My first experience with Neste was through summer jobs, and that's the path I'm still on, working with dedicated and talented people to tackle the global sustainability challenge.
I remember when the first patent for our NEXBTL technology was granted. We all knew it was something important. Nobody knew it would become the foundation for our renewable business.
The new refineries were a crucial step to bring lower emission fuels to the global markets. When I first joined the company, nobody in Singapore knew about Neste, and now, when they teach sustainability at schools, they mention us, and that makes me so proud.
The key to our success is our people. No matter how turbulent years we have had, our Neste spirit, doing together, finding new solutions, have taken us where we are. It hasn't always been easy, but we have found our way forward by seeing opportunities in challenging times, and that is all embedded in our values. We care, we have courage, and we cooperate. It is our culture. It is how we work together.
We started in the U.S. with cleaner fuels, but there were some doubts about our future. I remember vividly how a gas trader sitting at our office laughed at our renewables vision. They said it was a ridiculous idea. Well, I doubt that they're laughing now. We are cutting emissions globally with drop-in solutions such as Neste RE, renewable diesel, and sustainable aviation fuel.
As a child, I was blown away by a hydrogen solar world. I read about it in a children's science magazine. Well, that world hasn't yet come true, but chemistry stuck with me. Now, well, I think we managed to put Neste firmly on the landscape of chemistry by rethinking the existing value chains and using renewable raw materials and chemically recycled plastic waste.
I worked in Finland and abroad and seen how much effort we put into sustainability. Just look at our study on transforming our Porvoo refinery by the mid-2030s. That's going to be a game changer.
Jointly, we have to pick up the pace, as climate change will not wait for better times. We need to act now to live our purpose of creating a healthier planet for our children. That's why we continue to execute our renewables growth strategy and innovate around new raw materials and new scalable solutions. I am truly excited about what we have already accomplished together with our partners and customers, and I look forward to the great journey ahead of us.
Good afternoon, welcome to Neste Capital Markets Day 2023. We are broadcasting live from the City of London, and it is so nice to see all of you here and all of you online. I am Anssi Tammilehto, Head of Neste Investor Relations, and I will be moderating this event. Today is all about sharing with you how Neste will continue its transformation and take you on a journey of growth and value creation. This is something that we will be doing with our President and CEO, Matti Lehmus, supported by his team with us today. With regards to Q&As, we have three joint Q&A sessions throughout the day. After the Q&As and after the formal presentations, those of you who are here live in London, you will have the opportunity to join three breakout sessions.
The themes are very interesting: renewables, supply chain value creation, renewable aviation deep dive, and last but not least, the long-term growth initiatives at Neste seas. Please pay special attention to the disclaimer, as we will be making forward-looking statements in the presentations. Hey, let's get the day started and welcome our first speaker, President and CEO, Matti Lehmus. Welcome.
Great to meet again here in London, to have also so many people here in place, and we are really excited to share our views on our strategy today. Before we begin, I would like to introduce my team here today. We have a strong team. It combines experience from the industry, leadership experience. We have some people with a long history in Neste, but we also have a number of fresh joiners at Neste. I'll start with Carl Nyberg. He joined the company in 2005, and I have to say, Carl has really an extensive know-how about the renewables value chain and our feedstocks. We have Sami Jauhiainen, who is the acting EVP for Renewable Aviation, and Sami brings a long track record in renewable strategy and aviation with him.
We have Katja Wodjereck, who just joined Neste a few months ago, bringing a valuable perspective from a related industry and a lot of experience in leading very result-oriented businesses. We have Markku Korvenranta, who joined Neste 1.5 years ago. Long track record in the chemicals industry, a lot of experience in leading for performance. Finally, our CFO, Martti Ala-Härkönen, experience from a number of CFO positions in different companies, and a lot of experience in leading capital and cost efficiency. Very happy to have this strong team here with you today. Building on the news that you probably noticed on last Friday, that our EVP for Renewable Polymers and Chemicals, Mercedes Alonso, has decided to pursue her career outside Neste. I will be giving the presentation on renewables, polymers, and chemicals today. Very good. Just a second.
Let us start, and I'm really pleased today to share Neste's views on our strategy, on our priorities, and our focus on how we create value throughout all our businesses. I will today leave you with two key messages. One is that we are very excited to enter a period of growth, short-term growth, but also seeing a number of very attractive long-term growth opportunities. The second message is that we have a very powerful, flexible business model, which has a number of important differentiation drivers, and it is something that we strongly believe will create value in different market environments in a growing market. Let me, however, start with some reflections on our strong track record.
Many of you were probably listening to the CMD one and a half years ago. I have to say that I'm extremely pleased with how we have made progress, kept our targets, but especially built a strong foundation for growth in the coming years. Thank you. If I firstly look at how we have strengthened our market presence, we are today the market leader in both renewable diesel and sustainable aviation fuel globally. We have expanded our presence to be in more than 30 countries. We have built branded sales outlets in road transportation, and if I look at renewable aviation, I'm very happy that we have today already 70 customers, which is an important basis for growth.
Turning to the renewables platform, as you know, we have been constructing two major growth projects over the last few years, and that means that we are, this year, ready and have started up our two growth projects, which enable us to grow by 60% our nameplate capacity over 2023. I also note that we have, in this period, made a decision to expand our Rotterdam refinery, and that construction is well underway. Feedstock is important for Neste. Again, I note our strong track record in growing our feedstock platform, growing organically, being today in more than 60 countries, but at the same time, also successfully executing a number of upstream vertical acquisitions.
I hope that with these words, I have been able to share with you the progress we have made, that I'm very pleased with the progress, especially that we have built a solid foundation for growth in the coming years. I think the fact that we have, for example, last year, reached our all-time high EBITDA, is a good sign of how we have really focused on value creation throughout this period. Let me turn to a topic that is foundational for Neste, that is our focus on continuous safety improvement. I just wanna make here a very clear statement: continuous safety improvement is something that is an absolute top priority for everybody in Neste, we have, we basically see it not only as a top priority for us, but also our shareholders.
Having a very strong safety culture, safety performance, means that it's a strong foundation for today's business, but also for the growth that we are targeting in the coming years. I note we are very pleased that we have been able to continuously improve, for example, process safety, halving our process safety event rate over the last five years, also, we are committed to continuing that same trend on occupational safety, even though last year we didn't reach our continuous improvement targets. Safety, top priority for Neste. Let me then turn to the business environment, and I wanna start with a very clear statement. We see that while there is a lot of short-term movement, we are very pleased to see that the long-term trend and the long-term commitment and ambition towards carbon and CO2 reduction has stayed very strong.
When we look at the ambition, whether it's in Europe or whether in the U.S., and we update our long-term growth forecast, we actually see that those demand forecasts have stayed very robust, and we have actually a number of areas where we have even increased our forecast, like in Renewable Aviation. Let me give you a couple of examples. In Europe, we are seeing that the Fit for 55 program is taking shape. We expect very soon decisions on some very important pieces of legislation, and it is our expectation that, for example, the Renewable Energy Directive will clearly increase the ambition when it comes to renewable energy in traffic once the RED III is issued.
In a similar way, we are also expecting very shortly, the first time, a mandate to be passed in the sustainable aviation fuel across Europe, creating that basis that will then grow also long-term when we look at sustainable aviation fuel. We have, of course, observed that there is a number of countries where short-term, the ambition has also been reduced because of the inflationary pressures. We can take the example of Sweden, that made such decision a short while ago. I just note here that we have a very flexible business model with a large number of markets that we are operating in. From Neste perspective, we are confident that we are able to allocate our volumes also in the coming years. Let me also here state that when I look broadly, more broadly at the world, that also in North America, we see a lot of interesting development.
While there is a federal part, there is also the states that are driving, with their clean fuel schemes, a clear growing ambition for renewable fuels. Interestingly, I just note that also in Asia, we start seeing some emerging regulation, especially in the aviation field, I'm sure Sami will be talking about this more in his part. Well, what does this mean for Neste? Neste has a very clear strategy that is focused on both growth and value creation in this growing market. Let me reiterate our four pillars of our strategy. Firstly, we are clearly focused to grow in the most attractive markets, and we see clearly that in the coming years ahead of us, rapid expansion in renewable aviation and renewable polymers and chemicals markets, while we also continue growing in the most attractive road markets.
I also wanna reiterate that the feedstock platform is an absolutely important part of Neste's strategy. We will continue to strengthen this platform going forward. Many of you have followed the last decade. We have been working for a decade on creating this unique platform. We are building on the global visibility that we have, on the strong platforms that we can grow, and also unique capabilities in pretreatment in order to continue this growth. I would argue this is a very important driver for any company in the renewables fuels industry. The third pillar is also very clear. It's value creation through our flexible, unique business model and the operational excellence. I just take the example of the last few years. Going through the pandemic, very volatile markets, everybody will understand how valuable this flexible business model has been.
Finally, the fourth pillar of our strategy, we see attractive long-term growth opportunities, building on our efforts and our development, our capabilities to expand the feedstock pool, and in that way, drive the growth of our businesses. What does this mean for our roadmap? We can see very clearly our growth map for growth in the coming years, with a focus on growth and value creation. If I think of the upcoming years, we are now in a period where we are growing our capacity by 60%, with Singapore and Martinez expansions. At the same time, we are growing rapidly our aviation and RPC businesses. These are very clear drivers for the short-term growth, and we are very focused on the value creation through these initiatives in the coming years.
If I look a bit mid-term, I can first of all see that we will continue the growth in all our attractive markets. Like you know, we are already having under construction, our next big growth project in Rotterdam, which will again be expanding our capacity by 20%. I also note that in this timeframe, we will be working on increasing the optionality in our fee platforms, and in that way, driving the growth of the new businesses. I also note that throughout the whole decade, we will be working on the expansion of our feedstock platform, focused on waste and residues, building on our strengths. At the same time, also seeing the opportunities to grow this platform with some new feedstock, such as novel oils that Carl will be talking about.
This brings me to our long-term view, where I again say that our focus on the markets, which are hard to abate, whether it's aviation, whether it's heavy duty, whether it's Renewable Polymers and Chemicals, means that we see a growing demand for these solutions. Combined with our efforts to grow our long-term innovation platforms, we see a great opportunity to drive the long-term growth for Neste. I also note here that, for example, the study we are doing on the Porvoo transformation would be another example of an initiative that can create some very flexible capacity in the long run. What does this mean? We have a very clear vision. Today, road transportation represents clearly the largest business that Neste has, close to 90%.
When we look at 2030, we see that with the focus we are putting into growing our aviation and RPC businesses, we will be having three strong businesses in 2030. We expect the aviation business to grow and to represent 30%-40% of our business in this timeframe. We also expect the Renewable Polymers and Chemicals business to grow and to represent up to 20% our business. Three strong businesses and a very flexible business model. This is important in our strategy. I also wanna talk about the value creation that we can create through our unique business model. Two main drivers for the value creation that enable us to create also sales margin that are higher than for the average producer, are the facts that we have high feedstock flexibility, and we have high market and product optionality in our platforms.
Again, I mention that example. Think of the volatility we have lived through in the last few years. Think of how quickly markets can change, and how much value this optionality can bring through our global platform, and we will be continuing to work on this optionality. I also note that there are some other very unique value drivers that we have. For example, the fact that we have integrated upstream into the feedstock collection means and the feedstock aggregation, that this is also a contributor to our value creation. For example, last week, I had the opportunity to meet the head of our U.S. platform for used cooking oil collection, and we talked about the platform that we have in the U.S., and I know that this has already last year had a considerable contribution to our value creation.
Very exciting also growth opportunities here. When I look long term, I have to say, first of all, an industry view. We are today looking at fatty waste and residues as being the most important feedstock for renewable products. At the same time, when you look at all the work that the industry is doing on technology development, and we have here, for example, a perspective by the World Economic Forum, the Clean Skies for Tomorrow study, you can see that with the expansion into new feedstock fields, there is potential to grow into hundreds of millions of tons of feedstock in the long run. This is also needed because we need the feedstock to come up with solutions to enable that high ambition that we see in the regulation. If I look at Neste, our approach is very clear.
We are building on the capabilities that we have, both what comes to upgrading, pretreatment, scaling up new technologies. We have selected a number of innovation platforms that we are developing for the long run. We have, for example, renewable hydrogen and Power-to-X, we have lignocellulosic, we have algae. I also wanna mention the chemical recycling that I will be talking more later about, because it's also a way to expand the feedstock pool. We are very pleased with the progress that we have been making in the last few years. You have followed, for example, the announcements on the green hydrogen or the chemical recycling upgrading, showing how we are making progress in these areas. I move towards our sustainability, which is an important part of our value creation.
My message is very clear: We have ambitious targets in place, and we are making progress towards these targets. I can just take two examples. We have an ambition to grow the CO2 reductions for our customers through our solutions by at least 20 million tons by the end of the decade. Already today, we are at 11 million tons, and we have a number of growth projects that are important in getting us towards our target. In a similar way, we have made great progress towards our ambitious target of being carbon neutral in Scope 1 and 2 in 2035. If I think, for example, of the initiatives we have ongoing around renewable electricity, around looking at green hydrogen, these are important steps to get towards our ambition.
Sustainability is not only an ambitious climate targets, it's also in Neste's vision, a broader sustainability field that we are working on, and it covers biodiversity, human rights, our entire supply chain. I just wanna give you an example of the work we are doing here. Under biodiversity, we have worked extensively on the methodology to measure biodiversity impact. We have started, for some of our sites, creating a biodiversity inventory, and we are making first pilot projects to protect the biodiversity. Again, very important part of Neste's strategy and value creation. Let me look more broadly at value creation. Very clear message: Neste is a growth company with a number of very exciting growth projects ongoing, and at the same time, we are a company that is paying competitive dividends.
If I think of our investments today, you can see that a vast majority of our investments is going into our renewable and circular growth projects. This is more than 80%, if you, for example, look at last year. It is good to note that at the same time, we are systematically investing in critical maintenance, critical safety investments, and overall, we maintain our target with all the growth we are targeting, that our return on capital employed stays at over 50% after taxes. In parallel, we are now renewing our dividend policy, our new dividend policy says that our target is to pay a competitive and over time, increasing dividend.
We are convinced that this is a way to maximize the value creation for our shareholders, and we are combining the flexibility to take advantage of the attractive investment opportunities with a predictable dividend outlook for competitive dividends. Martti will be talking more in his part about our capital allocation. Let me conclude. I wanna conclude with a clear message. I hope, first of all, I have been able to convey my confidence in our people, our capabilities, and our strategy. We have a strategy that is very clearly building on powerful differentiation drivers with three key pillars. First of all, we are looking at rapid growth in renewable aviation and renewable polymers and chemicals, and growth in the most attractive markets in general.
Secondarily, we have a unique feedstock platform that we continue strengthening, that will be an important source of value creation also in the future. Finally, we have a very flexible, a unique business model that enables us to create value in very different type of market environments, in a growing market with new players also entering. With these words, I would like to hand it over to my colleagues to discuss in more detail how we will execute this strategy. Thank you.
Thank you, Matti. Now it is time to welcome on stage EVP Renewables Platform, Carl Nyberg. By the way, you will have opportunity to ask questions from Matti, as he will be joining the first Q&A session with the others. Thank you.
Good afternoon. I'm very excited to be here, to be with you today here in London, to share our renewables strategy together with my colleagues from the renewables business unit. We are operating, like Matti described, in a very exciting space. This is a fast-growing market that we'll see growing at an accelerating pace over the course of the coming years. We will also see a strong increase in competition as we see increasing amount on the investments going into this market. That means that focusing on a differentiating factor will be key in winning in this market. We are well positioned to be a winner in this market going forward. I will share a bit more on what we are doing with the renewables platform to drive differentiation.
Let me first start going a little bit through how we see the market shaping up. As said, this is a picture of an accelerating growth. The demand will grow more than threefold over the course of the coming years to reach more than 40 million tons by 2030. This is on the back of robust regulation that we are seeing in European Union, as well as in North America and the U.S. Legislation put in place to tackle climate change. This will be truly a strong growing demand, both in the road transportation sector as well as in the aviation sector. We're also seeing increasing amount of opportunities when it comes to so-called voluntary demand.
This is true for these sectors, but also in the RPC sector, and there are further upside potential when it comes to demand. On the other hand, of the picture, of course, we are also seeing a strongly growing competitive environment. We are seeing a lot of capital going into these markets, and we see additional capacity coming on stream in the coming years. This will be important also from the perspective, as it will give confidence to the legislator to drive further mandates and growth in demand. It's also clear that over the coming years, differentiating will be key, and we, as a long-lasting player in this field already, we are well set up to compete in this market.
We have been building over the course of the years, we've been building a strong platform when it comes to feedstock sourcing, as well as a global production platform with a global optimization that will help us optimize in this environment. I will talk a little bit more about the feedstock side as well in the coming slides. Let me first go into how we have been building the production platform over the course of this year. Let me start with Singapore refinery expansion. We had in May, actually, we had the grand opening event in Singapore, together with a lot of key stakeholders and customers.
The Singapore refinery was actually started up in the second half of April. We are now in the phase of ramping up the refinery, and we believe that we will be reaching design capacity over the course of the coming months. We also expect that aviation production capabilities will be in place during the course of the third quarter. This is a really important step in our journey to widen our product flexibility. With this SAF production capability, up to 1 million tons, it is truly a game-changing production facility that we have brought online here. Another very important part of the Singapore refinery is also the advanced pretreatment capabilities that we are bringing on with this new facility.
These pretreatment capabilities will mean that we will be able to widen our feedstock pool. We will be able to use much more difficult feedstocks, more impurities, and that will give us a competitive edge against our competition going forward as well. A final remark about Singapore is also that actually the final CapEx expenditure for the project come in at EUR 1.6 billion, which is actually EUR 50 million below what we had communicated to investor community before. Let me take you to the Martinez Renewables. As you know, we started up the phase I of the Martinez Renewables facility in the beginning of this year.
We have over the course of the previous months, we've been ramping up that facility and reach design capacity. We are now moving towards the second phase, which will be bringing pretreatment capabilities and a much more wider pool of feedstock that we can use at this facility. This will be a very important part of the project. Later on in the year, we will then reach full capacity, as the third phase will be ramped up towards the end of next year, early towards the end of this year, early next year. I think overall, I was visiting actually Martinez Renewables Refinery last week.
I have to say that I'm very pleased about the partnership that we have together with Marathon Petroleum. It was truly remarkable to see the engagement and the excitement that the Marathon people who have that are operating this refinery. Turning this fossil refinery to a renewables refinery is truly something remarkable and something that is a great pride for all of us. I think one last thing I would want to say about Martinez Renewables is really also that this really completes our production footprint to be a truly global one. We are in Martinez, really in the heartland of the U.S. renewables markets, and we are able to serve our customers in California, in Washington State, Oregon, as well as British Columbia, now with a local refinery.
I think this is important part of our growth journey. Let me then move towards the feedstocks. If you look at the waste and residue markets going forward, we expect that this market actually will grow to more than 40 million tons by 2030. They are then likely to still continue to grow when we go forward into 35, even beyond this. If you look at the kind of split of where we are seeing the feedstock, we see that clearly the largest feedstock market will be in Asia Pacific area, as well as in North America. Europe will also be a big, big market when it comes to waste and residue feedstocks.
This sits rather well also in terms of how we are currently placed with our production platform, as well as with our existing supply capabilities. If you then think about sort of the longer picture, Matti already alluded to it in his part, that actually, when we come towards closer to the 30s, it is also clear that the waste and residue markets will not be sufficient to meet all the demand that we are seeing in HEFA and HVO. That means that we will need to develop new feedstock pools. Here we are seeing huge potential, for instance, when it comes to novel vegetable oils, as well as algae, which we are currently are actually piloting in Spain as well.
These will be important areas for growth and to drive further resilience when it comes to feedstock sourcing for our platform. If one takes a little bit longer-term look, it is also clear that we will need to find new feedstock sources that will be even further scalable. Lignocellulosics may prove to be a very scalable solution, as well as Power-to-X kind of technologies, which are something that we are currently working on within our innovation platforms. Okay, let me then take you further a bit to what we are currently doing on our feedstock sourcing. This is a rather busy slide, but let me try to take you through this quickly.
First of all, we are really focusing on expanding our current feedstock sourcing capabilities and reach. We are looking at expanding regionally. We actually recently announced that we are opening an office in India. We are also in the progress of opening an office in Brazil. These are important steps on that journey to also expand, and we see a lot of opportunities in these markets. It's not only about the regional reach, it's also around the feedstocks, having more flexibility around what kind of feedstocks we can use, and the pretreatment capabilities are really an important part of how we are expanding our reach. The second element is really around integrating further upstream.
This is something, a journey that we've already been on for some years, and we very much look forward to continue on this. We have made certain acquisition, and I will come back to them a bit later on. This, we certainly see opportunities in continuing that work. We are also seeing that we will, over the course of the coming years, continue to drive also other long-term type of arrangement, build partnership upstream to build further resilience in the feedstock space. The third part is really around the Novel Vegetable Oil concepts. Here, as said, this will be an important part of driving further resilience and building on really scalable concepts. Novel Vegetable Oils are really can be different types of concept.
There are both annual crop concepts, as well as the so-called perennial, where we are talking about oil trees. These are around really advanced agricultural practices, through, for instance, intermediate cropping or growing crops on silvopasture . There are a lot of different concepts. We are looking at many different opportunities currently, but these may prove very, very important in the long term for our feedstock sourcing. Maybe a couple of numbers. Actually, if you look at the feedstock sourcing, we are actually targeting to have more than 50% of our feedstock pool secured through either long-term commitments or through captive sourcing.
This is a journey which we're on, and we will continue to drive this resilience to also securing the feedstock. On the NVOs, we believe that the NVOs actually could be up to 20% of our existing feedstocks by 2035. That, of course, means that the whole NVO market will need to grow significantly, and we're seeing a lot of activities in this space currently, and we believe that this will likely be an outcome as well, where the NVO will be playing an important role for us. Now I would like to take a little bit deeper into how we are sourcing our feedstocks, actually. I think that this is an important picture, because this kind of describes that how we are operating globally.
I said, we are operating a truly global platform when it comes to our production, but also when it comes to our feedstock sourcing. If you compare to last year, we have been continuing to add new countries. We are sourcing from more than 60 countries today. We are having more than 500 suppliers that we are sourcing from. Over the course of the past years, we have been more than doubling our terminal network. This terminal network is a very, very important part of how we are also able to source the volumes and build from very small streams of feedstock, building bulk, and then taking it to our refineries around the globe.
I would now then like to take you to a short view also on what has been happening in the U.S. Many of you probably remember that back in 2018, we acquired Mahoney Environmental. I think when it comes to Mahoney and our U.S. UCO platform, it has been really a very exciting story. Since we acquired Mahoney, we have been continuing to organically grow our business in the U.S., in the used cooking oil collection business. We've also been doing a number of bolt-ons to the platform. That has really enabled us to grow this important platform in the feedstock space.
The latest acquisition we made was the acquisition of SeQuential, which was the used cooking oil collection business of Crimson Renewable Energy. That really completed the kind of the West Coast part that we were still missing. So now we are actually having a coast-to-coast used cooking oil collection business. I think if you look at the numbers, I think it is very exciting. We are serving more than 76,000 restaurants. Today, we are having more than 500 trucks operating, and we had set the target for ourself to serve 40 of the top metropolitan areas. Today, we have almost reached that, so we are serving 37 out of these 40 top metropolitan areas.
It has been a tremendous growth and success story for us in the U.S., building this UCO collection platform. Now I would like to briefly still talk about how we are driving value, and I alluded to it already earlier here, that we have been building a very flexible platform. We have a global production platform. We have a global optimization that is the backbone of how we are operating this business. We have also been building strong feedstock capabilities, which are really differentiating if you look at many of our competitors.
If you look at the numbers, actually, if one looks back and think about what kind of volatile environment we've been operating through over the past few years, I have to say that we have been able to consistently drive strong sales margin over the course of these years. We believe that going forward as well, we are well positioned to continue to drive strong margins and value creation. I think now, if one looks forward, I think that we are putting a lot more focus, actually, on how we are gonna be then able to diversify our businesses. Matti already shared with you that as we move forward, we will start to have three almost evenly strong business units.
This will also be in the core of how we continue to develop our production platform. As we are saying here, we are on a growth and this year is a strong year of growth. We will be growing from 3.3 million tons. It was the capacity beginning of this year. In early 2024, we will reach 5.5 million tons. In 2026, with the Rotterdam capacity growth, we will be reaching 6.8 million tons. Our aspiration is to reach up to 9 million tons by the end of this decade. Actually, an important part here is also then the flexibility that we intend to build when it comes to SAF production.
We believe that we could reach more than 30% of SAF capacity by the end of the decade. I truly believe that I've been sharing an exciting story about what kind of exciting environment we are operating in. We are now on a step change when it comes to our production capacity. We are in a year of growth, and the next year will be another year of growth as well as we will have the full capacity next year. On the other hand, we are also in the execution phase of our Rotterdam capacity growth. We will continue to grow in this space. We will also continue to execute on our feedstock strategy.
This will be a core part and a backbone of how we will continue to drive value in this market. I believe that we truly have a differentiating position when it comes to our vertical integration in this market. I think the last part is really about the product optionality. We are introducing new optionality now over the course of the coming years. This will also be a very important driver going forward, driving strong margins and value going forward. This concludes my part. Thank you very much.
Thank you, Carl. Let's now welcome on stage Acting EVP, Renewable Aviation, Sami Jauhiainen.
Good afternoon. The global market for sustainable aviation fuels is entering an exciting phase of accelerating growth. We, as Neste, have played an instrumental role in enabling this development. By investing early in sustainable aviation fuel production capacity, we have demonstrated to the global aviation industry and regulators that sustainable aviation fuels are an available and scalable solution to reduce aviation's emissions. With the foundation we have created in this market, we believe that Neste is well positioned to capitalize on this accelerating growth of the sustainable aviation fuel market. Let me start with talking about that foundation that we have created in this market since we started commercial sales of sustainable aviation fuels in 2019. Our capacity will reach 1.5 million tons by early 2024, which is 15-fold increase to what we had by the end of last year.
We have already served over 70 direct customers across the aviation value chain, including fuel suppliers, airlines, corporates, as well as cargo and travel market participants. This figure was over 30 in 2021, at the time of our last CMP. Our product is already in use in 21 countries across Europe, Middle East, Asia-Pacific, and Americas. Just to give you an example of this development, we were in Asia-Pacific region, one of our growth areas lately, at one country in 2021, and at the moment, we are already supplying our product to six countries in the region. Our Neste MY Sustainable Aviation Fuel is also available on branded basis in 25 key airports around the world, as well as on many smaller airports, as well as on many general aviation-focused airports.
This includes our key hubs, San Francisco, Los Angeles, Amsterdam Schiphol, and Singapore Changi, as well as various airports where our product is made available via our channel partners. When turning the view to the future, the key topic we need to start discussing is policy. Policy is in this market in fundamental role in enabling the growth of the sustainable aviation fuel market. The market to grow, it requires mechanisms that enables the transfer of sustainable aviation fuel cost premium, ultimately to the ticket prices or other means to bridge the cost premium for the consumers of the fuel. This is an area where we have seen a lot of progress over the past two years with SAF policy frameworks being rolled out across the globe. Europe is here in a very central role.
We already have sustainable aviation fuel blending mandates in place in France, Norway, Sweden. In late April, the European Parliament and Council reached a provisional agreement on ReFuelEU Aviation Initiative, which will establish an EU-wide SAF mandate of 2% by 2025. Growing gradually to 70% by 2050. U.K., we expect to follow the same timeline, implementing its mandate in 2025, reaching 10% by 2030. We see that the SAF policy discussion is already starting also in Middle East, in countries like Turkey and United Arab Emirates. In the Asia-Pacific region, the front-runner countries are Japan, Singapore, New Zealand. What we are expecting that they follow fairly similar approach as we are seeing in Europe in creating a market for sustainable aviation fuels.
Japan has already set a target of 10% SAF use by 2030, and there is a government proposal to drive the execution of this target through a mandate-type policy framework. New Zealand published its intention to develop a SAF mandate already in late 2021, and they plan to follow the same timeline as European Union, implementing their mandate by 2025. Singapore, the government is developing its blueprint for aviation decarbonization to be published later this year, and we expect policy measures to be as part of that roadmap as well. The second tier of countries in Asia-Pacific region include South Korea, India, Australia, where we also see the policy discussion ongoing. In Americas, the tradition on the policy side is slightly different, especially in the U.S.
We have seen more incentive type of mechanisms, tax credits, and opt-ins to road transportation mandates as a means to driving the use of sustainable aviation fuels. What we are seeing is that such policies are being scaled up, both on the state as well as on the federal level. Good recent examples include the SAF purchase credits implemented in Illinois and Washington State very recently. We also see in the Americas that SAF mandate type of policy frameworks are getting implemented there as well. British Columbia recently announced the intention to establish an aviation-specific emission reduction target of 10% by 2030, and this is important because it would establish the first mandate-type policy for SAF also in the Americas.
Latin America, Brazil could be the first country to implement a SAF mandate during the latter half of the decade. Looking at this picture, what we see is an increasingly consistent view how the market for sustainable aviation fuels and the policies are going to be evolving. We see increasing alignment towards mandate-type policies in driving this market. What the policies create is the growth outlook for the sustainable aviation fuel market, complemented with increasing voluntary demand for sustainable aviation fuels, arising from airlines and corporates who want to reduce their aviation-related emissions above and beyond any mandates to meet their climate targets. We expect this global demand for sustainable aviation fuels to rise from below 1 million tons this year to around 15 million tons by 2030.
At the moment, this market is driven by the first mandates in place, government incentives, especially in countries like U.S., U.K., Netherlands, as well as the voluntary demand. In 2025, we expect mandates to become the primary driver of demand, especially in Europe and in selected Asia-Pacific countries. 2030, we expect to see an increasingly global picture of sustainable aviation fuel policies, complemented with increasing voluntary demand. This is still only the take-off phase. For the world to meet the longer-term targets of ReFuelEU Aviation mandate level of 70% by 2050, and the net zero targets of IATA and ICAO by 2050, there will need to be an accelerating growth of the sustainable aviation fuel market from 2030 onwards.
We're also seeing that our customers are increasingly driven by their long-term climate targets. With our leading sustainable aviation fuel production capability and our global supply capability, we believe that Neste is well-positioned to be a strategic partner for airlines to enable them to meet their decarbonization targets. We have signed global multi-year agreements on sustainable aviation fuel supplies with some of the leading airlines around the world, including likes of Air France, KLM, United, DHL. The Air France-KLM agreement of million tons of SAF to be delivered over eight years is probably one of the largest SAF agreements or maybe even the largest SAF agreement ever signed. The DHL agreement is 320 kilotons over five years. The United agreement, 160 kilotons over three years.
What is common for all these agreements is that they provide deliveries of sustainable aviation fuel in multiple locations. This is really the need of our customers. They have global networks, global procurement of fuels. To be able to serve them, we need to have global supply chain capabilities, and this is what we have been building. Our global network includes global setup of distribution and blending terminals. The number of those has risen from two in 2021 to five at the moment, which allows us to supply the market with both pure neat, sustainable aviation fuel, as well as readily blended sustainable aviation fuel, meeting the spec 1.
It also includes our global network of key airports, which has risen from seven in 2021 to over 25 at the moment, including both airports where Neste has our own capability to supply sustainable aviation fuel directly on an into wing basis to the airlines, as well as airports where we are present via our channel partners. A key feature of this setup is flexibility, we have the ability to supply the aviation supply chain from multiple entry points. As this is an evolving market, depending on how the policies work, we can adjust our business accordingly. Efficiency is another key feature of the setup. We have spent considerable time thinking: What makes sense to do centrally? What makes sense to do closer to the markets that we serve?
What makes sense for Neste to do ourselves, and where do we work with partners who have complementary capabilities to what we have? Let me bring it together. Sustainable aviation fuel market is entering a period of accelerated growth. Neste has established a leading position in this market. We will see increasing competition coming to this space, especially as the policy outlook clarifies further. That is likely to trigger further investments in sustainable aviation fuel production, also from our competitors. What we believe in is that we have differentiating advantages that position us well for growth and value creation in this space, also in the future.
A key driver for this is our leading global sustainable aviation fuel production platform and global supply capability, reaching 2.2 million tons by 2026, and as Carl described, growing thereafter, along with our capacity, as well as through our investments in product optionality, positioning us well to be a strategic partner for our global customers. Secondly, it is about our integrated, flexible position in the market, being able to serve multiple customer segments and adjust our business in an evolving market. Thirdly, it is about our sustainability know-how and advantage feedstock position, positioning us well to develop credible offerings for our customers, both in the regulatory market as well as in the voluntary market. Thank you.
Thank you, Sami. Now it is time for the first Q&A session, and Sami will be joined by Matti and Carl on stage. If you are here live in London, I already see a couple of hands, so please just raise your hand, and we will pass you the microphone. If you are joining online and wish to ask questions, please use the QR code, scan it with your camera. I think we have the first question here in the center.
Hi, it's Sashi from Morgan Stanley. I had a couple of questions. First, on the production capacity roadmap that you've highlighted, the aspiration of more than 9 million tons by 2030. I was just wondering how we should think about further growth from beyond 2026. Any guidance in terms of whether it could, you know, in a geographical footprint, where you would like to expand, whether it's organic or inorganic, that would be helpful. The second question was related to the feedstocks. You've highlighted the target is to secure more than 50% of Neste's feedstock pool. I was just wondering, how much was it right now? Whether you were already there, or is it something you need to build further on?
Related to this, the scale-up of the Novel Vegetable Oils as a feedstock. I remember this was an earlier target, and the scale-up was supposed to happen from 2023 onwards. Now, it seems like it's gone to 2026. Just wondering where that delay was and whether the existing NEXBTL technology is actually can be directly applied for this, Novel Vegetable Oil feedstock.
Thank you, Sashi. Perhaps I take the first question. Carl can comment on the feedstock questions. Just commenting on our production roadmap, like you are aware, we have a very clear roadmap what comes to this year, growing through Singapore Martinez. We are in the process of constructing the Rotterdam expansion, so a very clear roadmap until 2026 to reach that 6.8 million tons. What we wanted to just convey is our aspiration to continue growing. It is something that we will evaluate over the coming years, how to do that, in which part of the world, so we don't have any, any fixed plans on that one, but it's signaling our aspiration to continue finding attractive growth platforms, growth in this market.
If I take the second and the third question, around how much we have secured today. We are in the ballpark of where we want to be. I think it's important to realize that we are growing a lot now over this year and the coming years, and that will mean that we'll need to put a lot more additional efforts in to really build that stickiness and build the security on the feedstock side to continue to also be on this path and drive up that growth of securing the volumes. With regards to the Novel Vegetable Oil, I mean, today already we are piloting, and we are looking at various different concepts.
This is something that we're seeing quite broadly in the market. We believe a lot of players are looking into this, and we believe that this market will be scaling up over the course of the coming years. The oil in itself are typically is something that we can use in our refineries. We have been testing some batches already. We are having targets to ramp up this as we go forward, definitely already in the coming years as well. I think that, you know, really, if one takes the perspective of the long term here, so in 2035, it's really the 20% of our full feedstock pool that is that we are targeting.
I think we have the next question, Peter. Yeah.
Hi, thanks. It's Peter Low from Redburn. One number that jumped out at me is you've stuck with your greater than 15% ROACE target, but clearly you're generating kind of significantly higher returns at the moment. I was just interested in your perspective as to kind of why you think that 15% is the right level to set the target at. The second question was on kind of the evolution of the business mix this decade. You've suggested that up to 20% of volumes by 2030 could be from renewable chemicals and polymers. What would have to happen to get you there? Would you have to build specific chemical capacity, or could you get there using some of the byproducts from your existing facilities? Thanks.
Thank you. Perhaps I can comment on both questions. First of all, like I explained in my part, we obviously see that we have some very attractive growth projects ongoing. We also see opportunities going forward. At the same time, part of our business portfolio is also investing in critical maintenance, maintaining our valuable production platform and logistics platform that we have today. We are clearly seeing these growth opportunities. We will be, of course, maximizing the value and the returns, but we wanted to keep the 15% ROACE target because we feel it's for a growth business, still, in a way, a good minimum target to have. On the second question, which was around... Sorry, Give me again the-
How you can get to the 20% chemical volume?
Exactly. I will be having actually a presentation on that business shortly. Perhaps the important message just here already to convey is we are looking at a drop-in solution where we could offer our customers streams that they can use instead of the fossil feedstocks they are using today when we look at the renewable part.
Yeah, over there. Thanks.
Thanks. Jason Gabelman from TD Cowen. Thanks for the presentation. The first one I wanted to ask was on SAF. You've been hesitant to discuss potential margin uplift there. Can you provide any color for potentially how much that could improve your margin? It seems pretty clear it's not gonna be dilutive, but any color into what you're seeing in terms of margin accretion would be helpful. Secondly, I couldn't help but notice four of the six faces on the first or second slide are different from 2021, and there's been a lot of turnover at the highest level of the company. I just wanted to get some color onto what's going on there would be helpful. Just any broad comment.
It's obviously hard to tell from the outside, why that is, and a bit concerning. Any color on that would be great. Thanks.
Thank you. Sami, the aviation margin question.
I think the first thing to note on that, with that respect, is that this is still an early market. We, at this stage, are not looking to provide any kind of detailed guidance on that. What we believe in is that, and look to achieve, is competitive, non-dilutive margins, relative to the use of our product in the road applications. Also, you have seen Neste investing in product optionality. Clearly, those investments are driven by our view that the product optionality is value creating. Hopefully, that gives you a bit of guidance on this topic.
On the other question, I would just note that, like you can see here today, we have a strong team. We have a combination of long industry and Neste experience. We have members on the executive committee coming from adjacent industries. I think it's very clear for me that we have a strong team, and certain rotation is a normal part of that. I also wanna highlight that we have, of course, over the previous years, built strong teams also in these, also the new businesses.
Okay. Rafael, I think.
Hi, this is Raphaël Dubois from SocGen. I have a few questions on slide number 20, where you show the spread between production capacity and demand. I can't help but notice how it has been modified since last CMD with a higher over capacities than what you expected before. My first question is, you mentioned production capacity, so I guess it's different from actual production. Maybe can you better define what you mean by production capacity, and is this different from actual production? Can you also say what is embedded for the likes of Sweden? We all know that sorry, demand's gonna drop in 2024. What is your assumption for the years after? Lastly, this is a mix of SAF renewable hydrocarbons, polymers, et cetera.
Will it be possible to have your feel for SAF specifically? We know it's gonna grow very much. How is production capacity comparing with demand for SAF over the next few years?
Well, thank you, Raphaël . Perhaps I can start with a general comment, and then my colleagues can comment. I think it's obvious, like you can see in the picture, first message is that we do see continued long-term demand growth, and that is also visible in that supply-demand outlook if you look all the way to 2030. I think equally clear is that while we see growth in the markets in the coming years, we also would expect clearly a significant number of players entering the market and hence also seeing capacity growth. Our strategy very clear. We are focused on the differentiation drivers, creating value in this market, and we will see, of course, over time, what the actual production is. I mean, what we have available is more the announcements on the capacity plans by different companies.
Perhaps Sami, first, a short comment on the aviation, and then Sami can comment-
Yeah
-on the general demand outlook.
If looking at the kind of supply-demand on the sustainable aviation fuel side, at the moment, of course, relatively few renewable diesel HVO producers have the flexibility to optimize between SAF and renewable diesel. Of course, we have seen quite a lot of announcements, competing capacity coming to this market. It is also very much needed for this market to grow and be created. That can, of course, mean at times that the supply side jumps, but maybe what I would highlight still is that when looking at this trajectory towards 2030, we have a market which will have an accelerated growth phase. Overall, looking at this decade, we see a strong supply-demand outlook to support our growth in this space.
Short comment.
Yeah. Perhaps still to add, so the numbers that we show in that graph are based on mandated-based driven demand. In addition to that, we will probably see a certain amount of demand also coming from voluntary markets, which has had an upside on those numbers. Perhaps also good to mention is, I mean, this is. We know the capacity announcements that have been coming and, you know, how will these be operated, then that's a different question. That's why it's a bit difficult also to assess what the supply demand will look like, actually.
Hey, I think we have to take one online question. We have a bunch of these here. Our long-term sustainable feedstock supply availability of over 40 million tons by 2030 compared to other industry forecasts, how do we see that as maybe the question is that, please explain your optimistic forecast? How do we believe that we can exceed 40 million tons by 2030? What are the key ingredients?
Carl?
Yeah. Thanks for the question. I mean, these projections are then based on a number of different assessment that we have seen in from independent analysts, and it's basically our compilation of how the market in our opinion will pan out. This is, of course, a projection on how the growth of western residue availability will be, but a lot is pointing in this direction that we by 2030, we will have a 40 million tons, and that will then continue to grow towards 50 further in the 30s.
Thank you. I think we have time for one more question, I think over there.
Perfect. Thank you. Naisheng Cui from Barclays. A couple more questions, if that's okay. Just a follow-up on slide 20, where you show the production capacity and demand gap. Neste had a really good renewable product margin, around EUR 950 for Q1. How shall we think about your margin in the short, medium term? I think you also mentioned about divert your volume in the earlier slides. I just wonder the flexibility around that. How much volume can you redirect within Europe or direct from Europe to Japan, for example? Yeah, a bit of color will be great. Thank you.
Perhaps I can have a short comment on that. I mean, obviously, when we look at the very short term, we will be commenting in our quarterly updates like we always do. If I just look a bit at the big picture next year, and I'm sure Katja will be talking about it in her road picture, of course, we can see that, for example, the development in Sweden means that some of the growth is taken away, so the supply-demand balance will be a bit longer. Of course, that could mean some margin pressure. At the same time, we are very confident with our business model that we can minimize that impact. We are starting with, like, you know, very extraordinary high margins, for example, in the first quarter.
Okay. Hey, thank you all for the great questions. I think we have to move on, we will have a short break, and we will be back at 1:45 P.M. Thank you so much. Thank you. Thank you. All right, welcome back. It is time to continue our program, next, we will have Matti Lehmus taking you through the Renewable Polymers and Chemicals outlook. Matti.
Welcome back, and indeed, in the next 15 minutes, I will give you an update on a growing business that we have invested in renewable polymers and chemicals. In the background, you have a clear interest in the industry to find solutions, how to make polymers more sustainable, how to replace fossil-based, crude oil-based products with either renewable or circular solutions. This is why we believe that there is also a clearly growing demand for different type of renewable and circular solutions in this important market. Our vision here is very clear. On one hand, we see that it's a great approach to introduce into polymers or chemicals, feedstocks that are renewable. A drop-in solution, ideally, where replacing a fossil feedstock with a renewable feedstock based on renewable raw materials, is a way to reduce the life cycle CO2 emissions of polymers and chemicals.
At the same time, we feel it's very important that we can also circulate and reuse the carbon again and again, this is where circular solutions, like chemical recycling, like mechanical recycling, come into play. A very clear vision. By combining renewable raw materials and at the same time increasing the circularity, the recycling rates, there is a clear approach to increase the sustainability of polymers. When we look at the demand picture, it is our expectation that from the market, which we currently estimate at somewhere around 3 million tons for both renewable and circular solutions, there will be a clear growth trajectory ahead until 2030.
Our estimate is this market could reach as much as 17 million tons. It's quite interesting also that we do believe that the growth in the circular segment could actually be even higher than in the renewable one, meaning that majority of this market in the 2030s could actually come from circular solutions. In the background, you will remember this from our last CMD, we are looking, for example, at the naphtha pool globally, the 100 million tons we talked about that is currently being used for plastics production. This is how we have built these estimates, and you can make the estimation that this would mean roughly a 15% recycling or renewable content in this timeframe. When you look at the geographical split, it's also interesting to note that Asia, of course, represents a large market for polymers.
We would expect this to grow over time, could be the largest market, with more than 7 million tons demand. For example, the U.S., which is also a large polymers market, we note here at the same time, a lot of non-liquid feedstocks is also used. This is one of the reasons why, in particular, Europe and Asia, we believe, have the potential to grow in these two segments. Well, looking at the demand drivers, it's very interesting, having listened now to the regulatory drivers that we already see, for example, in aviation, that we also see emerging regulation and rising regulatory pressure in the field of polymers, of plastics. Some examples: the European Green Deal, for example, is considering recycling targets and setting targets for the recycling rates in different industries.
We have, for example, seen proposals on packaging, and we would expect that dialogue to continue and to look also on fields such as construction, automotive, and others. Interestingly, also, the U.S., the administration has said that they have an aspiration to replace up to 90% of the fossil plastic with bio-based. We also note that there are some very important global processes taking place. For example, the Global Plastics Treaty is an initiative run by the UN Environment Programme, with the ambition to create a framework with binding targets to make polymers and chemicals more sustainable. Interesting to note also, as this regulation is evolving, is that we also have the second pillar here or the second driver, which is more around corporates having their own sustainability ambition. Pledges made by a number of large brand owners, which is another driver for this industry.
A combination of today, mostly voluntary demand, tomorrow, possibly also some regulatory drivers. Of course, we see that in the background, there is that interest by consumers to really work on the sustainability of polymers and chemicals. Looking at it from a Neste perspective, we see that we are quite uniquely positioned to capture the value and to be part of this global demand growth. We are, of course, building on, when I think of the renewable polymers business and supplying feedstocks, drop-in feedstocks to the polymers industry, we are building on the same strengths that I talked earlier about. We have a global platform, we have a very strong feedstock platform, we have very good sustainability processes. All of these drivers are very relevant when thinking about the renewable polymers market developing.
At the same time, we see that the chemical recycling, we have an aspiration to, of course, develop similar strengths over time, also in this business. When we look at some of the focus areas we have, we are looking after working extensively on building, for example, partner networks in Europe. We are putting a lot of emphasis also on Asia Pacific and North America at the moment to increase our market reach. Like you're aware, we are doing a lot of development work to also develop solutions and business models for the chemical recycling. I take some examples, and it's great, actually, when working and thinking of the partners we are working with, that we, in this case, start with some of the end customers who are actually brand owners. You have seen some of these very exciting examples.
For example, McDonald's working on a pilot program to introduce cups which use plastics made from Neste RE feedstock. We have also examples, for example, in sensitive industries like medical, like food packaging, such as Wellspect and FamilyMart. Also, a third field where we have had a number of very interesting partnerships is around products for baby care, for example, like the cooperation we have had with Bugaboo. What is important to note is that we, of course, have very important partners then who are serving these end customers, that is the production partners. We have worked extensively with a number of these global companies, such as LyondellBasell, Borealis, SK, Mitsui, just to give a few examples. Well, let me turn a bit more closely to the chemical recycling part.
Here, our aspiration is to build and develop unique capabilities, which would then enable this value chain of taking plastic waste, liquefying the plastic waste, then pre-treating and upgrading that liquefied waste, and ultimately using it as a feedstock for plastics production. Obviously, where we see that Neste has clear capabilities that we are building on is, for example, this pre-treatment and upgrading part. This is exactly building on the work we have done over the last decade to build our capabilities in this field. You will have noticed that we just announced last week an investment to now create 150 kilotons of upgrading capacity at our Porvoo refinery. This is an important step in actually taking the first steps in this value chain. I also note that we are open to different type of partnerships.
Of course, we are interested in the liquefied waste plastic supply. We also have some technology know-how that we are very open to make available to partners to accelerate that development of the liquefaction capabilities. I just want to spend a few more words on this investments that we announced last week. It is a big investment. It's EUR 111 million, and very importantly, it creates now, when completed, targeting that first half of 2025, that capability to really move to 150 kilotons of upgrading capacity. We have so far made a number of test runs. We have processed three kilotons of liquefied waste plastics over 2020- 2022. Now with this step, we are, of course, really enabling this in industrial scale.
At the same time, I note this is part of a program that has also received E.U. funding. The aspiration of this program would be to ultimately reach a capacity of 400 kilotons. Let me very shortly then summarize our vision here in growing this very exciting Renewable Polymers and Chemicals business. We obviously have a proven growth track record. We have unique capabilities that enable us to create solutions for both Renewable Polymers and Chemicals. Also, we are now starting that journey towards building a chemical recycling value chain. We have a firm belief that there is a clear need to come up with solutions to make plastics more sustainable. This is why we clearly believe that the market will be growing during this decade.
We are building on our very strong network of partnerships that we have built over the last years already, and that we continue building, and this covers not only Europe, but also North America and Asia Pacific. As a final comment, I note that in the long run, we believe this could be a platform to also introduce new type of streams to these customers, and that, of course, then creates an interesting long-term opportunity. Thank you very much.
Thank you, Matti. It's time to move on and invite on stage EVP, Renewable Road Transportation, Katja Wodjereck. Thank you.
Let me share with you why I joined Neste. The business of renewable road transportation has more than doubled value since 2018. Looking forward, we've seen it before, demand is going to triple in the next seven years. There's growth way beyond what we see today, because there's off-road applications and markets, and there's regions out there that we haven't even started getting into it. That's why I'm excited about having joined Neste, and that's why I'm confident that we can realize all the demand that is out there still. Renewable fuels will continue to be needed for decades to come.
When we look at the overall global oil consumption that is today still out there, we also know at the same time that transportation makes more than half of it, we know that it will require a lot of strong technologies and the coexistence of technologies to tackle this big thing, to decarbonize the sector. Today, renewable fuels play a role in that. So do other technologies, electric vehicle. The problem is so huge that we have, within Neste, understood that we believe that renewable fuels have the potential to replace up to 1 billion metric tons of fossil fuels that is today being used in transportation.
Together with electrical vehicle really starting to scale up and other technologies that are coming to play here as well, power to liquid, hydrogen, algae, we really believe that it has all the ingredients and the technologies out there to get there and tackle really the big issue that we see here. I want to now give you an outlook on how we see the long-term perspective of renewable diesels and the updated demand scenarios out there. The key headline for you to take away is that renewable diesel is expected to triple its demand in the next seven years, from today's 11 million metric tons to 30 million metric tons. Yes, this update is in line with what we shared with you at the last CMD, despite the energy crisis that we have been now seeing over the last two years.
What made the greatest difference to this number here and the outlook is that we have been seeing North America clearly accelerating its ambition and also the ambition going forward. Let me unpack a little bit. When we look at North America, we see a beautiful combination of various factors coming together. North America marks today the biggest market of renewable diesel, and it's going to continue to do so. We look at California, where there is the expectation that carbon reduction targets are going to up from today's 20%- 30%. That's going to drive more renewable fuel demand out there. We see at the same time, new states adopting the so-called LCFS programs. We look here specifically at the East Coast, New York, the Midwest, also other states.
We strongly believe that the incentive structure that the U.S. has put in place is going to allow for more players to put their volumes out there independent of suppliers ramping up capacity. Cross with me over the Atlantic, over to Europe, where we see a similar outlook. We see demand tripling from current 4 million to 11 million metric tons. Here we heard it already at the beginning in Matti's introduction, the big legislative incentive here is going to be the RED III together in the combination with the Fit for 55 program. That is going to increase the pressure on many European countries to tackle, to decarbonize their sector, and to look at renewable fuels as a solution to do so.
We expect in the long-term outlook that the Nordic countries are going to play a smaller role here, and we expect at the same time that a lot of the strong, bigger Central European countries are going to play a bigger portion out here. What's the exciting part of this slide? The exciting part is what you see below, because the outlook that we're giving you here is all the demand outlook that is today on the regulated market that we see today. What is not out there is when we look at regions such as South America and Asia-Pacific, that today are eyeing on the incentive schemes that Europe and North America already has put in place.
Good example is Brazil, and I'm excited, small data, but an important one, that last week, the team came back and reported that they have had the first sales of renewable fuels in Brazil. We heard from Carl before that we have an office already being set up there. Also Asia-Pacific, where the question on Japan was out there before, where we signed a partnership with one of our distribution partner and are going to look and drive stronger position into Japan, just to mention some of these examples. What is not on the slide as well, is off-road applications such as mining, the railway, the shipping. I'm going to come into this in a second. Let me now take you more to the shorter term demand outlook.
If we look on the shorter term demand outlook, I want to start with Europe first. If we look at Europe, most of you or all of you are aware that Sweden has significantly lowered the mandate for the next three years, starting out of January next years. Sweden has been one, or still today for this year, is one of the very significant markets today. I want to highlight and stress out at the same time, that at Neste, we're positioned in more than 10 countries physically, and we're selling into more than 30 countries already. The big driver is, on a long-term perspective, but also on the shorter term perspective, when we look at 2024, 2025, the RED III, because that is going to drive short and medium-term demand increase in Europe.
Just to mention also a positive outlook here, we've been very much welcoming that in Italy, for example, the high blend supportive incentive scheme was put in place. Let's go over into North America. I already mentioned the LCFS targets and an increase in California and also the States, but also in British Columbia, are going to already drive year-over-year growth for next year and the year to come. One change that we're going to see and expect to see, and it has been already announced, is that on the tax side, the blenders tax credit is going to change of January 2, 2021, so in one and a half years from now, move to the clean fuel production tax.
That's where we really believe we're going to favor our global production, such as products coming from our Martinez Refinery that my colleague, Carl, has alluded to it in the beginning. Let me share a few words on the changing supply-demand dynamics. Because what my experience, having seen these dynamics in the petrochemical sector in over 20 years, has taught me, that when you anticipate change and you act on it, you can and you will keep your pole position. I want to share some of the actions that we're taking as we speak now. We're going to accelerate our ambition in the U.S. That's already ongoing. We, at the same time, we're shifting and accelerating our ambitions in other European countries such as Italy, the U.K., Germany.
When we look into Sweden, we have a lot of customers and logistic partners that are today buying Neste MY 100% already. We have, in fact, more than 300 stations selling Neste MY in Sweden. Those are customers and logistic partners that have already gone beyond what mandate told them, and we will continue to supply them, and they want to continue despite the mandate change. We're developing new regions. I mentioned Brazil and Japan, just to name one. At the same time, and that's the part that I personally find very exciting, we're looking into off-road applications, into non-incentive, voluntary remarks. Here, one of the ones that I get pretty excited about is the mining sector, but also the railway sector.
I want to share a couple of examples that we brought here for you to share. Let's look at the mining sector. Today in mining, more than 130 million tons of fossil fuel is being used. 130 million tons. That's an area and a market, if you look at the scale, and unfortunately, we cannot put a man next to it, but when you see these machines live, that's an area that is going to be very hard to abate and to move into other technologies. We believe that renewable fuels can be an outstanding solutions there. Not only we believe this, also big players such as Rio Tinto do this.
In fact, as I'm standing here, as we're here with you, there is trials going on with Neste MY in the U.S., and we look very forward to understand more how these are going to materialize. Another beautiful example that we wanted to share with you was a collaboration and an agreement partnership that we signed together with the German railway company, Deutsche Bahn. Here, likewise, the sector of rail cars consumes 20 million metric tons of fossil fuel, the majority actually in the U.S., and we take pride in it that we already signed a partnership to accelerate and get a stronger position in this sector as well. Just to also give you a perspective on what's going to continue happening in the Nordic.
In the Nordic, together with our long-term customer and partner, Q8, we've signed an agreement, and we're going to get our Neste MY out, and you're going to see Neste MY renewable diesel at the pump stations in Denmark over and above to what the mandated levels require. It's really this combination of having a global footprint on the feedstock side, like we heard from my colleague, Carl, in the beginning, but acting and serving your customers locally. Let me repeat, we are out there in more than 30 countries already. Of being trusted by your customers because we are not only reliable in the way we supply them and we act on them, but specifically trusted because of the sustainability impact and the proof that we give them. They know that when we say something, we deliver on that.
I wanna share some examples. This business, although it's maturing, it's still a very young business to come in, specifically from the sector that I come in. It's a very young business still to be in, and a lot of those customers that we started to grow with together, they've grown with us. We take pride in that 6 out of the 10 largest customers that have started with us since 2017 are with us today, and we're going to maintain our pole position with them. That's our ambition. Why? Because they trust us. They know that when we put a sustainability certificate out, they know we go beyond. They know that we track it. Beyond any collection point, and they know that they can trust us because of that.
Let me close with the following for you to take away with: Demand is there. It's going to triple, and that's a reconfirmation from what we've been telling you before. There's upsides in, because as I said, off-road applications, as mining, as railway, have not even been captured today in these numbers. Other regions out there, such as, the Americas, Latin America, Asia Pacific, are not in these numbers. That's really just the demand part on the regulatory side. Why? Because we strongly believe, and so do many other players, and markets, and regions, renewable fuels are needed to combat climate change. We have only one strong ambition, that is going to continue to be the leader in renewable fuels and keep our pole position that we have built up the last couple of years.
I wanna thank you very much for your attention, and I look forward to the questions in the Q&A. Thank you.
Thank you, Katja. Very excited about the future of RRT as well. Now it's time to invite on stage our EVP Oil Products, Markku Korvenranta. Welcome.
Oil markets are emerging from a period of unprecedented volatility. Last year, we needed to reinvent significant elements of our business. We did it successfully. At the same time, the long-term trends for fossil fuels have not changed. They are pointing downwards. Against this backdrop, we have started to plan for the future of refining with renewable and circular feeds only. Before moving to the transformation study, allow me to say a few words about our recent performance. Looking at the last five quarters, total refining margin performance, I think we can all conclude that we have been able to navigate the energy crisis well. According to our own peer group analysis, we have had the highest margin in this period. The key drivers here were advantage energy position and our middle distillate heavy product mix.
Strong market position in our home markets, that is Finland, Sweden, and the Baltic countries, is one of the key competitive advantage for us. We are glad that we have been able to gain, maintain that position in the new environment. This strong position is because of the deep knowledge of the marketplace, the logistics and the terminal network we have, the ice-class vessels we operate, and of course, together with the innovation R&D, we have developed a product mix which is perfectly fit for the harsh Nordic climates. We have also created an optionality to ship between natural gas and propane in hydrogen production. This was very important profit driver last year. We are going to benefit from it going forward. A big part of that shift already happened last year when we converted our own hydrogen unit for a propane service.
Again, this is optionality. We can go backwards and forwards. We will complete this program early next year when the other hydrogen unit that we have for our availability will be converted as well. Crude slate changed last year when we moved fully away from Urals to the other grades. Today, most of our crude oil comes from North Sea. We are actively developing other markets as well. The upside of this one is not fully into the books yet, as we learn experience from operating with new crudes in the operations. I would sum up that the relative competitiveness of our fossil fuel refining in Port of Vuosaari has been maintained even in this changing market environment. Moving towards the transformation, the future.
We announced a strategic study in September last year on the transformation of Porvoo Refinery. We stated boldly that our ambition is to turn the refinery into a world-scale site for renewable and circular solutions. The study continues as we test the hypothesis and challenge our own thinking on what the refinery can really do when processing new raw materials. What are we doing in practice? We are, in practice, looking at looking to add 2 million-4 million tons of renewable and circular capacity in Porvoo. The large range, 2-4, indicates the flexibility and modularity of our approach.
The choice of the scale depends on the market demand for the particular products and feedstock availability, as well as, of course, our capability to process these blends of various feedstock in our current units and the units to be built. Through transformation, we will reach our 2035 climate commitments of carbon-neutral production and the interim target of 50% reduction by 2030, compared to the 2019. OP's role is particularly important in the Neste family, in the footprint right. We have currently relatively large CO2 emissions, and that through the transformation, we will be able to eliminate. The transformation would lead us ending crude oil refining by the middle of the next decenniet. This is natural consequence of anticipated market changes.
First of all, we anticipate increase in renewable circular solutions, and secondly, we anticipate a decline in fossil markets, and particularly in our home markets in the Nordics. Neste has what it takes to implement the transformation successfully with our innovation and engineering capabilities, and totally unrivaled understanding of the value chains on both renewables and circular products. It's also worth to note that with our global supply capabilities, sourcing, and logistics, we can continue to serve our customers with all of their fuel needs, even beyond the middle of the 2030s. Why do we believe that the Porvoo Refinery is the right refinery for the transformation, and that it can contribute to the renewable and circular future? The value drivers are compelling.
Let me say here out front, I'm really happy from the statements of my colleagues on the importance of flexibility and optionality. In Porvoo refinery, you will get exactly that. The refinery is one of the most complex refineries in Europe, and complexity in refinery terms is good thing. It means that we have multiple production units available to us to produce both renewable diesel, sustainable aviation fuels, and chemical feedstock. The Porvoo site could become a real growth platform for my colleagues in our businesses. We have done some scenario thinking here. In one scenario, we have been looking at as much as 50% of the overall production to be directed towards sustainable aviation fuels, and the big part of the balance would be in RPC side of things.
The most bullish RPC scenario would indicate more than 80% of the production actually going into the RPC applications. These are very big figures, from one end to another one. Of course, if the market so desire, we can also swing the production to the renewable diesel in, to the extent of more than 50% of the overall volume. Neste has unique competencies in pretreatment technology for both renewable and circular feedstocks. These technologies will be put at good use as part of the Neste Porvoo transformation. This will play actually also to the heritage of Porvoo organization and assets.
We have been successfully processing difficult fossil feeds in that refinery for decades. We have what it takes to be successful in it. I'd have no doubt that we can do the same in the renewable and circular space. Again, the CapEx productivity, we will get more for the CapEx dollars, euros that we will be spending because we have a broad range of assets that we can retrofit and turn into a new use. This is big benefit for us. The greenfield investments in our thinking would include the pretreatment capabilities, which we don't have today. Those would have to be built on the location.
On the green hydrogen, Finland is the one of the most competitive location for green electrolyzer hydrogen production, given the abundance of carbon-neutral electricity. Green electrolyzer hydrogen is a drop-in solution for the decarbonization of refining processes, be it fossil, renewable, or circular. Electrification, together with utilizing light gases from the process, is another avenue that we are looking at for the needs of our green hydrogen in Porvoo. It's an excellent combination with the renewable electricity for electrifying and then utilizing the light gases from the process. It's great that we can continue to study the transformation. It's equally fantastic that we actually already taking the first steps towards a different future.
The first I would like to raise is the basic engineering decision on the first electrolyzer in Porvoo. We can expect an FID on this in the first quarter of next year. The size of the electrolyzer is 120 MW, and with that, it's one of the largest and the most advanced electrolyzer projects in Europe. Matti already mentioned about the final investment decision on the liquid waste plastic upgrading project. Again, EUR 111 million, 150 kilotons of capacity. This is, again, a first of its kind, and really shows Neste's leadership in this emerging sector. Beginning of this year, we started the commercial scale co-processing of waste and residues in Porvoo.
Our goal for the year is a little bit short of 100 kilotons for the first year. We are again, moving into from trialing out with few kilotons, we are actually successfully moving into industrial scale production as a proof point of our capability to deliver. Finally, on green electricity, 2022 was the first year when all of the electricity we used in Porvoo was green. We, of course, will be continuing along the same path going forward. Summing up, we at Oil Products have a strong track record on value creation. The same drivers that we have been able to use in the past to deliver value will be available for us going forward in the fossil refining, but it will also support the transformation to a renewable and circular future.
The reducing of emissions for climate commitments is important. I already mentioned the importance of OP, the Oil Products, particularly in the footprint reduction. That's where we have a significant role in the Neste family. Finally, to our colleagues, what the study and what the transformation when implemented, if implementation, that would be creating a fantastic platform for growth in both renewable and circular. With that, I thank you for attention.
Thank you, Markku. Now we will have our second joint Q&A session. Markku will be joined here by Katja and Matti. Welcome. There, in the center, we already have lots of questions.
Yes. Hi, it's Pablo Cuadrado from Kepler Cheuvreux. Just two quick questions. Probably the first one is on the renewable diesel on slide 48. When you were putting that breakdown between the European growth, can you help us to understand? Because I guess the '23 number still has Sweden with the current mandate, and next year is going to be cut significantly. Running the numbers probably is implying that just in two years, according to that, the volumes in Europe are doubling. Can you help us to understand what's driving that growth on that front, which countries or something like that? Second question will be also on the renewable margin. I know that probably many people is, you know, willing to ask this question.
You have been talking before about, you know, the supply and demand balance, which probably in the short term is not looking nice, probably getting better by the end of the decade. Can you comment as well, which is the view that you have on the renewable margin? I know in the past you were talking about renewable margin, healthy range, EUR 600-EUR 700. It was hinted that that could be increased. Just to understand, you know, where do you see that? We know that you guide on next quarter, just to understand where do you see things?
Katja, perhaps on the demand outlook, please.
I saw your name, Pablo. Do I look correctly from here?
Yeah, yeah.
Yes. Did I get your question right, to give a little bit of color on the next two , three years outlook in terms of demand shifts? Is that how I understood that?
Yeah, particularly in Europe.
Particularly in Europe. Well, we are in the process... like I said, Sweden is a very significant market to us today as well. The mandate change takes in place, we don't expect, first of all, any change as we currently talk, because we have our plans in place, and the mandate only comes into effect as of beginning of next year. We are now in the process of updating our plans and going into the discussions as we do every year. Like I said, there is other countries that we're going to reshift and prioritize. I mentioned that already, the U.S. specifically here, but also other countries like Italy, U.K., Germany, they're going to play a more dominant role as we go forward. We are in this update as we talk here.
Perhaps, Pablo, I can just make a general comment on the margin. Like you also said, we of course, only guide for the following quarter. What I commented earlier, I think, and now, you having listened to the different businesses, I mean, it's clear that with the change that we see in Sweden, that is reducing the growth rate in demand short term, which means also that the supply-demand balance is expected to be longer. At the same time, our entire strategy is based on having access to a number of markets and creating more optionality also going forward. Of course, longer supply-demand balance means that there may be margin pressure from the very high levels we are now, but we are also clearly working on minimizing that impact.
I think we have a question there. Yeah, keep talking.
Sorry, it's Joe Mares from Trium Capital. Can you just discuss a little bit more in terms of plastics recycling? You know, what the competitive dynamics are in that business in terms of being successful relative to peers? Clearly, I know it's a small part of your business. You have E.U. money to do it, so it's probably not it is what it is currently, but going forward as a growth vector for you, is it being able to source? I mean, if you look at your other businesses, part of it is being able to source things cheaply and efficiently, close to units. Is it that you think you have a competitive advantage being able to source plastics? Is it that your technology with Alterra, you think is better than the competitors, you're able to do that process more efficiently?
Are there integration benefits of being able to basically do plastics processing at the same time you're doing your other businesses within your production sites that you think gives you a competitive advantage in this area? Thanks.
Thank you, and perhaps I can answer that question. First of all, stating that, like you heard, we do see that there is interest, not only in Renewable Polymers and Chemicals, but also as an alternative approach to increase the sustainability of plastics, for example, to have a chemical recycling approach. That is why we believe, over time, regulation may support this, and we already today see voluntary demand interest into these type of solutions. I was briefly describing the value chain like we see it, coming from waste plastics to liquefaction, to upgrading, and ultimately providing a drop-in solution for polymers companies. We, of course, in particular, that we have a lot of capabilities when it comes to pre-treatment and upgrading of impure raw materials, and I think Markku also made reference to this.
Yeah.
Investment we, for example, now made in Porvoo to actually scale that capability to this 150,000 ton scale. In parallel, we see, coming a bit more to the dynamic, that it's important to support the creation of more liquefaction capacity. There is a lot of companies working on different technologies, a lot of trials. We also have access to a technology with our license for Alterra, and this is, of course, something that we are very ready to partner with companies to make it available also, to accelerate that build-up of the liquefaction capacity.
Henri?
Yes, hello, Henri Patricot from UBS. I have two questions, please. The first one, just going back to slide 20 on the supply demand outlook, and more specifically, on the demand side of the equation. If I look at the different numbers that you've given us, 30 million tons renewable diesel, 15 in SAF, and then you have 40% of the 17 million tons in chemicals. You get to more than 50 million tons of demand, and on the slide, you show just a bit above 40 million tons. Why wouldn't the number of more than 50 million tons be the right one to look at for demand by 2030? If we include all of these, the voluntary demand, what do the numbers look like for 2025 and 2027 as well?
Secondly, I wanted to follow up on the outlook for next year, for 2024, in terms of the volumes. I understand you'll be reiterating to mention Italy, U.K. On SAF, I was wondering if you can give us some sense of how quickly you can ramp up sales volumes next year. Thank you.
Thank you, Henri. Perhaps I can comment on the high-level picture on the demand. Like we have indeed shown, like Katja explained, in road transportation, we expect a 30 million demand by the end of the decade based on the regulatory schemes that we see in place. You also heard from Sami that we have the belief that the aviation market will grow rapidly and reach 15 million tons, both, let's say, regulated demand, voluntary demand. We see also some upside potential for renewable polymers. This is sort of the pieces that we see. In that chart, we have put an overall estimate of around 40 million tons, but you're right, when you do the sum, then you come to slightly higher numbers.
On the sustainable aviation fuel ramp-up, I would probably recommend to also still ask that question to Sami later in the Q&A. Obviously, at the moment, in the process of ramping up our Singapore expansion. Like we have said before, this takes several quarters, ramping up such a very complex refinery. We would expect to test that SAF capability in the third quarter, and then that enables us to grow in the second half of the year. We have not put out yet exact sales targets. Our approach is, of course, to grow then with the market demand. I also remind that in early 2024, we are targeting to complete our Rotterdam optionality project. Again, it gives us then, after early 2024, the possibility to ramp up that capability.
I think we have that there, a question on the right.
Michele Della Vigna from Goldman Sachs. I wanted to ask you two questions. The first one is on green hydrogen. We hear a lot about the IRA incentives, $3 per kilo. What do you get in Europe, and is that attractive enough for your Porvoo project, but potentially also to think about Rotterdam in the longer term? Secondly, when we look at the SAF market, we are seeing tremendous incentives for production in the U.S., again, with the IRA. In Europe, we get a lot of mandatory demand from 2025. Is Europe running the risk that ultimately the best economics will be for SAF to be produced in the U.S. and then just exported and used in Europe?
First, Markku, you want to comment on the green hydrogen question?
Thank you. Great question. There are periods. For the green hydrogen, there's a period from now until the 2030s, and then there is the period from 2030 onwards in Europe. Our assessment on combined with the production economics in the Nordics, there is value to be made. We believe that Europe as a whole will be competitive for its own, refining needs, in terms of, in terms of green hydrogen.
I can perhaps build on that. Again, the SAF question, I'm sure Sami can later give more details, but perhaps I just remind of the big picture, like Sami explained. Europe is approaching this, if the proposal is confirmed, through a mandate approach. The U.S. has more an approach of tax credits. Different alternatives, both have the same target of accelerating the market growth. As this is clearly something where also the industry is now developing its capabilities, we have seen a number of projects. I just think there will be an industry response in both regions to serve that demand over time.
Let's take one over there, in the back row.
Back row?
You've been waiting for so long there.
Thank you. Thank you. Matthew Blair from TPH. I had a question on slide 54, where you talk about the BTC converting to the CFPC. You mentioned the uplift at Martinez. Could you quantify that? What happens when that occurs? What happens to the volumes that you're bringing over from Singapore into California? Does that need to find a new market? If so, is there enough demand in Asia for those gallons, or does that have to go to Europe? My follow-up question is on slide 53, talking about the future growth, demand growth from the California LCFS program. You mentioned the potential switch to the 30% CI cut by 2030. Are you expecting any other changes from CARB, such as the step down or the elimination of veg oil-based RD in your assumptions? Thank you.
Thank you. Katja, do you wanna give a comment on the CFPC question?
I will start, maybe then the second one, for my experience level, I'll let you more chime in.
Sure.
I think the first one on the tax, it's a very fair question. I think it's also fair to say that even the tax credit, it's one component of the overall. You still have that's the federal piece, then you obviously have in the state, the LCFS targets in. There will be a revaluation where to source, like I highlighted, we have our local production, yes, as we move forward, we will be seeing how the supply-demand dynamics globally, as other regions come on stream, as of 2025 will look like. It's a very fair question, the BTC is one component from the overall. Very good question, indeed.
I can perhaps just build on that. I mean, obviously, it is right now that the exact way of implementing this planned change for the CFPC is happening. We obviously see that having a local production footprint is a good starting point for us so that we can also in that kind of scenario benefit from these tax credits through our local production. We will see over time, I mean, whether there is any other mechanisms or whether it's a better approach to reallocate volumes to other regions. I think I come back to this flexible business model that we have, that we will obviously be optimizing based on all the different demand demands out there, and at the same time, all the mechanisms that are available. That would be. I think that hopefully answered your questions, or did you have a third one?
On the California LCFS.
Okay, thank you. Just commenting briefly on that, we are, of course, following with great interest. We see that in a number of states, there is new LCFS schemes being under prepared and under planning. In the case of California, it's more a re-scoping that happens, where they are assessing whether to, let's say, set a new ambition. At the same time, of course, it's clearly something we are following if there are additional criteria. We don't have any specific insight on that.
Hey, let's take one short question still. Matthew?
Thanks. It's Matt Lofting, J.P. Morgan. I'll keep it to one question, perhaps with two or three parts to it, if that's okay. Different parts of the presentation, you guys have alluded to the superior optimization, credentials and flexibility that this business offers within the market. The financial market are clearly wrestling to some extent to sort of understand how well that positions Neste to sustain robust margins in the face of the sort of the well-supplied supply-demand that you sort of presented through the middle of the decade. Can you sort of address two or three things? One, pull together with a bit more granularity, the superior value drivers that you believe the business possesses and how that advantages you through the next couple of years.
Secondly, share any view or comment that you have on the realistic average utilization of supply over the next few years, given that some of the capacity, arguably, is more marginal retrofit and doesn't possess some of the credentials that your portfolio does. Thirdly, share a sense of how long as a business you've been preparing for this period of well-supplied market conditions and how that also helps the business to defend the vantage position that you've built. Thank you.
Thank you. Perhaps I can start, I'll give it Katja, if you have additional comments on that. My first comment would be that on the business model, I actually touched it in my earlier presentation, that we see actually a number of drivers on the flexibility that are important. Product flexibility is important, but also market flexibility is important. Katja talked about it, for example, for road transportation. At the same time, also feedstock flexibility is important, it's really when we look at this end-to-end, it's this combination that we find so important in our business model. Depending on how the market evolves, we will adjust both feedstock and market and product mix in an optimal way. How long have we been preparing?
I think you can look back that, for example, that effort to start developing systematically sustainable aviation fuel capabilities, that started already a number of years ago. We made a decision already far before there was all the type of regulatory processes ongoing that Sami was explaining. A clear choice to start creating that optionality. On the feedstock side, I would say it's actually been a decade-long effort that we have been growing the number of waste and residue streams. It's part of a long-standing strategy, and we just believe, like we had done in Oil Products for a long time, that having that flexibility is an important value driver in different type of market environments. Anything, Katja, you would want to add-
Yeah
-from an RT perspective?
Maybe to add on, that's why we purposely, on the outlook that we gave for Renewable Road Transportation, we went a little bit on the longer term, because the longer-term demand fundamentals, they're completely there. Yes, you hit it completely right. In the mid-20s, we're expecting the supply-demand dynamics for the first time in this sector to change. We're ready for this. Me coming in still with fresh eyes, I've never seen so much market intelligence in-house before. It's all about anticipating, knowing what's coming, and then adjusting a couple of elements. The elements that I said is getting ready faster, getting with the full organizations out there, staying very close to our customers.
Like I said, we're close, in 10 different offices, 30 customers, 30 countries out that we're serving there, and understanding really, where we're going to continue getting in our pole position and where we're going to expand and conquer a little bit the new territories out there. We're getting ready for this, or we are getting ready because we've anticipated that already to come in in the next one, two years.
Hey, thank you for all the great questions, and thank you, Katja, Matti, and Markku.
Thank you.
Now we will invite on stage. Thank you.
Thank you.
We will invite on stage Martti Ala-Härkönen, our CFO.
Thank you very much, Anssi. Next, I will be going through how we will be providing you with the financial context and also the investment management context to our short- and long-term strategy. I will also be going through what is our sort of secret formula for importantly balancing growth and also efficiency in order to maximize our value creation going forward. I would like to start by looking and taking a five-year historic view into our financial targets. We have two financial targets as Neste. Of course, being a capital-intensive company, highly important for us is the comparable ROACE after tax, and then we have the leverage. We are extremely proud to be able to have shown this performance over this past five-year period.
It shows very clearly that we have experienced continuous strong delivery and management of our financial targets. If you look first on the left-hand side at the ROACE, we achieved actually a record high level of 31.8% at the end of the first quarter of this year. It's, though, good to be noted that in the last four quarters, we have experienced very strong margins, supporting also our ROACE from the oil products business. Looking a bit more forward in oil products, we see that there will be a decline in the demand picture on that side of the picture. On the other hand, in leverage, despite our continued growth investments in recent years, our leverage was at 18.7%, well within the target range of lower than 40% at the end of the first quarter.
Of course, this provides a lot of further financial flexibility to support our growth. The Neste strategy drives value creation through combining growth and with efficiency and long-term competitiveness in order to maximize on the value. Throughout the presentations today, you have been particularly highlighted by my colleagues about our excellent growth opportunities in our businesses on the growth side of the business. I want to just capture some of those highlights. They've been, though, already summoned here through the questions. Firstly, I want to say that, of course, we have already built the global business platform, and we are extremely proud of that. We are operating, now we are upscaling with new capacities. On the differentiation side, the cornerstone really is the flexibility and the optionality.
We have a breakout session later, and we can describe you hopefully a little bit more in detail how we are actually optimizing, even on a daily level, starting from feedstocks that we are sourcing globally to end market demand and optimizing the whole supply chain in between. I think it was extremely important what Matti went through when he described the value creation, what he called multi-levered factors, and these are the optimization of flexibility factors, optimization across feedstock globally, optimizing through the different products and markets, as well as optimization in the supply chain. Well, we actually have, at present, a lot of value creation potential also on the right-hand of the equation. Why is that so? Firstly, we are now sort of ready with the build-up of the, of the global production platform.
Second, we have also been rolling a harmonized ERP, SAP, with a new version of S/4HANA, that was all now roll out throughout our operations by the end of 2021. After that, we have been adding several adjacent other softwares, what we call today an integrated ERP backbone. We have been putting together a very robust and modern data platform, which now can provide us data to also start doing things like simplification, harmonization, and scaling to our processes with the help of digital and data as examples. I will later in my presentation, touch base with some further examples on this side of the equation. Let's still continue a while on the growth side. This slide shows our growing cash allocation to CapEx and dividends over the past six years.
The first notion here is really the amount of growth that we have been experiencing, and the fact that at present, we are already running on a high-growth mode. The estimate for this year, it will depend, of course, on the final outcome of our M&A, is about EUR 3.1 billion, and that is more than 3.5 times if you compare to the end of 2018, when it was at EUR 830 million. We have also provided our guidance for this year's cash-out CapEx, excluding M&A, which is between EUR 1.7 billion-EUR 1.8 billion. Not so much has been discussed on M&A before here, but what you can see there in the light green bar, is an increasing part of an M&A being in our toolbox, particularly since 2020.
We've been completing more than 30 strategic acquisitions, particularly in the feedstock base. Couple also on the technology place, like the Alterra technology, liquefaction technology, and so forth. These have paid and are playing going forward, a fundamental role in our strategy as well. We have a highly capable M&A team in place inside Neste, working globally. At the same time, you can see in the graph that we have continued to pay attractive dividends despite the market volatility. At the bottom of the graph, you can also see our maintenance CapEx, and I think Matti already mentioned that it is. Actually, it has been between, only between EUR 15 million-EUR 20 million over the past last years as an example. The majority, huge majority of our CapEx has been into growth CapEx, supporting our global growth.
In this slide, we are zooming a bit more closely into where we are investing. It has very clearly been into the renewables and circular solutions, according, of course, to our strategy. Over this period, the organic growth CapEx that we've been putting into the renewable and circular space has grown from a bit higher than 20% to more than 80% of group investments. Actually, last year it was 88.4%. You can also see in the graph that if you look at last year and this year as a forecast, we are putting more than EUR 3 billion into this space. We are running, at the moment, at a high level. That's a good evidence, I think, of our ongoing transformation that we've been already carrying on for a number of years.
At the same time, if I zoom into the Oil Products, in that space, we have mainly only been putting investments to support our safety, productivity, reliability, and maintenance investments. A very clear distinction where the focus has been. Throughout this period, and we also look forward to continue doing so, is that we wanna support also a strong balance sheet. There's significant financial flexibility to further support our growth. We have been having a very high cash conversion, if measured by the cash flow from operation divided by our comparable EBITDA. Perhaps with the exception of last year, where we had the energy crisis and the fact that crude oil prices and feedstock prices were so high, also, our inventory levels in the balance sheet increased.
If you zoom that out, in the past four years prior to that, we have had a very strong cash conversion of about 1.0 cash flow from operations divided by the EBITDA. On the right-hand side of the graph, we are describing the maximum debt capacity that we have, at which period, at each period of time, before reaching the maximum 40% leverage level. That was EUR 4.3 billion at the end of last year, so a lot of extra potential capacity. At the same time, our net debt was only EUR 1.3 billion, and the net debt to EBITDA, which is often also used as a leverage measure, particularly by commercial banks, only at 0.4 times.
Finally, I wanna mention that our liquid funds and committed unutilized credit facilities, they total EUR 3.3 billion at the end of the first quarter of this year. That is actually also a higher figure that we had at the end of last year. We have a little bit added to our liquidity. The balance sheet stands out strong, supporting our future growth going forward. A few words about our new dividend policy. The main point here is that I do believe personally, this will, in the right way, allow us a little bit more flexibility, supporting our growth and opportunities going forward. The new dividend policy goes that the target is to pay a competitive and over time, increasing dividend going forward. A few words, what does this word, you may be pondering, competitive, then mean?
Of course, it means that we will be benchmarking ourselves firstly to our peers. Well, what are the peers for Neste? I was asked about this on the, on the break, and I then mentioned that actually, for instance, oil and gas companies are not the right peers for us because many of those, of course, they have loads of cash at the moment in their balance sheet, but they are not growing in the same pace and laying out proportionally the same pace of investments or growth as we are. You should be looking at companies which are both growing and having those opportunities when comparing. Something specialty chemicals companies in the space could be a right peer.
Also, for the competitive, we mean that we will be, of course, following our sell-side analysts' expectations and our main shareholders' expectations for the dividend, which are very important contributors to making those decisions. Finally, this over time, increasing dividend, that means that the ordinary dividend is the basis we will follow. Of course, if there is potential there can always be extraordinary dividends, if so decided or proposed by the board for our AGM. To our capital allocation, and the key here is that the We believe that the capital allocation principles, they drive both long-term value creation, in a balanced manner, also an attractive return to our shareholders.
Here you can see, historically, we have the growth in our investments and dividends that I just went through, but I think it's probably more interesting to look forward and think about that. At the bottom, we have the, what we call the prioritized maintenance CapEx. Early on, Matti had a slide where he showed that when we think of our comparable ROACE target of higher than 15%, actually, those investments typically don't have to necessarily meet the return criteria, but do we still have to make them? We have come, of course, to the growth CapEx, and here are a couple of important notions if I look forward. First, it's what we are saying that our investments will be carefully sequenced over time. At present, we are running at a high level.
If I look forward, I foresee that we're gonna continue our growth investments. Overall, I foresee that we have numerous growth opportunities and a very healthy pipeline of potential projects where we then just have to choose which are the best ones, providing the highest returns in terms of product-wise or market-wise. I do not foresee that there would be a very high investment outlay in one particular year, rather than they will be sequenced. There can be also some years where we are slightly lower compared to this year, but in our base plans, we definitely have a growth trajectory going forward. Important for value creation is, of course, the returns that we are providing, and we have a very clear target, internal rate of return target for our overall portfolio of higher than 15%.
Actually, for individual projects, we often go quite substantially higher than that 15% level, because the overall half portfolio has to meet at least that minimum requirement. That's my experience with the company, of the latest ones that I've seen, that we've been going through, they are clearly above that target level. It's also worth noting that that is more than two times our weighted average cost of capital, if measured. Today, we're at about 7.5% WACC. You saw earlier in Carl's presentation, an aspiration to be at more than 9 million tons by 2030, but we're actually not sticking to some kind of a.
Some of our peers may give out a target for volume capacities by 2030 or even beyond, or wanna describe now that each of their projects, you know, what they have in the pipeline. We rather think that we have an excellent roadmap, now very clear, up until for the next few years. You have been hearing about those. Then, as the time goes by, like I said, we will be choosing those projects which have the most attractive returns for execution. We will be growing also going forward. On the dividend side, I already went through a competitive and a growing dividend, very clear targets going forward. I want to talk a little bit about this other side of the value creation formula, about the efficiency and long-term competitiveness.
Neste has been running an umbrella efficiency program called Neste Excellence, which was launched in 2018. We are very happy about the achievements. By the end of this year, we earned EBITDA creative value creation of EUR 464 million throughout this program, with valuable metrics, measurements. That was EUR 114 million higher than our EUR 350 million target. Now, we are targeting new additional higher than EUR 350 million of additional EBITDA creative value creation by the end of 2026, compared to 2022 as the new baseline figure. We are driving that value creation. Here you see four key levers. That's not an all exhaustive list of the levers. We have also some other ones, like procurement excellence.
Compared to the previous period, where, for example, this production excellence with capacity creeps at our production facilities played a major role, and there is still a lot of new potential that we have our new capacities being now rolled out. I foresee that we have a lot more potential with digital and data-driven and end-to-end process excellence. Here are a few examples, like I promised. As an example on the digital and data, we have been, over the past six to nine months, been able to put together, like I said, very robust modern data platform at Neste. We call it the Neste Data Platform, which today combines more than 36 different sources of data. Through that, we've been already rolling out, and are about to roll out during this autumn, some examples.
We'll be able to track our customer profitability and product profitability, starting also from the feedstock sources, wherever they come. Of course, this is a great online tool helping us to further optimize. Also, our sales performance and pricing dynamics are some of the features that we will be opening now during the autumn. We have a number of projects ongoing in the area of production or supply chain management, just to name a few. Actually, the number of projects that we are running has more than doubled over the past six to nine months, and what we call highly accretive projects have more than tripled. A lot of hopes on that going forward, important contribution to our value creation.
We are coupling this then with this end-to-end process excellence view, so that we have those process responsibilities, of course, for different layers of our processes, starting from high level to lower level processes. We are putting together end-to-end KPIs, targets, and start measuring those efficiencies in order to achieve continuous improvement. Perhaps a few words also on this business model optimization. During this period, as part of our strategy, we have been going through in detail the business models that we have on the renewable part of our business. As we are now growing and ramping up those businesses, we can make better choices with certain rules through the optimization, which are the most value creative, again, for the company as a whole, and where we can also be optimizing on the fixed cost or net working capital in particular.
What are we overall targeting with these levers is an improved competitiveness long term, and also very substantial margin support. In addition to that, we have been setting internally very clear targets for fixed cost efficiency, as well as net working capital efficiency over the next four years. As an example, for fixed cost efficiency, I'm very much looking for what I call operating leverage, you are familiar with that. The slope of fixed cost growth, I do not believe it will go in the same pace going forward, as our new capacities in volumes of tons will be ramped up. At Neste, we are importantly balancing also our growth and differentiation by creating these efficiency and long-term competitiveness leaders. I've been reviewing, we have financial targets as such are unchanged. We have a new dividend policy.
We are extremely proud of our historic financial performance. We are driving our efficiency and digitalization to achieve long-term competitiveness. We have the capital allocation supporting our long-term value creation. I want to summarize that I think we have the pieces and actions together to maximize on the value creation going forward. Thank you.
Thank you, Martti. Now we will have the chance for the final joint Q&A session, and we will be joined by Matti. Thanks. Questions live here or online, use the QR code, please. There Iiris.
Hi, this is Iiris Theman from Carnegie. Just, in Sweden, could it actually be so that your volumes don't decline so much next year if volumes shift to HVO 100 due to its tax exemption? Then my second question is related still to this renewable diesel supply, oversupply in the coming years. Do you expect that all these projects will materialize, especially now in 2024 and 2025? How much of these announced projects are retrofit feeds, which potentially don't have a feedstock capability or utilization rates are low? Thank you.
Good questions.
Thank you, Iris. Perhaps I'll start with the latter question first. You saw earlier in the presentations, this was actually in Carl's presentation, our high-level estimate of the supply, production capacity, sorry, development in the coming years. Obviously, what we note when we make our estimates like this is that for the coming years, it's typically projects under construction. There is, of course, always uncertainty on the timing, but especially if you move more than 1- 2 years ahead, it's also projects which are not necessarily yet under construction or where the FID has taken place. We typically try to put a probability, especially for those tail-end projects. The other question I commented, I think earlier on, is I think it's a totally different question than at what rate these units will run.
That is, of course, always a decision by every individual operator, whether to run and whether there is the ability to run at 100%. In general, I note that a lot of the supply additions happen in North America, and that there is a lot of retrofits in that portfolio. That is our observation. On the specific question of Sweden, I think Katja went through it very well in her part. I think there is a clear change in the regulation, what comes to the mandate. At the same time, there continues to be a high-blend market, we are, of course, ready to support our customers for the interest into both segments, but especially also to the high-blend market.
I would like to add by there's been a lot of highlight on the feedstock side in our strategy. If you take another example from Finland, you know, there's a lot of forestry industry. A couple years back, I think there were three large-scale products for new fiber production announced, and I think one of those pulled through. The reason for the other two that they didn't, there were maybe other reasons, but one of the main reasons was the availability of the raw material. We do foresee that this is a critical element to safeguard, and that's an element where, like Carl was going through, we have been already building for a decade our platform. More than 60 countries, more than 500 vendors, and the optimization, the capabilities combined that we have on the pretreatment side.
I think that provides a very interesting starting point, as a competitive advantage as we outlined, together with the optimization.
There in the middle.
Hi, it's Anish Kapadia from Palissy Advisors. A couple of questions, please. Just first of all, on the dividend, going back to the phrase, a competitive dividend, could you talk about the metric that you're looking at when you talk about competitive dividend? Is that a payout ratio? Is it the dividend yield that you're looking at versus a specific peer group? A second question on, I suppose, on your competitive advantage with renewable diesel and sustainable aviation fuel. You know, your end product now, it appears to me as if there isn't a competitive advantage in terms of what you're selling versus other newer generation renewable diesel projects. You've got, it appears, the competitive advantage in the pretreatment side of things.
I just wanted to understand how long do you think you will be able to sustain that competitive advantage for, and, you know, what are you seeing in terms of competition coming in for that? Thank you.
Thank you. Thank you very much for the excellent question. Starting with this, what does competitive mean, and how do we measure that? Surely, we will be deploying various metrics. The payout ratio is, of course, an important one, dividend yield. Like I explained, we're gonna look at. We don't have it at this moment precisely, because which are the real peer group? You could look at Diamond Green Diesel in the U.S., but it's owned by two companies. There aren't really many players having part of their portfolio in this space. We will surely find the right ones, and we will be comparing through their performance, such companies that are investing both into growth and are valuing highly the dividends.
Like I said, we can also equally competitive means we need to listen to our expectations from the market and our key shareholders. I wanna, from my point, ensure that Neste has all the target to continue being an attractive dividend pay also going forward.
If I build on that, on the second question, I think it's a very important one on the how sustainable are the competitive advantages? I would, in a way, start by reiterating that, yes, feedstock is a competitive advantage, but we look at it from many ways. It's on one hand, that global reach, having access to 60 countries, more than 500 suppliers. That is one important part for me, and that's hard to copy. It takes time. It took us 10 years, and we will continue doing it, but it's of course, time-consuming for anybody. The second part is, I fully agree. We are, of course, also continuing to drive our development of pretreatment, widening the quality window, and that is something we continue doing.
I mean, for example, now with Singapore expansion, Carl mentioned it, we are again deploying a pretreatment that we feel will again help us to widen that quality window. I also wanna highlight that there are some other drivers that we feel are important. For example, I just look at all the sustainability processes we have, that credibility of our offering, that we can really end-to-end follow our entire supply chain. Again, something that we continue strengthening and building, that takes time to build.
Maybe I wanna still add to the competition view, that if you look at competition, we believe there will be players which operate quite differently from a sort of regional perspective, or they're gonna source their feedstock from perhaps in a different local markets. Many probably in the U.S. are also looking into the soybean oil or vegetable oil space. At present, it's hard to see another player creating the sort of a global business platform that Neste has created so far. Maybe we missed that. The oil majors have announced also, of course, they have the global reach, but we have certain uniqueness probably still today, and it's hard to see competition follow precisely on that side.
Hey, thank you for the great questions. Unfortunately, the time is running out. We have had also lots of questions online, but we have addressed actually quite a few of them already here. It's time to wrap up. I will ask Matti to give the concluding remarks. Thank you.
Thank you. Thank you for a lot of very good questions. I do hope that we have been able to share with you today, especially our excitement, but also our confidence into the strategy of Neste, which combines growth and at the same time, very clear focus on value creation. I wanna ensure that you take with you some of our key messages. Three things I would like you to take with you from here. Neste is focusing on the most attractive markets and growing in those, and this includes our expectation of rapid growth in renewable aviation and renewable polymers and chemicals markets. Secondarily, rightly, there were a lot of questions on feedstock. We consider the feedstock platform that we have built unique.
We will continue building this, strengthening this, growing it, and we consider it a very important driver for value creation in a growing market with more players in the future. Finally, our entire business model that is built around end-to-end flexibility is something that is unique, and again, that we believe has a high value going into the future, capturing all the opportunities in this growing market. My final message is that you have seen the great team we have today. We are very focused on creating value. We are building on a strong track record of executing our strategy, and we are committed to continue that, on that path going forward. Thank you. Thank you.
Thank you, Matti.
Thank you.
This actually concludes the webcast, and we will be continuing here with the live audience, with the breakout sessions. Thank you for the online listeners. Stay safe. The online visitors are, of course, they have ended.
So-
We will continue with the breakout sessions. I will instruct you how to divide into those ones. We have basically three of them, and we'll go them through shortly. If you look behind your badge, you will see a letter A, B, or C. Hopefully, that is the case. Excellent. A, you will start here.
[audio distortion] deep dive on aviation, I have to say, I have noted throughout many meetings that there is a lot of interest in this exciting business. Please, happy to take any questions you may have on this topic. Please.
Owen Kawada from RBC. Question on SAF premium. There's a lot of noise around the premium of SAF. Obviously, there is jet fuel. The industry says that 2- 9 times. I guess in your discussions with airlines, how often your offtakes are based off jet fuel, and could it be that the price is based off something else, like maybe stock cost or something else?
Yeah.
Please.
Yeah, no, good question. I think what we typically say and I see that, you know, where the price has roughly been during the last couple of years is around that three to five times the cost of jet fuel. You hear about different ranges, it can always be that references are made, for example, to other production technologies like than HEFA to produce SAF. Regarding the question of the agreements, it is true that most commonly SAF is priced based on a fossil fuel quote or a jet fuel quote, and as a premium on top of that.
Of course, the benefit of that kind of a pricing formula for customers is that it creates visibility then to that extra cost that the customer pays on top of the kind of the jet fuel value. Other pricing formulas in theory, of course, can be considered, but this is how the market mostly works.
I just add, obviously, as it's a growing market, we will probably see over time different mechanisms, but exactly something like you said, today, this is the most typical.
Sorry, Sami [inaudible] , please repeat the question.
Oh, yes.
Just in terms of the ramp, is the pace you're gonna ramp dictated by your ability or the demand from customers?
the question-
Please.
The question was about the ramp-up schedule. Do you mean the ramp-up of production or sales?
Is the demand is not there yet. You're incentivizing demand. I guess, with that, when we look at that premium, what have you said, 3- 5 times jet fuel, do you think we price it free to get people in the door, or does it not work?
Yeah. Well, to answer the question, first of all, on the production side, clearly there is a ramp-up curve there. I think what was mentioned earlier by Matti is that the Singapore production is being ramped up, and the SAF production there will start during Q3. Similarly, we will have, of course, the ramp-up of the capacity in Rotterdam taking place in early 2024. If we look at the run rate capacity, the 1.5 million tons that we will have 2024, that is, of course, a significant increase relative to the sustainable aviation fuel consumption that has been in the market earlier years.
It will bring us significant flexibility to support the market and the demand as it grows.
Please.
How much of this 1.5 million tons that you're looking to bring to the market soon is already contracted, so volume secured versus, you know, I don't know if we can call it spot market?
Please, Sami, you...
Yeah. The question is, how much of the capacity, the 1.5 million tons we are bringing on stream, is already contracted? We haven't provided exact guidance on that question. You have seen that we have entered into a couple of multi-year global agreements with some of the leading airline customers, such as DHL, United, Air France, KLM. Clearly, part of that is contracted. But I would say that fundamentally, the market for sustainable aviation fuel is not that different from the market of renewable diesel. It involves spot contracts, it involves term contracts that can be in typical form on an annual calendar year basis. I would say that we have a significant part of that is not contracted.
That also is important in providing us the kind of flexibility, in optimizing our platform with the other products that we are selling, and of course, ensure that our product is always priced in the market, appropriately relative to the market levels.
I may perhaps just add a comment that this year is, of course, like I commented, also Sami commented, a special year because we are doing the ramp-up of the capacity. That's always something you cannot predict 100% how the timings go. Then we will, in a way, have a similar situation next year when we ramp up the Rotterdam investment. This is, of course, also something we have to take into account, that we obviously will also, for that reason, keep flexibility, and it's ultimately a question of how fast the market then grows. That we will see over time. Please.
Yeah. On the long-term supply agreements that you've signed, I know you can't give any specifics, but can you help us understand kind of the nature of the terms? Have you locked in some kind of margin on those volumes? Is there kind of a pricing formula that will kind of fluctuate as the market develops? Just any kind of color as to kind of the nature of those agreements would be helpful.
Yeah.
If I may start, Sami, because then you can then comment specifically on SAF, but I'll just remind more the Neste level view that we obviously look at margin exposure, something where we have a hedging policy in place. We typically hedge around 40%, 45%. That's the range where we're in at the moment. This is, of course, looking at the overall margin exposure that we have in the renewables. I also remind it's not a perfect hedge. For waste and residues, there are no perfect instruments, so it's a proxy hedge. We have moved to a system where we have slightly higher hedging ratios in the first quarters. Then it goes down over the next three quarters. This is something we keep rolling.
This is on a general level, how we hedge, or let's say, reduce the volatility of our margin exposure. Perhaps you can comment on SAF specifically.
Generally speaking, as the question was about the long-term contracts of those, I cannot really comment the individual contracts, but generally speaking, what we can say is that there are elements of flexibility in those multi-year agreements to ensure that basically from our supplier point of view, as well as from the customer point of view, the prices are always at the kind of appropriate levels.
[Arif] next.
Just back to the question of the switch from production tax credit to producer tax credit from 2025. When it comes to SAF, are you able to still get that credit to do the last segment of production process in the US, or do you have to invest in SAF production capacity over there?
Yes. Do you want to answer, Sami, or?
Yes, happy to answer. The question was about the production tax credit coming into force in the U.S. in 2025, and would we be eligible for that during the last phases of production in the U.S.? First of all, I think the good thing, important thing to remind is that we are moving to a different kind of production concept now, as we are starting the Singapore SAF production and ultimately the Rotterdam production. We will no longer have this kind of, let's say, finalization of the product outside our refineries. We will have an integrated setup where neat SAF is produced according to the specifications set for those.
From that point of view, the question is no longer that relevant, also based on our current understanding, I think we wouldn't be eligible in that kind of a world for that.
Perhaps I can add color. Of course, we are seeing now all the criteria being finalized. The expectation is that this is intended for local production. At the moment, in Martinez, we only have renewable diesel production, so that would then be a future topic if that kind of capability is created. At the same time, I alluded to it in earlier question, that we, of course, are following closely at the same time, is there some other mechanisms evolving, et cetera, that would then also support imports also in the future, but this is something that we will see in 25. Yes, please.
Hi. Those airlines have pretty high blending targets on SAF for, like, 2030, I think, like, 10%-30%. If we take that demand picture, that looks very different to maybe what you painted today. Why should we ignore it?
Please.
The question was about the sustainable aviation fuel use and blending targets of airlines varying between 10% and 30% for 2030. I think, first of all, it is very important that we have seen those targets coming in from the airlines. It gives a direction where the industry wants to move to. That 10% level, that is quite common for many airlines. Many airlines have, for example, signed this kind of a World Economic Forum, Clean Skies for Tomorrow ambition statement, targeting that 10% level 2030, and we have signed it as Neste as well. We consider that that's a feasible ambition to aim for the market.
In reality, however, what is good to note that it is not easy for airlines to implement those blending targets, you know, if they would be competing in the marketplace, you know, against competitors that wouldn't be using comparable levels of sustainable aviation fuels. Those blending targets of airlines are still dependent on either policy frameworks being implemented, that either create requirements or establish incentives that bridge that cost premium of sustainable aviation fuel, or then dependent that the airline find from their end customers' voluntary demand, that then bridges any of the remaining cost premium. It is an important signal, but to get there, we will need policy action.
I would say that 10% level is what we see also regulators in the most ambitious countries aiming for, like Japan, like U.K. and like in the U.S., if you look at the sustainable aviation fuel grand challenge of the Biden administration.
Let's see.
I have a related question. It was really more about the blend rates and how you think about what the trajectory of blend rate might be, what the sort of natural path might be. Are there government concerns? Are there other issues where you see sort of it capping at a certain level before it moves on? I guess just helping frame a 20-year view, how that might evolve. Anything that would bring down the cost of the sustainable aviation fuel relative to this. You talk about this 3- 5 times. Is there anything that would keep us more in the three or even the two times range that would make it more? Is it just, it's with scale? How, what other things?
Do you wanna start, then?
Happy to start. The question was about the blend rates and how would those grow for the sustainable aviation fuel markets, and then on the prices, could they come down? If starting from those blend rates, I think the first message is that from where we are today, last year, probably sustainable aviation fuel use was around 0.1%. We have a quite significant opportunity to scale that up quite higher, utilizing technology like HEFA technology that we have already today available in use, utilizing the kind of raw materials that, oils and fats that we can use with that technology, waste and residues, novel vegetable oils, algae oils going forward.
If looking at that ambition, 10% 2030, that could be achieved largely with, you know, technologies and raw materials that are already commercial today. The real hurdle is to get kind of beyond that, and then we will need to deploy those other kinds of raw materials, requiring other kinds of technology pathways, lignocellulosic raw materials, for example, or Power-to-X, ultimately, and they need to drive that from 2030 onwards. The hurdle at the moment is on the cost side. It is about those policies, it is about that voluntary demand. Longer term, it is about commercialization of technologies that take us further.
If I may just add one comment, perhaps. Apart from the policies that Sami talked about, because it's not really a technical hurdle, we can go today to 50% with the standards in place, there is work ongoing longer term to standardize higher rates. I think it's of course, also then ultimately, a commercial question. 10%, for example, on an intra-European flight, would mean that the additional cost on a ticket we estimate is, let’s say, somewhere in the EUR 10-20 per ton range. When we go to higher rates, of course, that will go up, but that 10% again, is something that is quite manageable, we feel. Of course, there will be the need to push higher because of the climate ambition being much higher.
Yes. On that pricing side of the question, maybe briefly, that if we look at then that future bringing those other technologies on stream, most of them will be probably initially more expensive than HEFA technology, if you look at external research on the on the topic. Of course, they have much scope, of course, to mature from there and get more cost competitive all the time.
Perhaps we have a question for you.
Yeah, slightly different question on logistics for SAF. As I understand that, LAX has some capability to, on SAF, but how does it work with other airports in terms of tack? Because I know the most airports have underground tank storage for aviation fuel. How does it work with SAF and, if one airline uses SAF and another doesn't, how do you deliver SAF to that airline?
Yeah.
Do you have to will necessarily have specific airport pumps that they'll use or?
Yeah
how does it work?
Please.
That's a very question. It's good question. The question was about the nature of the fuel supply infrastructure in the airports and how does that accommodate SAF. Important here is that according to the standards, we need to blend our sustainable aviation fuel together with conventional jet fuel, with maximum share of 50%. We typically blend around 40% in at the moment. After it is blended and it is certified relative to jet fuel standards, ASTM standards, it is a drop-in product. It can be used in any infrastructure without modifications or investments. We can bring the product to the airports, utilizing trucks, trains, vessels, or pipeline systems. In the airport, there is a co-mingled storage and co-mingled hydrant systems, typically.
Often they are either owned by fuel marketers operating there in the airports or it could be owned by the airlines. Importantly, when our blended sustainable aviation fuel enters that co-mingled storage, the fuel gets mixed with all the other jet fuels that are over there. We are ultimately, what we are delivering to the customer and what the customer, the paying airline customer, receives, is a mass balance-based allocation of that product. This is a key feature of the sustainable aviation fuels. We don't need any investments or modifications to the infrastructure to use it.
Yeah. Please.
Yeah, just following on from the earlier question on the blend rates, can you talk a little bit about what R&D you're doing? For example, you work with HEFA-
Very happy to. I can start briefly.
Yeah
Sami, please add. First of all, I'll perhaps just make a link to the innovation session, and you'll have actually the opportunity, our innovation EVP will be also joining in the next session. I mean, obviously we see that strategically, our innovation platforms is about expanding the feedstock platform, whether it's lignocellulose, algae, hydrogen, and e-fuels, even the chemical recycling, we look at an expansion of the feedstock pool. An interesting feature of it, or that some of these technologies, of course, also enable production of SAF. We see perhaps two categories. Some are actually feedstocks that we can use in our current platform, like algae oil or novel oils. Some others are then new technologies, but they can produce SAF as at least at a certain yield.
From that angle, all the work we are doing in demonstrating, piloting, building the business concepts, ultimately we see this very much as feedstock expansion, but also enabling us then to, over time, in the long run, to create some new solutions for aviation, for example, or it could be renewable polymers or chemicals or road. Please.
If I understood, your question is partly about the work that we are doing together with the OEMs.
Yeah
... and then on the jet fuel specification. So here, the key question is that at the moment, the standards have this 50% blending limitation for sustainable aviation fuels. But the largest OEMs, Boeing, Airbus, they have both committed that their aircraft will be certified for using 100% sustainable aviation fuel by 2030. This is not like something that is at the moment limiting the growth of the market, but for us to get net zero 2050 or 70% ReFuelEU blending levels 2050, over time, we need to get rid of that blending level. In ASTM, there are task forces of the OEMs, and we are also involved with them.
You know, looking at different kind of avenues, either drop-in avenues or non-drop-in avenues, to enable that kind of, 100% sustainable aviation fuel use. Maybe you saw just recently, we announced a partnership with Airbus, including many areas of collaboration, but key topic is really working with them, working with Airbus and on these future jet fuel specifications, and how they should shape up. It's an important topic that we are closely involved.
Now I unfortunately see that we have to wrap up this session. Thank you very much for excellent questions, and you will have the opportunity to hear about our supply chain next. Thank you very much.
Thank you.
Do you wanna introduce the first, or we go straight into the questions?
Cut to the chase.
Yeah, good.
Any questions on this?
In terms of talking about kind of developing your feedstock strategy, I appreciate that it's mainly kind of used internally, but to what extent, going forward, would you kind of sell feedstocks kind of externally, and try and kind of create earnings and returns that way?
Yeah. Okay, there was a question on the feedstocks and how much we would be selling or trading feedstocks going forward. Actually already today, we are selling quite a significant portion, especially in the US feedstocks. We are definitely trading feedstocks already now. We have been doing that to some extent also globally. Going forward, as we are building more presence upstream, this will probably grow, and we will increase those activities. Of course, the core of our feedstock strategy is around building certain presence in the market, and building the long-term relationships and also certain captive position to secure the feedstock supply for our production platform.
We definitely see opportunities to optimize beyond our own production platform, also by trading, these feedstocks. As you know, part of our acquisitions have really been around feedstock trading companies like, Agri Trading, for instance, in the U.S.
Are there any major risks to the pricing or availability of existing feedstocks? Any pricing reviews or anything that might negatively impact margins, et cetera?
Okay, there was a question on price outlook and risks around feedstock availability. Well, definitely, as we see that this market is growing, we see that there is increased interest for the waste and residues. At the same time, I think when you look at these markets there are. For instance, like in the U.S., we see the CI score playing an important role. In a way, you could argue that there is a certain value premium that is justifiable for the waste and residue because of the better CI score.
That's also works then in a way where that balances out the supply-demand for the waste and residues. We see constructive demand for these markets. Certainly there will be increased competition. Hence also, you know, I view it really important that we are continuing to build our presence there, because we also see that there will be opportunities to drive margin and value creation by being part of, for instance, feedstock collection.
Maybe I could continue adding to that we are of course using what we call margin management hedging to minimize the risk volatility that on the feedstock side for renewable products margin. The feedstock cost is the biggest cost component by far on the renewable product side. Hence we are approximately, for instance, the second quarter of this year, we are hedging about 45%. We have to use so-called proxy hedges because we don't have forward markets for all those waste and residue streams. That has been quite successful if you look into the past. Some of the peers that we have followed, they see much more volatility, so it brings hopefully also stability to our earnings base, and taking out the volatility partly from the feedstock pricing.
Oh, who do we go next? Yeah.
Just following on from that question, in terms of competition for feedstock, are there any particular areas where you see more competition or less competition, for that feedstock, either regionally or by actual stream?
Yeah.
What way do you see it?
I would say that we see a lot of capacity being increased or added in North America. We see that the North American feedstock markets are quite competitive currently. I think it is still, you know, a global market. I do think, though, that let's say the pretreatment capabilities is a very important part of our competitiveness as well, because that means that we are able to widen. Especially the more difficult feedstock will probably be more preferable in the sense of the cost competitiveness.
Yeah. Question for Katja, actually. It's great to see you're so excited about the mining opportunity.
Mm-hmm.
Can you talk a bit about the trial with Rio Tinto? What is the performance, you know, relative to normal diesel? you know, what's the emissions reduction? What's their feedback so far? How does the trial work, et cetera?
Yeah, I think to really go into the details of the trials, I prefer to put you in place after. I don't have all the details because it's really just going on. I want to share why am I excited about it, because I mean, I just joined the company a couple of weeks ago, I've had the opportunity to already meet 3, 4 of the mining players out there. Everyone you go there. That's just one of them, Rio Tinto, that we're working with now on the trial, also a couple of the other big names. I mean, they're just very keen to understand how can they use renewable diesel as part of the solution or as one of the core solutions, potentially, yeah.
Thomas, if there's really more details on how the trial looks like and the status and everything, because again, it's just a very new thing. I'm very happy to offsite put you in touch, and we can maybe get you a bit more information around that. Yeah. Yep. Thank you.
If I can remind you also of the question.
Yeah.
Sorry.
A question about the expanding the feedstock pool. I mean, when you go to dirtier streams and so forth, is it also availability thing or also margin?
Mm
... thing for you guys? I guess the dirtier stuff is cheaper, but the cost to pretreat, I guess, is higher.
Yeah.
Do you see kind of margin expansion on, from those type of?
Yeah
expansions as well?
A great question. The question was that whether the widening the feedstock pool in terms of more difficult feedstock, whether it's a, whether it's availability question or whether it's a margin question. I would say it's both/and. It's clearly we see that as the competition increases, we need to continue to push the feedstock pool more widely. Of course, we will see increasing competition in the, let's say, more easier feedstock to use. We're already seeing that now. We know that the number of players which do not have very strong pretreatment capabilities, are able to use certain waste and residues which are cleaner.
I think that this part of the market will be very, very sort of, you know, highly competed. Well, we believe that a significant share of the market would be much, much more attractive in terms of also margin creation. If you have that capability to utilize those more difficult ones, you will be able to drive stronger margins as well. We see it really as both/and it will have a significant impact on our margin creation, definitely. Good question.
Just to clarify, what % of your supply today is vertically integrated and kind of whether the goal is to make that a bigger %, that where you own the trading companies themselves, or, the supply, vertically integrating the supply chain?
That's you. Yeah.
The question was around how large part is we are vertically integrated today. As I was alluding during the presentation as well, we are targeting to be about 50% when it comes to securing our feedstocks. Now, that might mean that it's partly vertical integrated, but there are also, let's say, long-term agreements, partnerships, that are, that is part of that. Today, we are in the ballpark already, but as we are growing, we will continue investing in this space. I think that, I mean, if you look at sort of, you know, the acquisitions we made and they are already playing a significant role in also value creation.
I mean, The U.S. acquisitions were contributing, roughly 5% of our margin last year. They are playing an important role in margin creation already today. Thank you.
I have a question [inaudible] direction to get to more than 9 million tons of capacity by 2030. Over the last few years, you've developed on, like, existing capacity quite a bit. Is there room to do the same thing for the rest of the 2020s, and so going from 6.9- 9 could be just about the making?
Yeah. Yeah, the question is around how we are continuing our growth towards the about 9 million tons by 2030. We have identified a number of different opportunities that we see how we could get into that kind of growth beyond the already kind of announced 6.8 that we will have by 2026 with the Rotterdam capacity growth. That includes partly the bottlenecking of the existing assets. It also includes some retrofitting opportunities that we see in Porvoo.
I mean, the it's really a combination of different types of measures that we will be taking and that we see that would be, let's say, also quite financially attractive and interesting for us to invest and continue to grow in that direction. I think an important element here is also the product flexibility. The SAF capability that we mentioned. More than a third of that capacity we aim to actually be for aviation business.
I would also like to add that so we have various routes how to get there, and it will be eventually then choosing the most value accretive method or path.
Yes.
You have a 20% target for advanced feedstocks in 2035. Presumably that's just based on when you have a breakthrough. What's the possibility of that happening, like, this year or next year?
Yeah. The question was around 20% on advanced feedstock. Actually, if I may correct, the 20% was the target for Novel Vegetable Oil. There are other advanced feedstocks that we are using in our pool, and actually, the share will be much larger than.
Yes
... than the 20%. On the novel vegetable oil, so we are already now doing a number of piloting, and we are building currently partnerships in the value chain. We believe that the novel vegetable oils will be growing over the course of the coming years significantly. We see a lot of activities around among the ag players. We're seeing oil companies also very interested in this part, and we believe that there will be a lot of push to develop these advanced agricultural practices. The 20% really refers to the supply potential that we see would be available for us to be used in 2035.
Thank you.
There hasn't been any kind of talk of a new greenfield project, new kind of renewable diesel SAF, greenfield project. Is that because, you know, when you look at some of the costs of your project versus the competitor's projects, the newer projects look like they're, you know, a lower cost per ton or however you wanna look at it? You know, how do you see the competitiveness of your projects from a greenfield basis versus your peers?
Okay, the question was how we see the competitiveness of greenfield projects versus our peers, and if I take... I understood also you wanted to hear a bit how we foresee brownfield projects versus greenfield projects. Is that also? One example of a brownfield is, of course, we are experienced together with our partner, Marathon Petroleum, is the Martinez project. There, we are getting a quite an attractive against our capital outlay, which is about $1 billion. We are expecting about $1.05 million when we have the phase II and phase III completed. On average, you could say that the opportunity for brownfields provides you a bit better returns. On the other hand, versus greenfields, you always have a certain advantage.
Of course, you have all the, all the new kit that maybe you can deploy. You are not sort of constrained by the old kit that you may have on the site, that needs also very careful planning. When it comes to how we compare against our peers, do you have something to add on that? I think we are deploying at our greenfields the NEXBTL technologies, our proprietary-
Mm-hmm
... processing technology that we have patented. We've been highly successful with that. We adding typically a lot of pretreatment capacities and the optionality that we have provided is making it a bit more costly. We have all that flexibility to optimize between the product lines.
And, and maybe-
If you have another-
... if I may add, so build on that. I mean, it we cannot only look at the capacity.
Mm-hmm.
I mean, it is really what you can do with that capacity, what kind of flexibility you have on your feedstock side, you know, what type of pretreatment.
Good point.
you build there, as well as the product flexibility that we will have on. In Singapore, for instance, we are not having the same flexibility in Martinez. You cannot really compare them directly in that sense. You need to look at the bigger picture.
Can I jump in? Because there were multiple questions online also, to Renewable Road Transportation. If any questions on that topic, it will be, of course, something also to take into account.
Just in terms of on the feedstock point, earlier, you talked about the hedging policy that you have not being a perfect replica of the WTI. W hen you see pricing being favorable for actual waste and residues you use, is there an option that you have to go into those markets and secure some feedstock volumes well in excess of what you're consuming on, like, a daily basis, for example? To go in and say, "Great, tallow is cheap. We're going to buy loads of tallow and store it for the future.
If the... Yeah, the questions was about the feedstock markets and about our hedging. We are hedging, margin hedging, and you probably know it quite well that, up to 50% per quarter on a continuous basis. If the market would be in contango, so typically we might try to lock in some of the purchases, depending on our view of the market. At least that I can say.
Yeah.
Anything to add, Carl?
No, definitely. I mean, this is really a truly end-to-end optimization that we are doing, and of course, the time element is something that we also need to take into account. We are how we see that the markets are developing, we can also optimize within the different feedstocks. We're doing that on a constant basis, really.
Mm.
It's not only about, you know, switching between animal fat and used cooking oil. It's also maybe switching between North American animal fat and European animal fat. I mean, it. This is really a core part of how we are optimizing. Then, of course, we were talking a lot about capital efficiency and working capital as well. I mean, that's one part of, you know, how assessing, you know, whether we want to carry stock then or.
Mm
whether we can reduce some other feedstock inventories to as well.
Still to add what was asked earlier about the lower quality feedstock. Neste as we have about 470 people directly working with innovation, and about half of those people are working with continuously testing different types of feedstocks and different grades in laboratory schemes. That's a, that's a big strength, I think, that was already earlier highlighted, that we have the ability to pre-treat also lower grades, and those we can typically source also at lower prices.
Let me maybe add, because the power is really in the end-to-end, because at the end, it goes down on the business side to a customer. The coupling, coming a little bit with fresh eyes into the company, is that we know what we need at the end to sell it out into the market to the customer, and it gets coupled throughout the whole value chain, down to what kind of feedstocks. That's something that I've never seen before like this. That's really this whole end-to-end on how this whole moves, that's outstanding, yeah.
What share of your feedstock is this harder to process feedstock that requires more advanced pretreatment capabilities?
We have not been disclosing any exact numbers of that. Of course, I mean, when we look at it's really how you optimize over the whole system, basically. There are certain limitations on it, so. I think that the important part here is really around the new capabilities that we're bringing in with the Singapore plant now, that increases our capability to pre-treat these more difficult feed. We have been piloting some of that already now, but with this new capacity and new capability, we'll be able to increase the share of more difficult feedstocks. Sorry, the question was around what share, of the feedstocks are more difficult.
Okay. In terms of the end product, from the different feedstocks, is the end product identical, or is there a difference? The reason I ask is, you know, concerns growing quite knowingly in Raven that one of their excuses for a weaker time on wing has been the increase in alternatives and blending on that industry. I'm just wondering, is there a difference in end market? If so, how do you think about that with the end markets in mind?
Yeah. Perhaps if I start a nd Katja can maybe. The question was whether there are any impact from the feedstocks to the end product quality. I mean, this is really the beauty of our technology about, and the process. As we have been, you know, pre-treated the feedstock and taking it through the process, the product is always looking the same. The quality of the product is always the same, and I think that's really an important part here that, you know, we do not have the kind of same issues that we see, for instance, in the biodiesel sector, where there are quite big impacts from the feedstock side towards the end product. I don't
When it lands at the end, towards on the customer side or into an end application, that it really much has an impact on what currently, in what country or in what region or what application, are certain feedstocks that are either preferred, opted out, or that one. That plays an impact then. That's a little bit coming back to what I said before. That's the this matching capability on what's needed at the end in the market or a downside in certain regions, certain countries, matching it up with the feedstock side. That's really the impressive part here.
The LCFS program really rewards you for having a superior feedstock mix. Do you think we'll see other countries or regions gravitate towards that kind of system?
Yeah, I can maybe start.
Yeah
... with your experience, if you want to add on. We're looking really, like I said in the beginning, first of all, we have within the U.S., states still adopting to it. There's a lot of states really coming up. What we really see is that the Southern, South America or others, they are really eyeing and trying to understand, is it incentivation something that they could be working on? Currently, I could not say that there are, but people are looking into that kind of methodology because it is successful. We see it. I mean
Yeah
... it's going to really drive the demand.
Yeah.
Do you want to add on? Because maybe, yeah.
Yeah, perhaps, repeat the question still.
Yeah.
it was about the LCFS.
Yes
The CI performance that it drives. You know, for the benefit for the advanced or waste and residue feedstock.
Yeah.
Yes, I mean, for instance, the RED III, I mean, is a GHG target. It's really in Europe, I personally believe that we will be going more in that direction. The Swedish model was already a GHG model, which was favoring the best performing biofuels. I think this is really the only logical way to approach it. I mean, the aim is to lower the CO2 emissions. I mean, that's what you should be targeting in this legislation, and I think we will go in that direction.
That's what we're seeing already at in California with CARB starting to put those. The price that you get will depend on the CI score of your product.
Just because you said that there is a difference, can you quantify that in margin terms at all? What's the magnitude if you shift from a target, but normal system to a GHG or like LCFS system?
Yeah. The question is about quantifying the value. I mean, the LCFS is, it's a transparent market, you see what the value of the CO2 per ton. Then basically you can back calculate the benefit of depending on how much better your CI score is for the feedstock. It's quite transparent in that sense.
I think we have time for one final short question.
We have it here, yeah.
... Neste MY, and, the distribution in the rest, of Europe, your expansion plans, there?
Sorry, the question was around what's the plans for Neste MY and...
Well, geographic expansion.
Geographic expansion.
It's quite still, now more in the Nordics and onwards.
Yeah, well, we do a case by case. I think the example that I shared was that we just started Neste MY in Denmark with one of our long-term partners, Q8. We're looking country by country. Sometimes the opportunities come up. It's one of ways on how we go to market, and yeah, it's something we'll continue, we look like case by case. Usually, it makes sense. In some countries, it does, and some others we do not. We continue to look into it. Yeah.
Unfortunately, I think our time is up, and we need to move on with the program. Thank you for the questions, and thank you, team.
Thank you for excellent questions.
Thank you.
Thank you.
Thank you. Thank you.
Hello, everybody. Nice to see you. Welcome to this breakup session. I guess we have questions immediately.
Yeah, thank you. I asked this before, but he asked me to ask you guys. Just on the innovation side, if the long-term goal is to get to 100% SAF, what are you guys doing on the innovation side to work towards that?
To 100% SAF? You mean, neat SAF or...
Well.
Blend.
Yeah, blend, let's say.
Mm-hmm.
like, just completely getting rid of jet fuel and just, you know.
Yeah. I mean, the question was really that what are we doing to boost our volumes of SAF? Firstly, it is about the feedstock base. There we have all of these initiatives and innovation business platforms by which we are broadening, going into scalable feedstock pools and broadening the offering of hydrocarbons into SAF and other areas. We have the algae, we have the Novel Vegetable Oils as agricultural-based. We have municipal solid waste, agri and forestry waste, lignocellulosics, and we have the liquified waste plastics. These are all the waste feedstocks we have. We have the green electricity to hydrogen, and then to power to liquids for the future. These are the feedstocks, and we are broadening all of that.
On top of that, we are continuously increasing the amount of oils and fats in our portfolio. There are still sources of oils and fats that we are increasing. Secondly, we have the technologies. The technology side, of course, it's a question of how much of our HVO production, for instance, can be turned directly into aviation fuels, and there we have already solutions that are. We know how to basically increase the yields of SAF there. Of course, a lot of things going on, and we have ambitions in the, in the SAF business, as you heard today, and we are from innovation at the core, in a core role in order to boost this. Markku, do you want to add something to that?
Nothing to add to that. Thanks.
Okay.
Can you talk a little bit about the renewable polymer and chemicals business, and especially the regulation? Are there any examples where you have incentives that could be comparable to what we have in renewable diesel today? Or is it completely voluntary at this moment?
The question was, are there regulation similar to renewable diesel in the RPC business? Not similar. There are some emerging regulation coming in, like a single-use waste plastic tariffs that has to be used unless you have certain amount of recycled plastic in your product. That may then boost and create a market of its own, which has a component of indirect regulatory benefits, I would use as an example. I'm sure, I mean, this is an emerging market, and it's coming up very fast, and this is playing exactly to the... if all the politicians, all the countries, they want circularity, recycling less energy use, all of that is placed exactly to that strength. I expect that both the voluntary market as well as some level of regulation will emerge.
You've got a lot of the, a lot of other companies, a lot of the integrated oils companies that are targeting the renewable chemical sector as well, you know, putting a lot of R&D into it. You know, how do you see your positioning relative to those other competitors, and, you know, your product and ability to kind of compete against them? Then just another question on the SAF. How do you see e-fuel as a potential threat, you know, coming in, you know? Do you see the potential that-
Mm
... possibly coming in at a lower cost than the SAF going forward?
Yeah.
I can take maybe the first one.
Okay. Yeah.
There was a question on our competitiveness in the renewable chemical space versus other players. I would say that our strength is the end-to-end, process understanding, the value chain understanding. We'll start from the renewable feedstock, that we are the largest in the world, and we have the largest market share in the current applications of renewable products. We are building our chemical position on that strength. It isn't. The front isn't any different. Then we'll take it in, put it through our systems, and we have teams that can take it to the market. I would say we have a totally-
Yeah
... totally well-positioned-
Yeah
... there, now and going forward.
Then there was the question about eSAF and competitiveness versus the existing HVO-based HEFA products. When we look at that and think about how we are producing the HEFA product, so it is from a liquid feedstock, directly high hydrocarbon content, converting that into the hydrodeoxygenation, isomerization, and then we have the ready product. If you compare it to that, you first have to make from green electricity, and you have to make the hydrogen through electrolyzer process. You have to take carbon dioxide, preferably biogenic carbon dioxide, from the air or from somewhere else, from an industry, and then you combine that into hydrocarbons. It is clear that the cost of this is higher than for the HEFA. We believe that all of these solutions will be needed in the future.
With extremely much growing, accessibility to green electricity, the power to liquids and the e-fuels will come. We are already now looking at them and developing that as ourselves as well. We believe it is a time horizon that is very different. There will be also other solutions for aviation fuel, such as those based on lignocellulosic wastes, that will come somewhere in between. That's my personal view, at least, and those will be very cost competitive also. E-fuels will come, and they will become more and more cost competitive, but it will take some time. I don't think it's a either/or, it's more of both and in the end, in the long run.
Yeah. I think the market is big enough, in those 30s, 40s, to accommodate both sources of, of -
Yeah
- sustainable aviation fuel.
Yeah. Oh. Oh, okay.
Yeah. I would be interested to hear a bit more about renewable hydrogen as an innovation project.
Okay. renewable hydrogen as an innovation, project was the question. I don't know how we shall do this. Shall I start, or?
Yep, I can-
Do you want to start?
Yeah, well, I.
Yeah.
I mean, what we are doing is green hydrogen through electrolyzers. This is the project that we have moved into in a basic engineering phase, 120 megawatts. Large in global terms, I think the second largest that I know of in Europe. Two tons per hour production. In itself, it's been led by the innovation platform, but it's gradually, as it maturing into business, it's coming on my side for execution of the project and then commercialization of the hydrogen that comes out of it. This particular plant will be integrated with the Porvoo refinery. It will be feeding into our pool of hydrogen demand. The overall demand of Porvoo refinery today is about 20 tons per hour, so this is 10% of the total. Everything else being equal, it will basically replace grey hydrogen that is today produced in SMRs, that we have two.
Maybe to add on regarding hydrogen in a larger perspective for the corporation and the innovation platform for green renewable hydrogen. As Markku said, this project, specific project is now the charge for that is now with the, with Markku's organization, and we are fully supporting that, of course. We are innovation platform. We are also looking at all the technologies, for instance, for electrolyzers. Maybe you know that we have a minority shareholding in Sunfire, which is a German solid oxide electrolyzing company, now also doing alkaline. We are getting into the tables, and have been already in the tables for a few years, where electrolyzer technologies are discussed. That's part of the whole knowledge base that we are building up, is understanding this whole value chain.
Also, we are looking into how the hydrogen supply for our other refineries shall be done in the future. It's kind of. The concept is such that we have the innovation business platform, where we have capabilities in this specific field, and then we have these people also moving into the implementation when it comes at one of our assets. I think this is a great cooperation which we have.
Absolutely.
Yeah, just following on from that question, could you make a cost comparison to the green versus the gray hydrogen on today's costs?
Cost. Yeah.
So-
So, so that, the, the-
The question.
The question is, can we make a cost comparison between gray and green? The answer, it depends. It depends on where you are and what you are, say, for instance... For Porvoo, last year, the cost difference was not a lot with gas at 100 and plus EUR per megawatt hour. Today, the green hydrogen is more expensive in kilo terms. That's clear. However, with green hydrogen, when we put it into our process, we get a premium product for which-
Yeah
... the market will pay for.
Mm-hmm.
And that delta will pay for the return, the IRR on the investment that we are putting in. There is money, there's value, there's money to be made in it.
Mm-hmm.
I would shy away from giving an exact, sort of, kilo price on it.
Mm-hmm. Yeah.
Going back to the 2021 Capital Markets Day, you talked about at least one of your innovation platforms being commercial by 2030. Is that still the case?
Yeah.
Can you talk about where you've seen more progress, less progress?
Absolutely. If you look at it in concrete terms, right now, we are having the green hydrogen project for Porvoo, which is one of the platforms, actually. That's already quite well progressing. Other ones, I mean, we talk about the liquefied waste plastics, where we are already doing significant things with the investment decision to utilize excellent assets in the Porvoo refinery for upgrading where liquefied plastics. We have the algae project, where we are getting close to a decision to do a piloting in that one, too, and that would be a great boost for our feedstock pool as well, with Annex IX A based feedstocks.
Lignocellulosics, we are also very close to making decisions on to enter into a demonstration scale, verification for commercialization, with a product that looks very profitable from an IRR perspective. Those are already, I think, quite many things that we are running, we are riding many horses still at the same time because we want to keep the optionality. With time, when we come into the situation where we need to make the big investment decisions, then of course, among those really good ones we have, we need to prioritize and put them into order.
Can I just go back to the previous question?
Yes
... about the ability to realize premium on products when you use green hydrogen? Can you just explain a bit more how that works in practice? For example, if you use kind of green hydrogen in your hydrotreater rather than gray hydrogen, are you saying that the diesel that comes out kind of has a higher value, because-
Yeah
... there's a lower carbon intensity, something like that?
That's exactly true. First of all, the sort of there is ETS cost savings, so we're not gonna pay for CO2 emissions. Today, in Europe and where we operate, we already do, so we're not getting all the ETS credits for free, so we need to buy them from a market. The less gray hydrogen we do, less ETS credits we need to be buying. Then the second driver is from now until end of this decade, is a possibility to do exactly what you say. Basically, less CO2 intensity in the product means a higher value in GHG driven markets. Then from 2030 onwards, becomes the RFMBO mandate discussion.
Our intent is to use RFMBO-eligible electricity running the electrolyzer, which gives us then a possibility to basically sell a product that has that feature in it, and with that, we get the credits for.
Yeah.
When you think about sort of other sorts of centers of potential demand growth for your renewable diesel that you produce, so whether it's sort of in rail or even in shipping, what are the main barriers to sort of wider implementation of Basically, taking your current product and putting it into the new sector?
There's no technical-
No
... there's no technical...
No.
Sorry, the question was...
Yeah
... is there any any sort of barriers for entering new markets with our renewable diesel product, for instance?
Yes.
The examples were given, shipping and railroad.
Yeah.
The answer is really. It's customer acceptance, it's customers' willingness to decarbonize, it's our marketing and sales effort going into these new segments. That's basically it. Otherwise, it's totally.
Yeah
fit for purpose, drop in.
That has been the key thing we have done in Neste. Converting the low-quality wastes into the highest quality product that they can be usable in all of these kind of... For instance, for diesel, in the diesel engines, and as you know, the aviation fuel is the same. Basically, it's of course, on top of what Markku said, it's also then naturally the willingness to pay then in the end, right? Between segments, right.
You're talking about a couple of things like, the algae, the lignocellulosics. The algae, ExxonMobil's been talking about that for over a decade, and it doesn't seem like they've made much progress. The same with the lignocellulosics with Shell, you know, it seems to be working on it for a long time. Now, what are you doing that's different? You know, how have you kind of.
Yeah.
Have you broken the code?
Yeah.
Do you speak to those companies?
Yeah
... you know, share information?
Yeah, yeah.
Just wanna understand how that kind of-
Yeah
-innovation process is working, and it's different to the-
Yeah
-big companies that seem to be struggling.
The question was that, how are we differentiating in our development of algae and lignocellulosics in Neste compared to other companies? What we say is that, we truly believe now that if you talk about lignocellulosic first, we believe that we have a groundbreaking, innovative technology in our hands, and we believe that it is top-notch, that is available. There we see some features that I cannot share with you now, but that are truly differentiating. In algae, we have a little bit of the same story. We have there some approaches which are very different from the past. As it looks right now, being early days, we believe that we have things that are worthwhile to go forward with.
Sorry, to that point, just because on the chart here, you're showing lignocellulosic residues picking up quite quickly as we get towards 2030. Here, you're saying that you're just about to get into a demo plan. It sounds like you are timeline wise, you are a little bit behind what you are actually showing this evolution here.
No, well, I would say so, the question was that lignocellulosics, what we have said about being able to commercialize it. It still is valid that if everything goes as we would see today, and if we have all those decisions in place, by 2030, we will be able to have commercial activities.
Yeah.
Can we talk a little bit about in terms of the plastics, in terms of the feedstock for that? Need to be, you know, fully mixed feedstock, with, you know, based on a...
Yeah. There was a question on what kind of feedstock can be used in the liquid waste plastic raw material, in a sense. When it comes to us, it's a liquid form, and it can be then processed in the refinery pretreatment and upgrading systems. It's actually then before it goes into the pyrolysis process, what kind of material can be used. The whole concept of chemical recycling is that it can use, and it must be able to use lower quality feedstock than mechanical recycling. That's imperative, otherwise we will.
I mean, the first use for any waste plastic is to use it for mechanical recycling. The residues will be used in chemical recycling. If there's anything left, then for burning for the energy content. That would be the sort of waste hierarchy in it. It can be. It depends, that's where the pyrolysis technologies differ from one another. Some are more sensitive what you put in, and some have done more investments into being able to handle more different varying formology, as well as types of plastics. I think, you know, Terra is one of its.
Yeah
... is that is actually very-
It's a robust technology.
robust technology that can take, mixed plastic waste.
More questions?
Yeah, I think we still have time for one question at least.
Yeah.
I guess you sort of talked about slowing down or by 2025 sort of moving forward over to, sort of away from the oil product side of the business. Do you have a phasing for that? I mean, if margins stay as strong as they are today-
Mm-hmm.
Why would you shut the [inaudible]
That's an excellent question on the, so how are we facing out the fossil feeds from Porvoo refinery in this transformation study? A reference was made to the fact that the margins have been pretty healthy for the last quarters, and that it wouldn't obviously make a lot of sense to sort of step away from a profitable business as such. The reality is we're talking 13, 15 years out. In that time period, we expect a very significant deterioration of demand for fossil fuels in our whole market. What we are seeing today and what are the drivers of profitability will be quite different in the middle of 2030s.
What in reality, what will happen is that the decline of use of fossil crude oil will not be like this, because that wouldn't make any sense. We can't operate a refinery at 50% operating rate. That would be a loss leader from day one. What will happen is that it goes like down a bit, and then once we are ready then to switch, when the market conditions are good and when the alternatives are in place, then we'll need to shut it down. There will be level of flexibility in there, exactly how to time that, depending probably. It could be the market-driven, but it also is the readiness for being able to handle the 2 million-4 million tons of-
Yeah
... circular and renewable-
Yeah
... materials.
Maybe to add on to Markku there. The beauty with these transformations, and the Porvoo Refinery as such, is that there's a lot of optionalities and the market, as Markku said, we can kind of see how the market evolves, and we can do the things when it's optimal to do it. Generally speaking, if you think about the Porvoo Refinery with its huge complexity, being one of the most advanced refineries in the world, I call it the unpolished diamond, because it's really, in terms of converting that into circular and renewable feedstocks, it's such an exciting place to be and such huge opportunity to transform it and make continuously making high value.
Correct.
That's the logics.
Obviously, our intent is to continue to make positive cash flow and value add from our fossil business all the way until the moment we-
Yeah
call quits.
Okay. I think that concludes this breakout session. We are ready to continue.
Thank you.
Thank you.
Thank you.