Finland's Neste Oil Plan Refinery Integration

Neste Oil will invest about 250 million euro in the integration of its two Finnish refineries in order to lower costs and reduce its dependency on Russian feedstock.

The Finnish refiner plans to modify and upgrade its 206,000 barrels per day (bpd) Porvoo refinery and 58,000 bpd Naantali plant between 2016 and 2017, chief executive Matti Lievonen told Reuters.

"We will lower the costs on the Naantali side and then we are increasing the complexity and products slate for more valuable products at Porvoo," he said.

The integration process will cost around 200 million euro at Porvoo and an additiona 50 to 60 million euro at Naantali.

"We will modify Naantali refinery to make more feedstock for the Porvoo refinery, so we will lower the costs," he said.

Under the plan, Naantali will produce vacuum gasoil (VGO) which is used for producing at Porvoo the most valuable oil products such as diesel and aviation fuel.

Porvoo sources most of its crude oil and secondary VGO feedstock from Russia, where an ambitious national refinery upgrade programme is under way.

As Russian refineries become more complex, they will consume more VGO which will in term become more expensive for exports, Lievonen said.

Porvoo's production of loss-making heavy fuel oils is planned to decrease by around 2 percent at the end of the process to a level of 5 to 6 percent, he added.

The investment is expected to have an internal rate of return of 15 percent, he added.

The Porvoo refinery is planned to shut down in April for an 8 week turnaround that will cost around 100 million euro.

Other than its two conventional refineries in Finland, Neste also operates renewable diesel refineries in Singapore and Rotterdam. It says its renewable diesel capacity is enough to fuel around 2.6 million vehicles a year.

Europe's refining sector is in the midst of a painful rationalising process as profit margins have fallen over the past decade due to lower regional demand and increasing overseas competition.

Reporting by Ron Bousso