Performing In A Volatile Oil Market Matti Lehmus Executive Vice President, Oil Products Capital Markets Day
Key Trends Impacting Refining Margins Demand growth to resume after steep drop Supply growth slowing down Regional imbalances 16 16 14 14 12 12.38 13.39 12 1 1.46 1 8 7.87 8.82 9.11 8 6 6 4 2 5.51 4.98 3.73 5.9 4.74 4 2 1.23 Q1/27 Q2/27 Q3/27 Q4/27 Q1/28 Q2/28 Q3/28 Q4/28 Q1/29 Q2/29 25 26 27 28 Heavy-light differential to widen moderately Regulatory trends Capital Markets Day 29 2
Demand Growth Shifting To Developing Markets Global growth set to continue at 1.4 %/a after the steep drop in 29 Asia and Middle East are the main growth markets while OECD demand continues to shrink Mbpd (28) Growth %/a in 8-14 North America 24.3 -.4 OECD Europe 15.2-1.3 OECD Pacific 8. -3.3 Asia 17.5 2.3 Middle East 7. 4.3 Latin America 5.9 2.1 FSU 4.2 2.1 Source: IEA July 29 Capital Markets Day 29 3
Supply Growth Slowing Down Restoring Global Demand Will Take Some Time Global supply growth forecast 28-14: Investment postponements reducing growth Global demand growth forecast 28-14: Distillates and gasoline driving growth Source: IEA June29 Capital Markets Day 29 4
Distillate And Fuel Oil Balances Will Eventually Tighten Again Despite Supply Growth Forecasted regional evolution of middle distillates supply/demand balance 28-14 (Mt/a) 28 214-73 -11 39 48 28 214 FSU 13 4 28 214 North America Europe 28 214 24 26 28 214-3 28 214-1 -15 Latin America -16-28 Africa 28 214 Middle East 21 45 28 214 Asia World Source: IEA July 29 5
Gradual Recovery Expected For Diesel Margins 5 4 3 2 1-1 -2-3 -4-5 Forward curve Jan-26 Apr-26 Jul-26 Oct-26 Jan-27 Apr-27 Jul-27 Oct-27 Jan-28 Apr-28 Jul-28 Oct-28 Jan-29 Apr-29 Jul-29 Oct-29 Jan-21 Apr-21 Jul-21 Oct-21 usd/bbl Gasoline (1 ppm, CIF) Diesel (1 ppm ULSD, CIF) Heavy sulfur fuel oil (HSFO 3.5%, CIF) Sources: PVM. Tullet Prebon, Mitsui, Platt s Capital Markets Day 29 6 5 4 3 2 1-1 -2-3 -4-5
Heavy-light Differential Is Expected To Widen Moderately usd/bbl -.5-1 -1.5-2 -2.5-3 -3.5-4 -4.5-5 2 21 22 23 24 25 26 27 28 29 21e 211e 212e 213e 214e Urals-Brent difference Urals-Brent difference estimate -.5-1 -1.5-2 -2.5-3 -3.5-4 -4.5-5 Key drivers affecting the differential Nominal crude price Fuel oil balance OPEC run cuts of heavy crudes Arbitrage flows to USG and Asia Development of export logistics infrastructure Macroeconomic recovery expected to lead to moderately wider Urals differentials Data source: history Argus, forecast Neste Oil view and Wood Mackenzie Capital Markets Day 29 7
Neste Oil Is Well Positioned In The Current Market Focus on middle distillates - distillates-driven growth to resume Estimated impact of $1/bbl change in key market parameters on Oil Products annual comparable EBIT 1 Access to competitive feedstock supply and ability to process heavy crudes Ability to produce high-value product slate (high-quality diesel, gasoline and base oils) 8 6 4 2 68 48 42 38 3 27 6 8 4 6 Urals - Brent Diesel Gasoline Fuel Oil Jet Logistics flexibility MEUR MUSD Note: Assumed USD/EUR exchange rate is 1.4 Capital Markets Day 29 8
Oil Products Business Priorities Strong position in focus markets Focus on strong position in Baltic Sea market Provide solutions to meet growing biomandate Focus on highest-value export markets Growth in selected market areas Implement growth in the Base Oils business Support growth in renewable fuels and leverage synergies Business excellence PL4 operational efficiency and maximize value of production Fixed cost reduction Working capital management (inventories, payment terms) Supply chain optimization in line with market potential Value creation from logistics assets Capital Markets Day 29 9
Introducing New Reference Margin New and old reference margin vs Neste Oil s total refining margin usd/bbl 16 14 12 16 14 12 Improve correlation between reference and total refining margin Pricing basis at refineries Feed structure comparable to Neste Oil Product yields comparable to Neste Oil Similar cost structure 1 8 6 4 2 1 8 6 4 2 Key differences between Neste reference margin and total refining margin Actual product yield structure and feedstocks Actual product sales distribution, price differentials and timing Actual variable costs (production and freights) Base oils contribution Contango contribution Q18 Q28 Q38 Q48 Q19 Q29 Neste Oil total refining margin Neste Oil new reference margin IEA Brent cracking margin (old reference margin) 1
Shipping Update Freight rate outlook Business outlook 3 25 2 tc2 td7 forward curve Strategy focused on reliable and costefficient shipping services logistics needs in Neste Oil s logistics chain capture opportunities in selected third-party business areas 15 1 Fleet optimization to support business performance expiry of 1 time charters over 29-1 5 28 Q1 29 Q2 29 Q3 29 Q4 29e Q1 21e Q2 21e Q3 21e Q4 21e Performance improvement programme initiated TD7 = Crude oil freight rate from North Sea to Rotterdam TC2 = Product freight rate from New York to Rotterdam TD7 and TC2 data source: Imarex Capital Markets Day 29 11
Base Oils Update Business outlook Short term market outlook - demand and margins recovering gradually Long term business growth driven by demand Demand growth driven by regulation Neste Oil to maintain position in global top 3 Expected production capacity growth reflects expected demand growth: kt/a 6 5 4 3 Neste Oil's Share of Global VHVI Production Capacity Global production capacity JV Takreer Neste Oil JV BaPCo Neste Oil Neste Oil current capacity Strategy implementation Bahrain project on schedule and on budget Construction progress currently >25% Neste Oil ownership 45 % Nameplate capacity 4 kta (Group III) Neste Oil s investment cost EUR 13 million Start-up in H2/211 JV project in Abu Dhabi at the planning stage Majority JV partner Takreer Design phase proceeding well potential for investment decision during 21 Planned capacity of approx. about 5 ktpa Group III base oils and 12 ktpa Group II base oils 2 1 29 21 211 212 213 214 215 216 Capital Markets Day 29 12
refining the future
Appendix
Details On New Reference Margin Feed/Product REB Brent dated Propane Butane Gasoline 1ppm Naphtha Jet Diesel 1ppm LSFO HSFO Reference Price Urals RDAM usd/bbl Brent dtd + Freight TD7 usd/bbl Products are priced in MT at Platts NWE Cargoes CIF Propane (7+ MT) Butane (3+ MT) Premium unl 1 ppm Naphtha Jet ULSD 1 ppm 1. pct 3.5 pct Capital Markets Day 29 15
Details On New Reference Margin Feeds Formula Item Reference Price REB Brent dated Products Propane Standard share of REB 55 % * Price Standard share of Brent dtd 45 % * Price SUM(above) = Feed cost usd/bbl Standard yield 1 % * Price / weighted average bblmultiplier of feed (7,39)** REB Brent dated Product prices Urals/Brent CIF differential Rotterdam (Platt s) usd/bbl Freight Primorsk/Rotterdam + Freight Primorsk/Porvoo Brent dtd (Platt s) + Freight Sullom Voe/Porvoo Platt s CIF Cargoes quotes usd/t Butane Gasoline 1ppm Naphtha Jet Diesel 1ppm LSFO HSFO Neste Oil Reference Margin Standard yield 1 % * Price / weighted average bblmultiplier of feed Standard yield 3 % * Price / weighted average bblmultiplier of feed Standard yield 1 % * Price / weighted average bblmultiplier of feed Standard yield 5 % * Price / weighted average bblmultiplier of feed Standard yield 45 % * Price / weighted average bblmultiplier of feed Standard yield 1 % * Price / weighted average bblmultiplier of feed Standard yield 9 % * Price / weighted average bblmultiplier of feed SUM(above) = Product value usd/bbl = Product value Feed cost Standard refining variable costs (2 usd/bbl) - Sales freight (1,2 usd/bbl) *** ** REB bbl-multiplier 7,25 and Brent dtd bbl-multiplier 7,55 *** Sales freight is fixed standard 15 usd/ton. An estimate is made that 5% of production is exported. Freight formula = 15 * 5% / 7,39 Freights: Primorsk/Rotterdam freight usd/bbl = flat rate 8,42 usd/ton * WS TD17 (month ave) / 1 / 7,25 Primorsk/Porvoo freight usd/bbl = flat rate 4,1 usd/ton * WS TD17 (month ave) / 1 / 7,25 Sullom Voe/Porvoo freight usd/bbl = flat rate 8,79 usd/ton * WS TD7 (month ave) / 1 / 7,55 Capital Markets Day 29 16