Midstream activities

!

Product development

Main driver of product development is legislation. It sets the framework within which product development and launching of new products is profitable.

Customers’ impact on product development is minor, as they are not actively requesting more sustainable or cleaner products. However, customers’ potential negative associations need to be considered. Biofuels acceptable within limits of legislation may not be always acceptable in the eyes of consumers.

Product development is two-way process between NEOT and the owners. NEOT cannot launch new products without owners’ approval. Owners’ do have wishes for the prospective products but the main initiative is expected to come from NEOT’s side.

“The product development is bidirectional. We do quite a lot in our supply team and try to think what would be possible to do. When we launched REX diesel in

Norway it came to a large extent from the idea that if we have these kinds of

components available, we could do even a 100 % renewable diesel meeting normal quality specifications… So quite a lot comes from us thinking what would be possible and how we could fill the increasing bio mandate with new innovative

alternatives. And of course also our owners request for all the time cleaner products.” Interviewee B

“NEOT has indicated us that this kind of thing would be possible, would you be interested in it. NEOT knows what’s available at the market and what’s possible.

We have such a small organisation here, so it is not part of our tasks. From our point of view, managing the product portfolio is at NEOT’ s responsibility.”

Interviewee D

Furthermore, product development derives also from optimisation of the supply and logistics systems. End products are seasonal, which has direct impact on sourcing, logistics and warehousing. Considering this, for instance, the portfolio of Finnish diesel blends was renewed a few years ago.

!

Logistics to terminals

!

Logistics to the terminals where products are stored before distribution are mainly handled by vessels. NEOT has five time charter vessels chartered from Terntank Rederi AS. Relationship with the owners is close and the companies are working in close collaboration. In 2016 NEOT chartered two new built LNG vessels. LNG vessels were Terntank’s and NEOT’s shared project and first dual engine oil tankers in the Baltic Sea area. LNG vessels enable remarkable reductions in vessels’ emissions but also cost savings. Also regarding shipping, reduction in costs and friendliness to the environment are seen to go hand in hand.

“Costs are a good driver. Often the decrease in costs comes through having efficient vessels, which don’t consume so much fuel and thus the costs are controlled. We are together with Terntank because they have well performing and

efficient vessels. We also try to optimise not to have ballast legs when vessel is

not carrying a cargo. And this results directly in decreasing costs and increasing sustainability.” Interviewee B

Terntank’s vessels are also participating Environmental Shipping Index and Clean Shipping Index, which measure for instance CO2, NOx, SOx and PM emissions, water, waste, and chemicals. High scores in these indexes allow reductions in port costs at several ports. Starting from the year 2018 also the EU requires large ships using EU ports to report their annual CO2 emissions and other relevant information such as fuel consumption, distance, time at sea, and cargo carried to determine the ships' average energy efficiency.

Costs and sustainability are also improved through thorough planning of shipments. For the time charter vessel NEOT optimises the speed; under normal conditions vessels sail with the most economical speed when the least fuel is consumed during the voyage. Furthermore, the aim is always to carry full cargoes.

Ballast legs – voyages when vessel is not carrying any cargo – are tried to be avoided. However due to supply structure, there are infrequently cargoes for southbound voyages from Finnish ports to main hub at Gothenburg.

All the vessels for spot voyages are chartered from reliable ship owners and they need to meet NEOT’s technical and safety requirements. The clearance is done by NEOT’s chartering department and the terminals. NEOT is fully in charge of these logistics and the owners have not set any further requirements in addition to legislation.

!

Own production plants

!

NEOT does not have its own production plants but its sister company North European BioTech Oy (NEB) invests in new biofuel plants. Investments are only made in second-generation biofuels. The strategic decision only to invest in second-generation biofuels comes directly from the owners.

“All the investments made by NEB are second generation biofuel plants. The plant in Kajaani is a good example. We have discussion going on in Finland about

forests as a biofuel feedstock… The feedstock we use does not increase harvesting in Finland at all. Even though the raw material is forest based, sawdust

is created at the saws in any case and using it as a feedstock does not increase harvesting. We don’t even need to think if it’s problematic or not. As long as you

use waste as a feedstock there is no problem.” Interviewee A

Investments made by NEB are important also for the owners. Starting point for the investments is legislation and profitability. However, other aspects are also seen important.

“From S-Group’s point of view these are important projects. We are involved in creating capacity for future and particularly sustainable and low emission solutions. Sustainability is without question one of the most important aspects why

we are involved in these projects. And one important aspect is Finnishness.”

Interviewee D

!

5.3.3 Downstream activities