Neste Oil Corp. will build a renewable biodiesel plant in Singapore that is expected to be online in 2010.
The new plant, with an annual capacity of 800,000 tons, will use palm oil as its main raw material, the Finnish company said. That drew protests from environmental groups concerned about the deforestation that occurs to make way for palm oil plantations.
"The investment forms part of Neste Oils strategic goal of becoming the world's leading renewable diesel producer," Neste said. "The use of biofuels such as NExBTL (biodiesel) is predicted to increase rapidly in developed economies over the next few years."
Chief Executive Risto Rinne said he expects strong growth in biofuels.
"It looks like there will be substantial growth in the market," Rinne said. "In Europe alone, (annual) production will be well over 10 million tons by the end of the decade and our share of this production will be some 800,000 tons."
In May, Neste opened a second-generation biodiesel plant at its refinery in Porvoo, 50 kilometers (30 miles) east of Helsinki, which produces environmentally friendly diesel from vegetable oil and animal fat. It plans a second plant at Porvoo in 2009.
NExBTL technology, a commercial new-generation diesel production process, uses any vegetable oil or animal fat to produce high-quality diesel that can be used in existing vehicles without alterations to machinery.
Neste said it chose Singapore as the site of the new plant because it is the world's No. 3 oil refining center, is near palm oil plantations and on the route of raw material transports. "This also gives Singapore excellent potential to develop into a center for Asian biofuel production," Neste said.
Neste's decision to use palm oil as a raw material was criticized by environmentalists who say an increase in palm oil plantations is a major cause of rain forest destruction in Asia.
Critics included Greenpeace, which earlier this week tried to block the arrival of a palm oil tanker from Malaysia at Neste's refinery with rubber dinghies and motorboats.
"Neste's decision indicates that the company is planning that its production (of biofuels) will be greatly dependent precisely on palm oil," said Greenpeace spokesman Harri Lammi. "Constructing the plant in the vicinity of palm oil plantations in Singapore indicates that the company, despite earlier claims, has no plans to even attempt to base its biodiesel production on more sustainable raw materials."
Rinne said Neste would ensure its palm oil will be certified as having being produced by environmentally friendly methods once such a system is in place.
"We have a very clear principle that we are aware of the source of all raw materials used in our biodiesel, including palm oil ... and that it is produced by sustainable methods," Rinne said.
Construction of the Singapore plant will begin during the first half of 2008. It will be situated in the Tuas industrial zone in the southwest of the island, near the center of Singapore.
Neste's stock closed up slightly at 23.96 EUR(US$35.37) in Helsinki.
Neste Oil, based in Espoo, near Helsinki, is a refining and marketing company focusing on advanced, clean-traffic fuels with net sales of 12.7 billion EUR in 2006. It has 4,700 employees, mostly in Finland, but also has operations in Russia, the Baltic states and Poland.