253. Full Interview with Jeremy Baines of Neste, largest producer of renewable fuels in the world

[00:00:00] David Dodge: Hi, I'm David Dodge, host of Green Energy Futures. Jeremy Baines was skeptical at first, but persistence paid off, and now the company, formerly known as Neste Oil, is the largest producer of renewable diesel fuels in the world. It's a bit hard to picture, but today there are airplanes flying and trucks trucking with renewable fuels made from the oil that made your french fries. Here, we present our full interview with Jeremy Baines, the president of Neste US, based out of Houston, Texas. [00:00:37] Jeremy Baines: My name is Jeremy Baines. I'm the president of Neste US. I've been working for Neste, or I've had the pleasure of working for Neste for just over 19 years now, in various different commercial roles, and I'm in the US to help build out Neste's presence, looking at market opportunities and really promoting renewable fuels and circular solutions for the US market. [00:01:05] David Dodge: And just curious, Jeremy, what's your background? What did you study? [00:01:11] Jeremy Baines: So I'm one of those economists. I never thought that I was a very good economist. I studied in London, but I've really actually over the years got to like economics, simply for the pleasure it brings in coming up with new solutions and new ways of bringing products to the market. [00:01:36] David Dodge: So that's been pretty fun. So Jeremy, for those of us here in Canada, what is Neste? I didn't know the company before I heard of you guys. So give me a breakdown. What is Neste? [00:01:50] Jeremy Baines: So Neste started up as a traditional oil company about 70 years ago. It was started by the Finnish government after the second World War, to really ensure the security of the supply of fuel to the country. And Neste, being a Scandinavian company, has always had this tradition of being closer to nature, being closer to the environment, looking at cleaner products and cleaner solutions. And then in the late 1990s, started really divesting some of its upstream oil production assets and focusing more and more on producing cleaner traffic fuels. Then it came to the 1990s. And Neste, at that time, was really thinking, OK, what is actually the future of Neste as a petroleum company? And started researching, renewable technology. When I mean renewable technology, it's rather than using crude oil and fossil fuels, what else can we use which is more sustainable, more renewable than that? And that's when they hit on this renewable diesel technology. It's developed in-house. In-house, we call it NextBTL technology. And really, it was geared to convert any vegetable oil, animal fat residue oil into a very clean-burning transportation fuel. And the development of this continued throughout the 1990s and into the early 2000s, when in 2005, Neste really made that strategic decision to pursue renewable fuels and renewable technology. And we started building out different refineries. We started off with a couple of pilot plants in Finland, then decided on building a world-scale plant in Singapore and a matching one in Rotterdam. And that was really the catalyst for Neste to go after [00:03:55] David Dodge: renewables in a big way. Jeremy, that was really early to be thinking about this transition. What precipitated that? That's well ahead of the curve, to borrow an expression. No, absolutely. And I think it's [00:04:09] Jeremy Baines: that kind of vision that the Neste leadership had that climate change is really happening. When I think about it, when I started 19 years ago, Neste, for me, was still very much an oil company. Actually, I started as a junior trader trading liquid LPG, propane and butane. I was actually quite skeptical about renewable fuels at that time. Because, well, it was complicated. It was costly. It was maybe unrealistic at the time. But I mean, climate change was kind of that inconvenient truth at the time. It wasn't really the crisis that it is now. But policymakers and leadership were already thinking that, hang on a second. This is not working out. This climate change is for real. And we need to position ourselves for that future. So this goes back really a long time. And like I often like to say, Neste has been too early very often. We were too early with low sulfur diesel. We were too early with unleaded gasoline. We were too early with low sulfur bunker fuels, arguably too early with renewable diesel. But actually what it meant is that we were ahead of that curve. We were well positioned for when those fuels started taking off. [00:05:30] David Dodge: So was this partly a response to government policy in Finland or other places? Or was this ahead of that response? I know today, for example, Copenhagen in their climate plan plans to ban conventional diesel vehicles from their streets by 2025. What role did government policy play? Or were you just, as I said to you in a pre-interview, were you just skating to where the puck was going to be, as Wayne Gretzky would say? [00:05:56] Jeremy Baines: Yeah. Well, policy was not the main reason at that time, because at that time there wasn't really that regulatory environment. But it was kind of this green swan transformation, if you want, that Neste really believed that it was a time for action on climate change. Don't get me wrong, policy does play a very big role in this. If we now look at examples in Europe, where you have the Renewable Energy Directive number two, or the low carbon fuel standard in California, these are, of course, very important. But it was not the driving force behind that. And your analogy of Wayne Gretzky is you skate where the puck is going to be. That puck is our transportation system. And we see that businesses and the public is calling for less carbon emissions and less pollution from transportation. And Neste is really trying to get to where these companies, where the public, where governments want to be. But Neste can't do this alone. We really need to work closely with those companies that want to see and want to switch from fossil fuels to cleaner burning fuels. But we need to work with politicians to create regulations that actually put a fair price on the carbon and the emissions that fossil fuels produce, and working with cities that are setting climate change targets. So it's, it's really a partnership, a cooperation to get to these climate goals. [00:07:33] David Dodge: So one more question before I get to the nuts and bolts of what you guys do. You must be pleased about that initial work, which must have been really difficult and expensive and probably not that lucrative, where you are now considering all the policies that are coming into play. [00:07:49] Jeremy Baines: Yes. I mean, I was fortunate enough to be involved in the renewables when we started up the Singapore and Waterdam refineries. And it was very tough. Those initial years, there was a lot of misconception about what these fuels are, how they produced, the legislation wasn't very clear. So there were a lot of sleepless nights for a couple of years. But then all the work that Neste had done in our supply chain, understanding our own technology, working with our partners and customers, really started to pay off. And like you say, in the last couple of years, that transformation has really accelerated. And I think a really good example of the transformation in Neste is that Neste used to be called Neste Oil. And it's just a couple of years ago that we actually dropped the oil out of the company name. So now we're just Neste. So I think that's a demonstration of how much we really think that renewables and transforming our business [00:08:53] David Dodge: and our economy is important. So Jeremy, what products do you produce now? [00:08:59] Jeremy Baines: So Neste does still produce traditional oil products and traditional oil products base. What we're trying to do is continuously lower our own emissions, not only ahead of legislation, but we also want to get to carbon neutral production. But then the main emphasis if you want is on the renewable products. And on the renewable products, we produce renewable diesel, which is a drop in diesel fuel, it's a premium diesel fuel. We produce sustainable aviation fuel, which is again, it's a drop into the existing jet fuel pool. It works in the same pipelines, in the same storages, in the same engines. There's no need for changes in technology. And then exciting and kind of the next steps is what we would be doing in base of renewable polymers and chemicals. So using our renewable molecules to convert them into renewable, sustainable [00:09:59] David Dodge: plastics or other post-consumer chemicals. Jeremy, what resistance, if any, did you face from both consumers of diesel or jet fuel or the companies that produce the vehicles that use that? What barriers [00:10:15] Jeremy Baines: did you face? What resistance did you face? Well, I think there's been many attempts at bringing in renewable technology and some of those had failed. So there was a kind of stigma, if you want, about renewable fuels. It was unclear what they were. And I think that was the biggest hurdle, is that just a lack of awareness of what these advanced biofuels really are. That was the first thing. And then to an extent, the story of renewable diesel sounds too good to be true. Here you are taking an organic fat oil or grease, which in the past used to be landfilled, and you are converting those into a product which is water white, crystal clear, no aromatics, no sulfur, a high-performing fuel. How can that be? So there was a lot of skepticism to the fact that how does Neste make this amazing fuel out of such a poor quality feedstock? But then once you get over that barrier and explain how it's worked, what the process is behind it, then people go like, okay, so you are telling me that I can use my existing diesel engine, or I can use the existing engines in my plane, and I can drop enough fuel, which is better than the fossil fuel I'm using today. And I reduce emissions by up to 80% in terms of carbon dioxide and other pollutants. Wow. And then once you start getting that, then you have the companies that are going, okay, so how do I get this fuel? Because this is what I need. So then that effect starts happening. But it takes time. It's a lot of education. It's a lot of working with trade groups, with policies, with customers, with distributors. But it's exciting. It's exciting when you see companies and cities really becoming passionate about these types of solutions. [00:12:09] David Dodge: Jeremy, what were some of the worst myths you had to overcome? I remember in the early days when renewable fuels were coming out, biodiesel, for example, there were a lot of myths circulating about it being bad for engines or this or that. What were the worst ones you had to overcome? [00:12:25] Jeremy Baines: Yes, I think, A, first, it's snake oil. It doesn't exist. You can't get it because it's only existing test tubes. It'll kill your engine. There were so many myths about it. Because again, of all these previous experiments that had taken place. But I mean, to an extent, the fuel cells itself is just such a high quality fuel. And I think that was really the transformation is once people started to see, hey, this product works. There are no, all these myths are just that [00:13:01] David Dodge: they work. Yes. So, Jeremy, what are the raw materials you use? Obviously, you're not digging big holes in the ground and pulling oil resources out of the ground to do this. What are the raw materials? And what do you use mostly to produce these fuels? Yeah. So, unless they initially had [00:13:19] Jeremy Baines: the raw materials that we used to produce these fuels, we used to produce these fuels, they were running on vegetable oils. So, that's what we were using as raw material first. But then we started exploring what other types of oil, of renewable or sustainable oils can we use. And then we started exploring used cooking oils and animal fats and fish fats and side streams from other industries like corn oil, which is a side stream from the ethanol production. And now we can use just over a dozen different waste and residue oils. And that's very exciting. Why is that exciting? Because if you use lower quality waste oils, you actually have a much bigger impact on the environment because it reduces the amount of carbon even further. Let's not forget to use cooking oil as an example was used to fry your fries or your chicken or whatever it was. So, it's already had a use and you are then giving another use to that oil after it's been used. So, that really reduces the carbon emissions of that fuel significantly. And that's what Neste is also exploring is what other feedstocks can we be using? What other trash can we be turning into treasure? So, we're looking at our forestry waste and we have projects in Canada looking in forestry waste. We're looking at power to hydrogen. We're looking at algae. So, Neste is exploring lots of other potential feedstocks to use either in fuels or in plastics or in chemicals in the future. And this, if I may, plays to this whole circularity of our economy. How can we keep reusing the same carbon again and again rather than taking carbon out of the ground, pumping it into the atmosphere and just leaving it in the atmosphere, which is what's causing climate change. We want to be able to take that carbon back out of the atmosphere and reuse it again and again. That's fascinating. You know, Jeremy, in my early days of [00:15:41] David Dodge: producing this series, I ran across the other end of your industry and that are those guys that were super keen, community guys that wanted to make their own biodiesel. We're selling it at farmers markets and four-liter chugs. And I remember this group on Vancouver Island who latched onto the supply of oil from cruise liners and therefore had a new steady major supply of oil compared to what they had before. And they actually built a little refinery and started supplying bus lines that tour the tourists around from the cruise lines with a hundred percent biodiesel fuel. They advertised that and thought that was a good thing. But my point is they made that work. They thought they hit the jackpot when they found the cruise liner supply, but you're on a whole different level. Like what are, how challenging is the supply issue? Because you need a lot of raw material. We need a lot of raw material, but the [00:16:36] Jeremy Baines: whole industry needs a lot of raw material. I mean, today Neste is the world's largest producer of renewable diesel. We produce just over 900 million gallons per year. But for every gallon of renewable diesel that we make, we need slightly more in terms of feedstock. So we need hundreds of millions of gallons of feedstock. And where does that come from? If we look at the used cooking oil, which is a fascinating market that comes from restaurants and hospital kitchens. And like your example, from the cruise liners, but it has to be collected. It has to be collected from thousands, tens of thousands of restaurants aggregated. And then it needs to be processed because you need to take out all the sediment, all the little bits of French fries, all the bits of chicken that have been fried in it. It needs to be filtered and then transported to a refinery site. So the infrastructure required, the jobs that are necessary, the skill that is needed for this is on a different order than it is in the petroleum industry where you stick a straw into the ground and the oil comes out. It is a very big logistic exercise that you have. And not every single feedstock is the same because it's not the same whether you're using an animal fat from beef or if you're using a used cooking oil from a Taco Bell. These feedstocks are very different. So there's a lot of technology that also goes into being able to treat those feedstock to a state in which we can put them into our refinery. One of the exciting things about our technology is that it doesn't matter what feedstock we use, the end quality is always the same. And that's the guarantee also that we give to our customers. [00:18:22] David Dodge: So I'm sure people are curious, what percentage of your inputs or your raw material are waste and what percentage are not waste? [00:18:31] Jeremy Baines: I would need to verify this, but in our latest quarterly results which came out last week, it was above 80% of our inputs are waste and residue materials. The other 20% would still be vegetable oils, soybean oils, [00:18:47] David Dodge: rapeseed oils and those kind of oils. Wow, that's quite an accomplishment. [00:18:52] Jeremy Baines: Yes, and today we have the capability to run on 100% waste and residue. The challenge is to get as much waste and residue as we want. All industries are looking to reduce the amount of waste that they produce. So they've got this clash between us trying to find more waste and the industry as a whole trying to reduce waste. [00:19:17] David Dodge: Ah, yes. Well, I guess the more sustainable we get, the harder it'll be on you. [00:19:25] Jeremy Baines: To an extent, yes. And that is why we continue to invest in new feedstock. What else can we be doing? And I think it's clear that it won't all be converting from an organic fat oil or grease to a renewable fuel. I think we will also be exploring other routes like the lignocellulosic, like algae, like power to liquids. Those will be different types of technology, but we'll end up in the same high density, clean burning liquid fuel. That's one of the challenges that we face is these hard to evade industries. How do you power trucks and cranes and planes and vessels that require a lot of power to move? Those are very, very, very challenging industries to electrify. And that's why I foresee for many, many years, if not decades, that we will need liquid fuels to power those. But then we need to make that smart transformation from fossil liquid fuel to a renewable liquid fuel. So, Jeremy, I imagine you think about [00:20:32] David Dodge: this just about every day and probably have for the last 20 years due to the business you're in. Where is it all going? I mean, we see right now the car industry appears to have gone over the top of the hill and is investing just about everything they have, about $300 billion in electric. We have hydrogen coming on. We have this renewable stuff. What's the market going to look like in 10 or 20 years? [00:20:59] Jeremy Baines: I think it's going to look like a polyfuel world. There is no one magic bullet. It's going to be a combination of different technologies which are going to suit different markets. You were talking about electrification. I think electrification in the passenger car market is happening. And that's going to be an exciting future to see more quieter, cleaner electric cars on our roads. Then we have the aviation space. There are no electric cables long enough to power a plane. There's no battery technology today or for the foreseeable future that is going to be able to power 747. They just aren't there yet. So, in those hard to abate industries, we will see and we have to see a shift towards sustainable fuels, towards sustainable aviation fuel. And then you're going to have industries like trucking. And depending on what application they have, it might be hydrogen, it might be compressed natural gas, it might be electric, but very likely a lot of that is going to be renewable diesel. Today's diesel engines are nothing like the diesel engines of 10-15 years ago. These are very high-tech engines. They reduce the emissions significantly compared to the original engines. And they use the existing infrastructure network that we have, the existing terminals, the existing pipelines, the mechanics, the fueling stations, all that can still be used. All you need to do is switch from fossil fuel to a fuel. So, we're going to see a world with lots of different technology out there and it's going to be an exciting change. Jeremy, you're in, I believe [00:22:45] David Dodge: you're in Houston, is that right? I'm in Houston, yes. So, what's your advice to others in the fossil fuel industry? You guys have been on this road for, obviously, for quite some time. What advice do you give them? [00:22:58] Jeremy Baines: Well, I would say that they need to think of what the future looks like, what the future looks like and what are their capabilities. And the oil industry is an industry of renewal and reinventing themselves. Look at fracking, look at the way that they've made cleaner fuels over the years. But they also have a lot of expertise in how to efficiently distribute fuels across the country, how to efficiently make fuels. So, this is really actually an opportunity for the oil industry to reinvent itself again and to go towards a more sustainable future. They know how to transport these fuels. So, Neste is already working with a number of midstream companies in Texas to transport our fuels, to store our fuels. So, this is more as an opportunity for them in the long run than anything else. Is the rest of the industry looking at you as a visionary, [00:23:57] David Dodge: or are they looking at you as the devil? [00:24:03] Jeremy Baines: Oh, that's a good question. I think to the wider industry, we are a green swan. I don't think anybody saw the black swan of COVID-19, but the green swan is the one that people can actually see. This is the one where the market is moving and the world is moving towards a more sustainable future. So, are we the devil? Well, to an extent, we are showing the way of how you can transition from liquid fossil fuels to renewable fossil fuels. Is that a bad thing? I don't think so. I mean, Neste is in the business of fighting climate change and of making a better world for future generations. So, I don't think [00:24:44] David Dodge: that's a bad place to be. What do you make of the way politics seem to have turned really hard in the last couple of years towards taking action on climate change? What do you make of that? [00:24:56] Jeremy Baines: Well, in a similar way to this COVID-19 crisis, we are in COVID, we're looking at the science. The science is clear. If you look at climate change, the science is clear. Maybe over different time frames, but it is clear. And therefore, it's not really a surprise that governments are starting to take action because they know what the cost of inaction is going to be. But it's incremental. It's not the same in all countries and not the same in all states, but we are moving in that direction. [00:25:32] David Dodge: Last question, Jeremy. Are you guys making money? [00:25:35] Jeremy Baines: Yes, sir. We are. We are still making money. I mean, this is a challenging environment, of course. We see demand destruction on gasoline, on diesel, on our traditional petroleum business, but that also has a clear impact on our renewables business. We also see pressure on the feedstock prices. Earlier on, we were talking about Neste buying a lot of used cooking oils. Well, unfortunately, this stay at home has shut down a lot of restaurants and people aren't dining out as much. So that has reduced the supply of used cooking oils. So Neste, just like any other energy industry, is being impacted. But I think because we are diverse from the fossil industry, we have different types of economics. And I think we are well positioned to weather this storm. [00:26:28] David Dodge: I do have one more question. What percentage of your product is conventional and what percentage is [00:26:35] Jeremy Baines: renewable now? So today, we still produce five times more conventional fuels than renewables. But with our expansion plans in our Singapore refinery, Neste is continuously looking at additional renewable refinery assets. That balance is going to shift over time. And even our oil products are looking at how can we introduce more renewable, sustainable feedstock into that mix. So we are really making that transformation. [00:27:05] David Dodge: Well, thank you, Jeremy. Is there anything else I should ask you? [00:27:09] Jeremy Baines: Yeah, I mean, for the Canadian market, of course, Neste has been supplying renewable fuels for the Canadian market for many years now. And we see, especially on the west coast, a growing demand and a growing realization for sustainable fuels. So that's exciting. And now also on the federal level, we see move towards fighting climate change and putting clear policy in place. And a clear policy is really what will drive innovation and what will which will drive investment into a sustainable and renewable economy. [00:27:50] David Dodge: Where are you active in Canada now, Jeremy? [00:27:53] Jeremy Baines: So today we supply the Canadian oil majors with renewable fuels in Alberta, in British Columbia. We also have fuel going on into the east coast, but we're not marketing it today as Neste my renewable [00:28:06] David Dodge: diesel. We are supplying it to the oil majors. Interesting. So I happen to know that, for example, the city of Edmonton is working on their own climate change plan. And when they do the modeling, they realize this fuel component is one of the big ones. [00:28:20] Jeremy Baines: Absolutely. Traffic fuel across the world is one of the major sources of emissions and maybe also a major source of emissions that we can actually quite easily tackle. Because like in our discussion earlier on, passenger vehicles can relatively easily be electrified and the heavy duty vehicles can relatively easily stop using fossil fuels and just use renewable fuels. That's all you need to do. You just need to make that decision to switch from one fuel to another. You don't need to make expensive investments in infrastructure or new vehicles or anything like that. That's the beauty of these drop in renewable fuel that Neste and our competitors produce today. You dropped them in. [00:29:05] David Dodge: Well, Jeremy, thank you so much for taking the time. It's a fascinating story and I look forward to seeing you moving your products in my home province. Thank you very much. It's been a pleasure talking with you this morning. Thanks for listening. I'm David Dodge of Green Energy Futures. This has been our full-length interview with Jeremy Baines, the president of Neste West. Listen to our CKUA radio podcast or check out our blog on what energy transition looks like at greenenergyfutures.ca. [00:29:37] Speaker ?: Thank you.