tests that begun in the mid-1990s, and an R&D programme launched in 2001, involving not only a team from Neste Oil itself, but also people from various Finnish universities and VTT, the Technical Research Centre of Finland.
In 1997, a patent was awarded for NEXBTL, laying the foundation for what Neste would go on to build.
The Technology Breakthrough
Understanding what made NEXBTL special requires a brief technical digression. Traditional biodiesel—fatty acid methyl esters (FAME)—is produced through a chemical process called transesterification. The result is fuel that works in diesel engines but has significant drawbacks: cold-weather performance problems, limited storage life, material compatibility issues, and restrictions on blending ratios.
Neste's NEXBTL technology took an entirely different approach: hydrotreating. The process converts fats and oils into pure hydrocarbons chemically identical to fossil diesel. The advantages proved decisive.
Neste MY Renewable Diesel™ can be used as a drop-in solution to replace fossil diesel and jet fuel, as their chemical compositions are similar. The diesel fuel can be blended in any ratio with fossil diesel – or used as a neat product at 100% concentration unlike conventional biodiesel.
This knowledge laid the foundation for developing our unique refinery platform that can process a great variety of fats and oils from renewable sources.
But here's the critical insight: having the technology wasn't enough. While the technology was ready, the world still wasn't. NEXBTL was put on the back burner for about five years, until it was revived in 2001.
The Regulatory Catalyst
What changed? The European Union's biofuel directive. The introduction of mandates requiring minimum biofuel content in transportation fuels created a market where none had existed.
The EU, for example, has set a goal of having close to 6% of vehicles in the Community running on biofuels by the end of 2010, and countries such as Germany, France, and Sweden have already introduced tax breaks to promote the use of biofuels.
Neste's researchers suddenly realized they were sitting on something valuable. They had the technology, market knowledge through their fuel station network, and regulatory tailwinds. The question became: could they commercialize at scale?
First Commercial Success
The answer came in 2007. A renewable diesel plant, using second generation biofuels and NEXBTL technology and located at the Porvoo refinery, was brought on stream in 2007, together with a new conventional diesel production line. In the same year, the entire bus fleet of Helsinki Region Transport switched fully to diesel produced using NEXBTL technology.
The Helsinki bus trial produced dramatic results. Experiments by Neste, VTT Technical Research Centre of Finland and Proventia showed that local emissions decreased significantly after the switch, with overall particle emissions decreasing by 30% and nitrogen oxide emissions by 10%, with excellent winter performance and no problems with catalytic converters.
A €100 million, 170,000 t/a plant currently under construction at Porvoo in Finland, and due for completion in summer 2007, will showcase the new technology.
This was proof of concept—but at a tiny scale compared to what would come. The company had demonstrated NEXBTL worked. Now came the hard part: betting the company on it.
Global Expansion: Singapore and Rotterdam (2008–2015)
The Matti Lievonen Era
In 2008, Matti Lievonen assumed the CEO role with a clear mandate: transform Neste from a regional Nordic refiner into a global renewables leader. The strategy required massive capital investment in an unproven market—decisions that seemed reckless to many observers.
During his 10 years of leadership, the company has gone through significant strategic and cultural changes from a national oil refining company to the world's largest sustainable producer of renewable diesel.
The Singapore Bet
Neste's Singapore presence started in 2007 with the announcement to build the world's largest renewable diesel refinery in the country. The refinery, which occupies 19 hectares of land, was set up in Tuas in 2010 with 120 employees.
Why Singapore? This was Neste's first significant investment in Asia and Singapore was selected based on its world-class logistics connectivity, which enables seamless transportation of raw materials and renewable products into Asia and around the world.
The Singapore facility represented a leap of faith. Neste was building world-scale capacity to serve markets that barely existed. Investors questioned whether demand would materialize.
Rotterdam and the European Footprint
A second renewable diesel plant at Porvoo became operational in 2009. The company wasn't waiting to see if Singapore worked—it was doubling down.
Then came Rotterdam. A plant similar in size to Singapore was launched in the Netherlands in 2011, with investment costs of €670 million. The location—Europe's largest port—positioned Neste to serve the continent's emerging renewable fuel mandates.
Lindfors (a Neste executive) later admitted the risks involved: taking the step of investing in world-scale plants in Singapore and Rotterdam "was a bold, high-risk decision at a time when the market was still in its infancy." When the investments began, the company initially had very few customers in sight. But as Lindfors explained, "you cannot achieve growth and radical transformation without taking risks."
Rebranding and Identity Shift
In 2015 the company's name was changed from Neste Oil back to Neste to emphasize the company's focus on the renewable energy business.
The name change was more than marketing. By dropping "Oil," Neste signaled a fundamental reorientation. The company that had been founded to secure Finland's petroleum supply was now positioning itself as something altogether different: a renewable fuels champion.
Peak Neste: The Golden Years (2015–2022)
Sustainability Recognition
The transformed company attracted attention from sustainability-focused investors. In 2018, Neste placed 2nd on the Global 100 list of the most sustainable companies in the world.
Neste has placed 3rd on the Corporate Knights 2019 Global 100 Most Sustainable Corporations list. This is Neste's second time in the top 3. It also marks the company's 13th consecutive inclusion on the Global 100 list.
Neste has again placed 3rd on the Corporate Knights' Global 100 list of the world's most sustainable corporations. This is Neste's third time in the top 3. It also marks the company's 14th consecutive inclusion on the Global 100 list.
Neste has been included in the Corporate Knights 2022 Global 100 Index of the most sustainable companies in the world for the 16th consecutive time. Neste has been included in the index for longer than any other energy company in the world.
The stock market rewarded the transformation handsomely. Highest end of day price: 79.205233357005 EUR ($97.75 USD) on 2021-01-07. From trading near €3 at its lows in 2011, Neste shares soared more than 25-fold to their January 2021 peak. The company's market capitalization briefly exceeded €50 billion, making it one of Finland's most valuable companies.
Leadership Transition
Peter Vanacker starts today on 1 November 2018 as the President and CEO of Neste Corporation. He joined Neste in September 2018 as a Senior Executive and since then has familiarized himself with Neste's business and operations.
"Neste has been very successful in the past ten years in changing from a national oil refining company to the world's largest sustainable producer of renewable diesel."
Vanacker, a Belgian-German chemical engineer with experience at Bayer and CABB Group, brought polymers and chemicals expertise to a company increasingly focused on renewable feedstocks for plastics and chemicals. Mr. Vanacker brings more than 30 years of industry experience to his new role, including serving as President and CEO of Neste, an industry-leading renewable products company that has seen substantial growth and transformation under his leadership since 2018.
U.S. Market Entry and Marathon Joint Venture
The U.S. market, particularly California with its Low Carbon Fuel Standard, represented the next growth frontier. On 1 March 2022, Neste Corporation and Marathon Petroleum Corporation announced an agreement to establish a 50/50 joint venture to produce renewable diesel following a conversion project of Marathon's refinery in Martinez, California.
The partnership, to be called Martinez Renewables, is structured as a 50/50 joint venture, with Neste to contribute a total of $1 billion, inclusive of half of the total project development costs projected at $1.2 billion through the completion of the project.
Upon completion, Martinez Renewables is expected to increase Neste's renewable products capacity by slightly over 1 million tons (365 million US gallons) per annum.
Technology and Product Evolution
The product portfolio expanded beyond renewable diesel. Neste MY Sustainable Aviation Fuel™ (SAF) is a renewable aviation fuel that is cleaner, direct replacement for fossil jet fuel and reduces greenhouse gas (GHG) emissions by up to 80% compared to fossil jet fuel.
Neste Corp.—already the largest global producer of renewable diesel (RD) and sustainable aviation fuel (SAF)—will use its proprietary next generation biomass-to-liquids (NEXTBL) technology to increase overall production of renewable products to 5.5 million tonnes/year (tpy) by yearend 2024.
The Singapore expansion, announced in late 2018, represented the company's largest single investment. At the end of 2018, Neste announced its decision to expand the Singapore refinery, more than doubling its existing land area to 45 hectares in total. The construction of the Singapore Expansion Project started at the beginning of 2019, and operations started in April 2023. The EUR 1.6 billion investment provides Neste with additional production capabilities.
The Singapore refinery expansion doubles Neste's production capacity in Singapore and brings the refinery's total capacity to 2.6 million tons annually of which up to one million tons can be sustainable aviation fuel (SAF).
By 2022, Neste had achieved what seemed impossible when NEXBTL was first patented: it had transformed from a regional Nordic oil refiner into the world's dominant renewable diesel producer, with facilities spanning three continents and customers including major airlines, trucking fleets, and chemical companies seeking sustainable feedstocks.
Then the market turned.
The Reckoning: Market Challenges (2023–2025)
Market Oversupply Crisis
The year 2024 was marked by geopolitical, economic and regulatory uncertainty. For Neste, the year was particularly challenging. We faced significant changes in the markets of both Renewable Products and Oil Products and several operational challenges at our refineries.
Our 2024 full-year comparable EBITDA totaled EUR 1,252 (3,458) million. This level is not satisfactory, nor sustainable. In Renewable Products, numerous new competitors and increased capacity entered the markets during 2024.
The numbers tell the story starkly. Comparable EBITDA fell from €3.458 billion in 2023 to €1.252 billion in 2024—a 64% collapse. Neste had a revenue of EUR 20.6 billion in 2024.
What happened? The very success of Neste's model attracted a flood of competition. Renewable Products' sales prices have been negatively affected by a substantial decrease in diesel price during the third quarter. At the same time, waste and residue feedstock prices have not decreased and renewable product market price premiums have remained weak.
Neste found itself in a margin squeeze. Diesel prices fell while feedstock costs remained elevated. Regulatory credits—once a significant profit driver—declined in value. Renewable Products' sales price outlook is affected by a decrease in the diesel market price and a continued decrease in US bioticket and renewable credit prices during the second quarter, while waste and residue feedstock prices have remained stable.
Operational Challenges
Compounding the market headwinds, Neste faced operational problems. On 8 November, Neste changed its guidance due to an unplanned shutdown of Rotterdam refinery. Neste's Rotterdam refinery was shut down due to a fire on 8 November 2024. The fire did not cause any injuries. The Rotterdam refinery production was down for several weeks impacting the renewable diesel customer deliveries.
The Singapore expansion, while eventually completed, also experienced difficulties including an unexpected shutdown in June 2023 for equipment repairs.
Leadership Transition
The Board of Directors of Neste Corporation and Matti Lehmus, President and CEO since May 2022, have reached a mutual agreement that Matti Lehmus will leave his position as the President and CEO.
Today, it has been agreed that Heikki Malinen will assume the role of Neste's President and CEO on 15 October 2024. He succeeds Matti Lehmus, who will continue as the President and CEO of Neste until 14 October 2024.
Malinen joins Neste from Outokumpu Corporation where he has held the position of President and CEO since 2020.
Performance Improvement Program
As a result of the company's significantly changed market environment and weakened financial performance as well as a comprehensive full potential analysis started in October 2024, Neste has decided to start a performance improvement program.
As a result, the company starts change negotiations that cover Oil Products and Renewable Products business areas and all global functions, targeting total annual cost savings of approximately EUR 65 million. The planned organizational changes are expected to lead to a permanent reduction of approximately 600 positions, of which approximately 450 in Finland.
Firstly, we are targeting EUR 350 million EBITDA run rate improvement by the end of 2026 from our performance improvement program, of which EUR 250 million from operational costs. Secondly, we are committed to maintaining our investment grade credit rating and leverage below 40%.
The dividend—long a staple of the investment case—was slashed. In light of the current financial position of the company, the Board has decided to cancel the dividend policy announced on 19 June 2023, and proposes a dividend payout of 0.20 euros per share for the year 2024 to the Annual General Meeting.
Market Outlook
CEO Heikki Malinen's assessment was sober: In 2025, the renewables market continues to be challenging and we cannot expect a return to previous years' exceptional margin levels. Regulation continues to create uncertainties, e.g. in the US, and we need to fight for a level playing field, e.g. in the EU versus imports from China and US (SAF).
The structural challenges are clear. The renewable diesel market Neste pioneered has attracted massive capacity additions. Neste, the largest importer of renewable diesel into the U.S., halted imports this past fall due to poor market economics. Shortly after, Chevron switched production at its El Segundo, CA refinery from renewable diesel back to CARB diesel.
The Technology and Product Deep-Dive
What Makes NEXBTL Special
Understanding Neste's competitive position requires appreciating the technical sophistication of its NEXBTL platform. The process begins with feedstock pretreatment—crucial because renewable inputs vary dramatically in quality.
This is possible thanks to our proprietary NEXBTL™ technology – a unique platform that allows us to turn a wide variety of renewable fats and oils into premium-quality renewable products, such as fuels and feedstock for polymers and chemicals production. The core and the aim of our processing technologies is to ensure flexible intake of different raw materials and have optionality to produce various different end products while having best-in-class operational performance.
Our know-how in refining difficult raw materials has a long history. Over the years, our engineers have had to find ways of refining challenging low-quality crude oil into transportation fuels.
This heritage—processing difficult crude from Soviet fields—translated directly to processing challenging waste feedstocks. The technical capability to handle variable inputs while producing consistent outputs proved decisive.
Feedstock Evolution
We have, for instance, been able to grow the pool of renewable raw materials from one suitable raw material to a wide variety of renewable oils and fats.
Neste has systematically expanded its feedstock capabilities. The company now processes used cooking oil, animal fats, waste fish oil, tall oil (a forestry byproduct), and various industrial waste streams. This flexibility provides both cost advantages and sustainability benefits—waste-derived feedstocks typically generate higher carbon reduction credits than virgin vegetable oils.
Sustainable Aviation Fuel
SAF represents Neste's growth thesis. Neste, the world's leading producer of sustainable aviation fuel (SAF), has started producing SAF at its renewable products refinery in Rotterdam, the Netherlands. The refinery has been modified to enable Neste to produce up to 500,000 tons of SAF per annum. As a result, Neste's global SAF production capability has increased to 1.5 million tons (around 1.875 billion liters) per annum.
The Rotterdam refinery expansion investment of approximately EUR 2.5 billion will expand Neste's overall renewable product capacity by 1.3 million tons per annum, bringing the total renewable product capacity in Rotterdam to 2.7 million tons annually, after the expansion of the refinery will be completed in 2027. This will include a sustainable aviation fuel (SAF) production capability of be 1.2 million tons, in Rotterdam.
The expansion, scheduled for completion in 2027, will increase Neste's total global annual renewable fuels production capacity to 6.8 million tons, with SAF accounting for 2.2 million tons.
Competitive Landscape and Strategic Position
Market Structure
Key competitors in the Renewable Diesel Market include Neste, Valero Energy, Marathon Petroleum, Phillips 66, and Chevron.
The global renewable diesel market was valued at USD 23 billion in 2024 and is estimated to grow at a CAGR of 8.1% from 2025 to 2034.
The competitive dynamics have shifted dramatically. When Neste built its Singapore and Rotterdam plants, it essentially created the market. Now it faces competition from well-capitalized oil majors who have converted traditional refineries to renewable diesel production.
Porter's Five Forces Analysis
Threat of New Entrants: HIGH The boom in renewable fuel mandates attracted massive investment. Traditional refiners like Phillips 66, Valero, and Marathon have converted or are converting petroleum refineries to renewable diesel production. These conversions can be executed faster and often cheaper than greenfield construction, reducing barriers to entry.
Supplier Power: MODERATE-HIGH Feedstock availability represents a critical constraint. Despite estimates of up to 40 million tpy of waste and residue becoming available for renewable-fuel production by 2030, feedstock supply will remain insufficient to meet long-term forecasted demand, forcing producers to explore alternative options for feed beyond the waste animal fat, used cooking oil, and other materials used today.
Neste has invested in feedstock sourcing through acquisitions like Mahoney Environmental (used cooking oil collection) and Agri Trading. But waste and residue supplies are fundamentally limited, creating feedstock competition among producers.
Buyer Power: MODERATE Large customers—airlines, trucking fleets, municipalities—have negotiating leverage. But the compliance value of renewable fuels (LCFS credits, RFS obligations) creates sticky demand.
Threat of Substitutes: MODERATE-HIGH Electric vehicles threaten renewable diesel's road transport market. Battery-electric trucks are improving in range and economics. However, aviation—Neste's growth focus—has limited electrification options, making SAF relatively protected.
Industry Rivalry: HIGH Overcapacity has intensified competition. Margin compression in 2024 reflects too much supply chasing limited demand at current mandate levels.
Hamilton Helmer's 7 Powers Framework
Scale Economies: MODERATE Renewable refining benefits from scale, but the magnitude is smaller than traditional petroleum refining. Neste's global platform provides procurement and logistics advantages.
Network Effects: WEAK Limited network effects in commodity fuel production.
Counter-Positioning: WEAKENING Neste's original advantage—incumbents dismissing renewable fuels—has eroded. Major oil companies now embrace renewable fuels, eliminating the counter-positioning moat.
Switching Costs: LOW Renewable diesel is a commodity. Customers can switch suppliers readily.
Branding: MODERATE Neste's sustainability credentials and certified supply chains provide some differentiation, particularly for corporate customers with ESG commitments.
Cornered Resource: MODERATE-HIGH NEXBTL technology and decades of operational experience represent valuable cornered resources. Neste's ability to process challenging feedstocks into consistent products is difficult to replicate.
Process Power: MODERATE-HIGH Operational excellence in renewable refining—yield optimization, energy efficiency, quality consistency—provides ongoing advantages.
Myth vs. Reality
Myth: Neste pioneered sustainable aviation fuel technology. Reality: NEXBTL technology was developed primarily for renewable diesel. SAF production capability was added later through facility modifications. The underlying chemistry is similar, but SAF represents an evolution rather than a new invention.
Myth: Renewable diesel is environmentally superior to biodiesel. Reality: Both reduce lifecycle emissions versus fossil diesel. Renewable diesel's advantages are operational (cold weather performance, blend flexibility, material compatibility) rather than environmental. Lifecycle emissions depend heavily on feedstock sourcing.
Myth: Neste's recent struggles reflect fundamental problems with the renewable fuels business. Reality: The challenges are primarily cyclical—overcapacity and margin compression—rather than structural demand weakness. Regulatory mandates continue to expand. The question is whether Neste can maintain competitive advantages as the industry matures.
Investment Considerations
Bull Case
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Regulatory Tailwinds: SAF mandates are expanding globally. The EU's ReFuelEU Aviation regulation requires increasing SAF blending from 2025. Similar mandates exist or are emerging in the UK, Japan, and other markets.
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Technology Leadership: NEXBTL technology and operational experience provide durable advantages in feedstock flexibility and product quality.
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Strategic Positioning: Our strategic growth investment project in Rotterdam is proceeding according to the updated plan. When completed in 2027, the refinery will be the world's largest facility producing renewable diesel and SAF. It is optimally located to serve the growing European markets.
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SAF Market Growth: Aviation decarbonization has few alternatives to SAF. Airlines are committing to sustainable fuel adoption, creating committed demand.
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Performance Improvement: The cost reduction program and operational improvements could restore margins as market conditions stabilize.
Bear Case
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Structural Overcapacity: The renewable diesel market attracted too much capital too quickly. Even with demand growth, margin recovery may be prolonged.
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Feedstock Competition: Soybean oil prices climbed 40-60% between 2022-2024, while imports of used cooking oil into the United States rose to 3 billion pounds in 2023, up from 0.9 billion pounds a year earlier. Feedstock costs remain elevated.
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Regulatory Risk: Regulation continues to create uncertainties, e.g. in the US, and we need to fight for a level playing field, e.g. in the EU versus imports from China and US (SAF).
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Electric Vehicle Threat: The IEA projects EV adoption to displace 12 million barrels per day of oil by 2035, curbing total diesel demand. Fuel-cell trucks from OEMs such as Hyundai and Toyota validated 900-mile routes in 2024 pilots.
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Execution Risk: The Rotterdam expansion is delayed and over budget. The Rotterdam refinery expansion investment of approximately EUR 2.5 billion will expand Neste's overall renewable product capacity by 1.3 million tons per annum... after the expansion of the refinery will be completed in 2027. Originally planned for 2026 at €1.9 billion, the project now costs €2.5 billion.
Key Performance Indicators to Track
1. Comparable Sales Margin ($/ton) for Renewable Products This metric captures price premium over feedstock costs—the core driver of profitability. In 2023, margins exceeded $900/ton. In 2024, they fell to the $400-500 range. Margin trajectory is the single most important indicator of whether overcapacity is clearing.
2. Waste and Residue Feedstock Percentage Neste targets >90% waste and residue inputs. Higher waste content generally correlates with lower feedstock costs and higher carbon credit values. A declining percentage would signal feedstock supply constraints.
3. SAF Sales Volume (million tons) SAF represents the growth thesis. Volume growth demonstrates ability to capture mandated demand as regulations expand.
Ownership Structure
The State of Finland remains the largest shareholder, holding 44.2% of the shares as of December 31, 2024. Foreign institutions hold a significant portion of shares at 29.8%, indicating international investor interest. Major institutional investors include Ilmarinen, The Vanguard Group, Varma, and LocalTapiola.
State ownership provides stability but may constrain strategic flexibility. The Finnish government's commitment to Neste as a "national champion" suggests continued support, but investors should monitor any signals of changing government priorities.
Conclusion: What Neste Teaches
Neste's 77-year journey from wartime necessity to global sustainability leader offers lessons for students of corporate transformation.
First, technology bets require patience. NEXBTL was patented in 1997, commercialized in 2007, and didn't become a significant profit driver until well into the 2010s. The researchers who developed the technology worked for years without knowing whether markets would emerge for their innovation.
Second, regulatory foresight can create markets. Neste didn't just react to biofuel mandates—the company anticipated them and built capacity before demand materialized. This first-mover advantage proved valuable but is now eroding as competitors catch up.
Third, competitive advantages are dynamic. The technology moat that protected Neste's early growth has weakened as hydrotreating technology has proliferated. The company must now compete on operational excellence, feedstock sourcing, and customer relationships rather than technological uniqueness.
Fourth, sustainability-focused companies face the same economic forces as everyone else. Neste's environmental credentials didn't protect it from overcapacity and margin compression. ESG investors discovered that mission-driven companies can still destroy capital if competitive dynamics deteriorate.
Finally, transformation is never complete. Neste successfully pivoted from Cold War oil trader to renewable fuels leader. Now it must navigate another transformation: from growth-mode capacity builder to margin-focused operational optimizer.
The company that Uolevi Raade built to ensure Finland's energy security now produces fuel that helps airlines claim progress toward net-zero emissions. It's a remarkable evolution—and the story continues.
However, I am confident that with a determined approach we can and we will reverse the current trend in our financial performance while maintaining our investment grade credit rating, fund the critical investments in running projects, and ensure Neste will be successful in the future.
Whether CEO Heikki Malinen's confidence is justified remains the central investment question. Neste transformed once, from oil to renewables. Can it transform again, from growth darling to sustainable returns generator?
The renewable fuels market that Neste pioneered now tests whether the pioneering company can thrive in the industry it created. For long-term investors, the answer will depend on regulatory durability, feedstock evolution, and Neste's ability to maintain operational advantages in an increasingly competitive landscape.
One thing is certain: the small Finnish company that once ensured Finns could heat their homes and fuel their cars has built something of genuine global significance—a reminder that even in commoditized industries, strategic vision, technological innovation, and disciplined execution can create remarkable value.
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