Neste Oy

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Neste Oy

Post Office Box 20
SF-02151 Espoo
Finland
(0) 4501
Fax (0) 4504447

State-Owned Company
Incorporated: 1948
Employees: 11,278
Sales: Fmk46.63 billion (US$12.86 billion)

Neste Oy is the second-largest polyolefins plastics manufacturer in Western Europe and the second-largest resins manufacturer in the world. It is Finland’s largest company, in terms of sales. It is state-owned, and refines all the crude oil imported to the country, and produces and exports petrochemicals in Finland and abroad. Neste began as an oil storage company, became an oil refining company, and later added petrochemical production to its activities.

In Finland there was never any form of nationalization of existing private industry as occurred in many countries after World War II. State ownership was considered to be a viable way of introducing a new industry in which no interest had been shown by existing companies in the sector.

Before World War ll, Finland had no oil refineries. The country was one of the few in Europe that imported all its oil and petroleum products from abroad. When World War II broke out in 1939, Finland was not prepared to cope with the problems which ensued. In September 1939, petrol rationing started in Finland. Fuel and lubricant oils were placed under the control of a special agency called PVa, from the Finnish words for fuel oil storage, under the guidance of the Ministry of Defense. The new agency was led by Colonel Váinö Vartiainen, who was later to play an important part in the early days of Neste. Dr. Albert Sundgren, Finland’s only petrochemicals expert, was on the staff of PVa. Earlier he had advocated the establishment of an oil refinery in Finland.

The agency planned to store its fuel oil and lubricant supplies in caves in the granite rocks of Tupavuori, in the township of Naantali on Finland’s southwestern coast. A company was to be created to execute the plan.

The storage caves in Naantali were named NKV, from the Finnish words for Naantali Central Storage. After the end of the war, work to complete the caves went on. Responsibility for the NKV project was transferred from the Ministry of Defense to the Ministry of Trade and Industry in June 1947. NKV became a limited company, Neste Oy, and its first general meeting was held on January 2, 1948. The state of Finland was registered as a shareholder with 207 shares, Oy Alkoholiliike Ab, the state-owned alcohol monopoly with 140 shares; and Imatran Voima Osakeyhtiö, the state-owned power company, with 3 shares.

In the articles of association of the company, it was stated that its purpose was to own and rent storage for liquid fuels and lubricants, and to act as importer, transporter, and manufacturer, of these products, as well as trading in them. The beginnings of Neste were not very auspicious. In the spring of 1948, Neste purchased an old tanker of 8,896 pennyweight (dwt) from Norway. The ship was a financial disaster. The caves also gave the company problems, when in July 1949 a dangerous fire broke out. The company was in financial difficulties. An agreement between Neste and the government was signed in October 1950, whereby Neste returned some of the less suitable storage space to the state for a remuneration of Fmkl50 million.

Uolevi Raade, director in the early 1950s of the Department of Industry within the Ministry of Trade and Industry, had become aware of Sundgren’s plans for an oil refinery. Raade perceived that a major plan of national importance was waiting for his imagination and will power, and he accepted the challenge. The fortunes of Neste began to change.

Finland had traditionally relied on the services rendered by the major oil companies. They had a strong influence upon Finland’s Department of Trade. They tried to make the refinery plans look unfavorable. Raade, however, was known for getting his way. He convinced the minister of trade and industry, Penna Tervo, of the importance of a national refinery. However, when the plan was brought to the government for the first time in 1951, it was not accepted. Raade had to start anew. He finally managed in 1954 to convince Dr. Urho Kekkonen, the influential politician and future president of Finland, of the importance of a national oil refinery. On December 17, 1954, the Finnish parliament authorized Neste to start building an oil refinery with 700,000 tons crude oil capacity.

Raade was named president of Neste on March 1, 1955. Vartiainen remained chairman of the board of directors, and was succeeded by Raade in 1959. Raade nominated Mikko Tanner as technical director. Raade had become aware that Tanner was an excellent engineer when constructing the fertilizer plants of Typpi Oy in Oulu. The managing director up to this time, Eino Erho, was to continue as commercial director of the company. An area near the cave storage reservoirs was selected as the future site of the refinery. The harbor conditions at Tupavuori were considered to be excellent.

The planning of the refinery was entrusted to the U.S. firm of planners The Lummus Company, a specialist in the field. The delivery of plant and equipment was entrusted jointly to the French company Compagnie de Five-Lille and Germany’s Mannesmann. The civil engineering was carried out by Neste itself.

Construction work started at Tupavuori in Naantali in October 1955, and the inauguration of the refinery was held on June 5, 1958. The start-up of production in August 1957 had already shown that no technical problems existed. The guaranteed capacity of 700,000 tons was reached by the beginning of October, and soon it was apparent that the new refinery could reach a capacity of up to 1.2 million tons of crude oil per year.

Neste had planned to refine crude oil from many sources, half of the supply coming from the Soviet Union, and half from Western suppliers. As the company had no intention of forming a retail delivery system of its own, the marketing of products was based on cooperation with oil companies already operating in Finland. The most important of these were Shell, Esso, and Gulf. Shell and Gulf delivered crude oil of their own to be refined by Neste. All prices were tied to international market rates.

Raade kept up with market requirements. Neste’s strategy was to deliver all the motor petrol Finland needed and adjust the production of other derivatives of crude oil accordingly. Thus the company chose a technology which gave maximum petrol output. The bilateral trade between the Soviet Union and Finland guaranteed that increased imports from the Soviet Union would mean new possibilities for exporting Finnish products. In 1960 Neste decided to double the capacity of the Naantali refinery. When the extension was completed and production started in September 1962, a capacity of 2.5 million tons of crude oil was reached.

Raade, however, already had new plans. In November 1962 he presented to his supervisory board a plan to construct a second refinery. He also proposed to purchase the Skoldvik Manor, with an area of 628 hectares near the town of Porvoo, east of Helsinki, as the location of the new refinery. The site had good access to deep waters. This rural area was to be changed into a huge heavy chemical industrial complex within a short time. Later the “green (environmental) movement” became active in opposing Neste as responsible for the change.

In 1963, however, when Lummus and Neste engineers were making plans for the new refinery, the plans received favorable publicity. Finland was living in a climate of industrial growth and was optimistic about the future expansion of technology. The plan to create a new refinery, with capacity equal to that of the enlarged Naantali refinery, was approved in June 1963. Soon Raade demanded that the construction be accelerated. Some of the suppliers had timing problems, and the start-up in spring 1966 was delayed by nearly a year. This did not stop Raade from ordering extensions to the new refinery to be built for start-up in 1968, doubling the refinery’s capacity. This new extension started production three months before the planned start-up date. Neste regained some of the reputation it had lost as a result of the earlier delays. Uolevi Raade shared the visions of Sundgren regarding the future of petrochemicals and made careful plans for the realization of his dreams. At the inauguration of the first refinery in Naantali, it was stated in public that petrochemicals were closely associated with the refinery business, and that they would eventually come into Neste’s domain. In 1959 Raade had taken Sundgren and two members of his board to Italy to study the activities of ENI and Montecatini. When presenting to the supervisory board his plans for the building of the oil refinery in Skoldvik, Raade told his audience that Neste would continue its development by entering the petrochemicals sector after 1967. Neste started detailed planning for this event, again with Lummus. In 1968 the plan was ready for presentation. The first stage included a plant for producing ethylene. This unit would form an integrated part of the oil refinery in Skoldvik. The second stage would be a plant for producing polyethylene and polyvinylchloride (PVC). This production would be carried out by a separate company, formed by Neste and its principal customers. Both units were planned to start production in 1972. In March 1969, a company named Pekema Oy was formed to realize the latter plan. Pekema had eight shareholders, all well-known Finnish industrial companies. Neste was the largest shareholder with 44% of the shares. The plant for the company was erected in the vicinity of the Skoldvik refinery. Production started at the beginning of 1972, at the same time as the start of production at Neste’s ethylene unit. The company worked for a few years in close cooperation with Neste, but in 1979 the production facilities of Pekema were transferred to Neste and integrated into the company.

At the beginning of the 1970s four industrial companies, one of them Neste, formed a company, Stymer Oy, to produce polystyrene, another basic material for the plastics industry. The facilities of this company were also erected in the vicinity of the Skoldvik refinery. In 1981 this facility too was integrated into Neste. Neste also purchased other outside units tied to the refinery and making other chemicals for the plastics industry. Neste was now the dominant petrochemicals producer in Finland.

Few industrial projects in Finland have received as much publicity as Neste’s plans for a third refinery. Neste had calculated that new refinery capacity would be needed in 1976. After careful study, the company proposed to build another refinery in Lappohja near Hanko. These plans were presented to the supervisory board in October 1970. Helsinki University, whose biological station in Lappohja was considered internationally to be important for the study of wildlife in the Baltic, reacted violently against the plan. A large media debate ensued. “Green values” had become important and politicians were no longer easily converted to Raade’s plans. The government assigned an area in Pyhamaa on the Gulf of Bothnia for the planned new refinery. Plans were altered accordingly.

Some doubts still lingered in top political circles. The prime minister, Dr. Mauno Koivisto, told his cabinet that the question should be reconsidered. Against Raade’s opinion but with the consent of Tanner, it was decided that new capacity should be added onto the existing refinery.

The final decision was to double the capacity of Skoldvik, now more frequently called the Porvoo refinery, after the town where it is located. As Finland has no oil or gas resources of its own, the small amount of natural gas it required had been provided by imports, mainly from Denmark. However, Finnish industry was interested in gas supply on a large scale, such as was found in many countries. The Soviet Union was interested in extending its network of natural gas pipes as far as the border of Finland and in signing a long-term delivery contract. Because of the bilateral trade, Finnish industry was continually looking for new import items from the Soviet Union in order to promote its own exports. In 1971 Finland signed an agreement with the Soviet Union for deliveries of natural gas to Finland. In the same year, Neste became involved in this project. A network for the distribution of natural gas was established by Neste and delivery contracts were drawn up with industrial customers. Gradually the network has been enlarged, but the ultimate goal to link the network to Norwegian gas sources has not yet been achieved. Neste had decided in the 1940s that the crude oil should be imported mainly by ships owned by the company. The size of the ships altered according to changing shipping needs. Soviet oil was first imported from Black Sea ports, and later from Baltic ports. Crude oil was also imported from the Persian Gulf. In the early 1970s the Neste fleet had a capacity of over 300,000 pennyweight. After acquiring two supertankers of 260,000 pennyweight each, Neste’s fleet consisted in the mid-1980s of 18 tankers, plus five tugs. At the beginning of the 1990s Neste had 19 ships, totalling 419,000 pennyweight. The supertankers had been sold. As a new technical solution, a push barge system was introduced for transporting bitumen. Neste made a considerable investment in its research facilities. At first, its efforts were mostly directed towards improving the quality of its products. After gaining experience in operating its refineries, Neste was able to develop a variety of products in cooperation with customers without having to modify its plant. The Neste research center was already aiming at an early stage to prepare the company for future investments in petrochemicals. Research into new applications of petrochemicals in wood-based industries produced Neswood, a plasticimpregnated wood, which was employed as flooring at Helsinki Airport.

Eventually Neste Research Center developed into a multiple division for improving technology. When the corporate organization was changed in 1981 to consist of business units with individual responsibilities for results, this included the research and development activities. The technology group includes all technical research and development activities within the company. The main activities are research into oil, catalysts, energy, engine performance, bitumen, combustion, and lubrication. Neste Engineering is a separate entity, mainly responsible for planning and directing new projects within the company.

Neste was intended to be an oil refiner, but from the start it was also intended to enter the petrochemicals sector. This happened exactly as Raade had predicted. After starting production of ethylene and after the absorption of the Pekama and Stymer joint ventures into Neste as fully owned operations, Neste added other petrochemicals to its range. The benzine unit opened in 1979. In 1981 the production of many industrial chemicals, such as phenol and acetone, began.

In 1981 Neste set up a coal trading division. However, it was soon found that this line of business did not suit the company. In 1985, the coal business was sold to a Finnish coal merchant.

In the same way as in the coal business, Neste planned to enter another area of energy production, and bought Pakkaseakku Oy, a company making lead accumulator batteries. The battery market did not, however, fare well in the years leading up to 1990, when half of the shares of Neste Battery Ltd. were sold to the Spanish Grupo Tudor.

Neste still plans to be active in the energy sector on a broad scale. The company has a unit, Neste Advanced Power Systems, which studies applications of solar and wind energy as well as electric vehicle projects. These activities are centered on projects in Scandinavia, the United Kingdom, Greece, and Kenya. Uolevi Raade retired from his position as CEO and chairman of Neste in 1979 at the age of 68. His successor was Jaakko Ihamuotila, until then managing director of Valmet Oy. He kept to the strategy established by his predecessor. Even though initial steps to diversify the company’s activities had not been successful, the main part of the strategy, strengthening Neste’s position in chemicals, has been achieved. For 20 years Neste’s chemicals division has been the fastest-growing division in Neste. Comprising six business groups, the division produces a wide range of major plastics at sites in Finland, Sweden, Belgium, Portugal, France, and the United States. The petrochemical plants at the Porvoo production complex, together with an ethylene cracker at Sines in Portugal, play a central role in Neste’s chemical activities, producing ethylene, propylene, benzene, cumene, phenol, and acetone.

For Neste the international trading of crude oil and petroleum products has developed into an important line of business. With offices from Espoo in Finland to London, Houston, Tokyo, and Singapore, the corporation has a network which puts it among the foremost international oil traders. The composite materials group, based on reinforced plastics products and semi-finished goods, includes sports and leisure goods as well as products for electronics manufacturers and components for the aerospace, automotive, and paper machine industries.

State regulations regarding oil imports and pricing have favored the company. With the breakdown of the Soviet economy and the termination of bilateral trade between the Soviet Union and Finland, Neste has entered a new era. The future will show how the corporation will cope with the new trends for which it has been preparing. Joint ventures in oil drilling in the North Sea, the acquisition of companies abroad to strengthen its strategic position, and international trading of oil products suggest that Neste will survive the changes to come.

Principal Subsidiaries

Kesoil Group (89.9%); Union Group (76.7%); Neste Resin Group; Neste Oxo AB; Neste Polyeten AB; Neste Chemicals N.V.; Empresa de Polimeros de Sinos S.A. (96%); Neste Produtos Quimicos S.A.