Aviation emission rights are becoming more expensive and the green transition is progressing in the EU:
"While emissions trading currently applies only to flights within the European Economic Area, the EU regulation on the use of sustainable aviation fuels (Refuel EU Aviation) adopted in October affects all flights departing from EU countries, including long-haul flights.
The regulation mandates the distribution of a certain share of sustainable aviation fuel mixed with fossil kerosene at the union’s major airports. This share will increase over time. Next year it must be two percent, and six percent in 2030."
That share of renewables is still quite small, however, relative to kerosene.
I read somewhere that the volume of air traffic will triple by 2050. Even if the reality isn’t quite that extreme, the consumption of aviation fuels is increasing globally year by year in any case. Mika Anttonen, the owner of ST1, has discussed the world’s energy needs in several of his presentations (https://www.youtube.com/watch?v=bwdlHIeoYXM). If 1l of crude oil yields 0.1l of aviation kerosene, one quickly reaches the conclusion that as flying increases, more oil is needed. Renewable aviation fuel isn’t even enough to maintain the current ratio.
It’s hard to believe that the EU’s blending mandate (jakeluvelvoite) can be met because it is simply not possible to produce such quantities of renewables.
It’s hard to say exactly how the impact of this differs from a production perspective compared to shutting down. But from a risk management standpoint, this is certainly a better solution.
Neste’s services to continue as Kesko plans to withdraw from operating Neste K service stations
Neste serves the needs of road users with the country’s most comprehensive network of approximately 720 stations and high-quality services. The network consists of Neste and Neste K stations, unmanned Neste Express stations, and Neste Truck stations for heavy-duty vehicles. Kesko plans to withdraw from operating Neste K service stations during 2024. There are a total of 64 Neste K service stations. In the planned change, the goal is that, in addition to fuel sales, the stations’ services will continue as Neste services and the Plussa program will continue. The change has no impact on Neste’s other station network and services.
“Neste’s extensive station network and services will continue to meet the changing needs of customers in the future. The sale of high-quality fuels and Easy Fill windshield washer fluid at the Neste K stations subject to the planned change will continue as normal. The change does not affect Neste service stations and the services offered there, the Neste MY Renewable Charging service for electric vehicles, or Neste Express or Neste Truck stations for heavy-duty vehicles,” says Katri Taskinen, Director responsible for Neste’s station network in Finland.
Kesko is currently responsible for the grocery trade and ancillary services at Neste K stations, which are part of the K Group’s grocery trade operations.
Do we have a technical analysis enthusiasts here? Could you please comment: Am I right to say that 30 eur is some kind of resistance level? And if we break it, the share price can go down the mountain?
PVG’s new lower-emission fuel for indoor heaters offers European consumers a more sustainable alternative
Neste supplies PVG with odorless kerosene produced through co-processing, which can replace the conventional fossil kerosene commonly used in heaters
Neste has launched a new co-processed odorless kerosene, a lower-emission fuel for portable indoor heaters. The first order was delivered at the turn of the year to PVG, the European market leader in household climate solutions, which has its own liquid product production facility in Ghent, Belgium. PVG will bring the fuel for portable heaters to the consumer market next winter at the end of 2024.
PVG’s next-generation fuel is based on odorless kerosene produced by Neste. It serves consumers in Europe and is a more sustainable alternative to fossil fuels used in heaters, as fossil raw materials are replaced with renewable raw materials in its production. The lower-emission fuel is a solution for households looking to reduce their heating carbon footprint.
It feels really strange to me that there would actually be a market for devices like that and their fuels. Well, maybe up here near the Arctic Circle, things are fundamentally done quite differently.
Indeed, what kind of market is there for those indoor heater fuels?
Or is this development work more about marketing?
Hard to say, but you do see them in Central Europe during the winter. Initially, I thought they were total death traps, but I believe the installed base is quite massive. There are also gas-powered versions, of course.
They’re the same stuff. Antti and I were just pondering that the change in the Swedish reduction obligation has likely started to reflect in the price, and of course fossil prices have come down. Renewables are usually sold at some premium relative to fossils, so that price change also flows through to Renewables.
It will be interesting to see what Neste says about margins in connection with the results, as the Swedish impact begins to materialize. This year will, of course, also be affected by the growth in SAF volumes and their margin levels. There are so many variables in the air right now with the strikes, the Porvoo maintenance turnaround, the Singapore ramp-up, the Martinez fire, the SAF sales ramp-up, etc., that it’s going to be an interesting year I look forward to seeing what additional information we get with the Q4 results, but it’s unlikely everything for this year will be completely clear even after Q4.
Strong end to the year, cash flow the highlight of 2023
Year 2023 in brief:
Comparable EBITDA was EUR 3,458 million (3,537 million)
EBITDA was EUR 2,548 million (3,048 million)
Cash flow before financing activities was EUR 751 million (-390 million)
Comparable return on average capital employed (comparable ROACE) was 23.9% over the last 12 months (30.1%)
Leverage ratio at the end of December was 22.7% (31 Dec 2022: 13.9%)
Comparable earnings per share were EUR 2.88 (3.04)
Earnings per share: EUR 1.87 (2.46)
The Board of Directors proposes a dividend of EUR 1.20 per share (1.52), totaling EUR 922 million (1,168 million)
The last quarter in brief:
Comparable EBITDA was EUR 797 million (894 million
EBITDA was EUR 672 million (748 million)
Renewable Products’ comparable sales margin* was USD 813 per ton (755)
Oil Products’ total refining margin was USD 18.9 per barrel (23.5)
Cash flow before financing activities was EUR 475 million (596 million
Comparable earnings per share were EUR 0.66 (0.84)
President and CEO Matti Lehmus:
Neste’s year 2023 ended with a strong result in all business units. In the final quarter, comparable EBITDA was EUR 797 million (894 million). The change compared to the corresponding period last year was due to Oil Products, where the total refining margin remained at a good level thanks to operational efficiency, but decreased from the previous year to USD 18.9 per barrel (23.5). In Renewable Products, we were able to optimize sales and feedstock sourcing in a more challenging market environment, and the comparable sales margin was USD 813 (755) per ton. Sales volumes for renewable diesel and sustainable aviation fuel (SAF) met our targets at 843,000 tons (779,000). Cash flow before financing activities was also strong at EUR 475 million (596 million), despite our ongoing growth investments.
Geopolitical tensions and high inflation affected the year 2023. The market environment was most favorable in the third quarter, after which markets weakened toward the end of the year, particularly in Renewable Products. Our comparable EBITDA for the full year was EUR 3,458 million (3,537 million). Regarding the Group’s financial targets, we achieved a 23.9% comparable return on average capital employed over the last 12 months, and the leverage ratio was 22.7% at the end of the year. We clearly reached our financial target levels in both. The clear highlight of the year was cash flow before financing activities. Thanks to successful working capital management, cash flow significantly exceeded the previous year’s level (-390 million) and was EUR 751 million. Our strong financial position allows us to continue implementing our growth strategy.
Short-term market outlook
Uncertainty regarding the global economic outlook and the geopolitical situation continues. We expect market volatility to remain high in Renewable Products and Oil Products. In Renewable Products, prices for biotickets and credits have fallen to a lower level in early 2024 compared to 2023. In Oil Products, the refining market has remained relatively stable at the beginning of 2024.
Guidance
The total sales volume of Renewable Products is expected to grow from 2023 and rise to approximately 4.4 (+/- 10%) million tons in 2024. The sales volume of sustainable aviation fuel is expected to be 0.5–1.0 million tons. The full-year 2024 average comparable sales margin for Renewable Products is expected to be USD 600–800 per ton.
The total sales volume for Oil Products in 2024 is expected to be lower than in 2023. This is affected by the planned major turnaround at Porvoo in the second quarter. The full-year 2024 total refining margin for Oil Products is expected to be lower than in 2023.
Dividend proposal
Neste’s policy is to pay a competitive and over time growing dividend. The parent company’s distributable funds on 31 December 2023 were EUR 3,835 million. There have been no material changes in the company’s financial position since the end of the financial year.
The Board of Directors proposes to the Annual General Meeting that a total dividend of EUR 1.20 per share be paid based on the adopted balance sheet for 2023. The dividend will be paid in two installments.
The first installment of the dividend, EUR 0.60 per share, will be paid to shareholders who are registered in the company’s shareholder register maintained by Euroclear Finland Oy on the record date for the first installment, 2 April 2024. The Board proposes to the AGM that the first installment be paid on 9 April 2024.
The second installment of the dividend, EUR 0.60 per share, will be paid to shareholders who are registered in the company’s shareholder register maintained by Euroclear Finland Oy on the record date for the second installment, 2 October 2024. The Board proposes to the AGM that the second installment be paid on 9 October 2024.
I look forward to seeing what additional information we get with the Q4 results, but it’s unlikely everything for this year will be completely clear even after Q4.