NESTE Corporation
Neste Corporation is an oil refining company with 50.1% ownership by the Finnish government.
Along with traditional oil refining; Neste is the worlds largest producer of "renewable diesel" and renewable hydrocarbon products produced by hydro-treatment of used cooking oil, livestock slaughterhouse tallows, and virgin vegetable oils. This constitutes exposing the oils to high pressure in a hydrogen atmosphere in the presence of metal catalysts, aka fluidized bed reactors. This is the same process whereby crude petroleum is refined. A side product of renewable hydrocarbon processing is propane; derived from the glycerol backbone of the oils that are hydrogenated into hydrocarbons. Neste owns two renewable hydrocarbon processing facilities, one in Rotterdam and one in Singapore, totaling nearly 1 billion gallons of renewable hydrocarbons produced globally per year.
As technology develops and transportation energy becomes slowly weighted more and more towards electricity, the economics of hydrocarbon production changes. With low oil prices, the capex of drilling a well can not be justified. This is important because drilling oil wells is extremely expensive compared to collecting used vegetable oil for a handful of cents per liter....because that used vegetable oil was going to be amalgamated and disposed of somewhere no matter whether or not Neste is there to produce hydrocarbons from it or not. Currently there is a cost difference between petroleum hydrocarbons and renewable ones on the open market because of scale, technology, and higher demand for renewable fuels in certain markets due to government decree and usage; with this cost difference of about 1$/ gallon made up for by government subsidies. However, it is inevitable that the expense of processing either crude petroleum or organic waste feedstocks into hydrocarbons will narrow until the cost is the same. At that point spending the capital to drill a petroleum well will never be cost competitive to paying a few cents for amalgamated waste streams. This will be a very long game; but in the end I would place my bets that renewable fuels produced from amalgamated waste streams will constitute a larger and larger proportion of hydrocarbon fuels, potentially 100% by the end of this century. The quality of hydrocarbons produced from organic waste streams is also higher and can be tailored to specific carbon lengths with less processing; specifically because organic feedstocks have less contamination from heavy metals, heavy oil fractions, and all the other things that come out of the ground, along with the fact that organic feedstocks usually have a narrow hydrocarbon length range incorporated into their fats and oils. Engine health is better and maintenance cost less when using these fuels; as has been relayed by numerous fleets around the world.
In summary, when demand for liquid hydrocarbons decreases due to movement towards electrical propulsion, drilling petroleum wells will become too expensive to justify given the alternative of simply collecting amalgamated waste streams. The companies that have the best processing technology and most developed feedstock supply chain will stand to benefit from this dynamic in the long run; also because they are buffered from supply changes in crude petroleum by possessing the ability to process hydrocarbons from a completely de-coupled supply chain.
It seems like the market agrees with the above analysis because stock price of Neste has traded in a perfect y=mx + b when smoothing the variance, since 2011. Note the above graph is logarithmic. It has held the 200 wk MA since 2011 and it served as support during the recent crash. After recovering from the global recession at the turn of the last decade, stock price of Neste increased by a factor of 20x until now. These are very good returns which have only been enjoyed by a handful of companies often marketing consumer goods, such as Tesla, whereas Neste is a processor of a raw commodity. When observing the increase in value of stock of Neste to Chevron, for example, the comparison is stark.
Time will tell how the current economic difficulties brought about by corona virus will treat stocks price of energy companies, but it can almost be certain Neste will come out of it in a stronger position of growth than Chevron.
Along with traditional oil refining; Neste is the worlds largest producer of "renewable diesel" and renewable hydrocarbon products produced by hydro-treatment of used cooking oil, livestock slaughterhouse tallows, and virgin vegetable oils. This constitutes exposing the oils to high pressure in a hydrogen atmosphere in the presence of metal catalysts, aka fluidized bed reactors. This is the same process whereby crude petroleum is refined. A side product of renewable hydrocarbon processing is propane; derived from the glycerol backbone of the oils that are hydrogenated into hydrocarbons. Neste owns two renewable hydrocarbon processing facilities, one in Rotterdam and one in Singapore, totaling nearly 1 billion gallons of renewable hydrocarbons produced globally per year.
As technology develops and transportation energy becomes slowly weighted more and more towards electricity, the economics of hydrocarbon production changes. With low oil prices, the capex of drilling a well can not be justified. This is important because drilling oil wells is extremely expensive compared to collecting used vegetable oil for a handful of cents per liter....because that used vegetable oil was going to be amalgamated and disposed of somewhere no matter whether or not Neste is there to produce hydrocarbons from it or not. Currently there is a cost difference between petroleum hydrocarbons and renewable ones on the open market because of scale, technology, and higher demand for renewable fuels in certain markets due to government decree and usage; with this cost difference of about 1$/ gallon made up for by government subsidies. However, it is inevitable that the expense of processing either crude petroleum or organic waste feedstocks into hydrocarbons will narrow until the cost is the same. At that point spending the capital to drill a petroleum well will never be cost competitive to paying a few cents for amalgamated waste streams. This will be a very long game; but in the end I would place my bets that renewable fuels produced from amalgamated waste streams will constitute a larger and larger proportion of hydrocarbon fuels, potentially 100% by the end of this century. The quality of hydrocarbons produced from organic waste streams is also higher and can be tailored to specific carbon lengths with less processing; specifically because organic feedstocks have less contamination from heavy metals, heavy oil fractions, and all the other things that come out of the ground, along with the fact that organic feedstocks usually have a narrow hydrocarbon length range incorporated into their fats and oils. Engine health is better and maintenance cost less when using these fuels; as has been relayed by numerous fleets around the world.
In summary, when demand for liquid hydrocarbons decreases due to movement towards electrical propulsion, drilling petroleum wells will become too expensive to justify given the alternative of simply collecting amalgamated waste streams. The companies that have the best processing technology and most developed feedstock supply chain will stand to benefit from this dynamic in the long run; also because they are buffered from supply changes in crude petroleum by possessing the ability to process hydrocarbons from a completely de-coupled supply chain.
It seems like the market agrees with the above analysis because stock price of Neste has traded in a perfect y=mx + b when smoothing the variance, since 2011. Note the above graph is logarithmic. It has held the 200 wk MA since 2011 and it served as support during the recent crash. After recovering from the global recession at the turn of the last decade, stock price of Neste increased by a factor of 20x until now. These are very good returns which have only been enjoyed by a handful of companies often marketing consumer goods, such as Tesla, whereas Neste is a processor of a raw commodity. When observing the increase in value of stock of Neste to Chevron, for example, the comparison is stark.
Time will tell how the current economic difficulties brought about by corona virus will treat stocks price of energy companies, but it can almost be certain Neste will come out of it in a stronger position of growth than Chevron.
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