Neste Oil assesses the impact that changes in its business environment are likely to have on the implementation of its strategy as part of its annual strategy review. The key factors identified in the extensive scenario work carried out in 2010 were: economic growth, the price of oil, environmental legislation, fuel efficiency, the structure of the car pool, and the take-off of biofuels. The baseline scenario suggested that only a modest increase was likely in green thinking. Although concerns about developments in the global economy were particularly to the fore during 2011, Neste Oil believes that over the long term the world will move towards a greener future, although the pace of that shift has slowed somewhat.
Potential long- and short-term risks
- The oil market has been and is expected to continue to be very volatile. Oil refiners are exposed to a variety of political and economic trends and events, as well as natural phenomena that affect the short- and long-term supply of and demand for the products that they produce and sell.
- Uncertainty continues to be focused on the development of the world economy, which is likely to have a material impact on the demand for petroleum products generally and diesel fuel in particular.
- Sudden and unplanned outages at Neste Oil's production units or facilities continue to represent a short-term operational risk.
- Rapid and large changes in feedstock and product prices may lead to significant inventory gains or losses, or changes in working capital, and may have a material impact on the company’s IFRS operating profit and net cash from operations.
- The implementation of biofuel legislation in the EU and other key market areas may influence the speed at which the demand for these fuels develops. Risks also include any problems or delays in capturing the anticipated benefits from the company’s renewable diesel investments. Over the longer term, failure to protect Neste Oil’s proprietary technology or the introduction and implementation of competing fuel technologies or hybrid and electric engines may have a negative impact on the company’s results.
- Over the longer term, access to funding and rising capital costs, as well as challenges in procuring and developing new competitive and reasonably priced raw materials, may impact the company's results.
- The key market drivers for Neste Oil’s financial performance are refining margins, the price differential between Russian Export Blend (REB) and Brent crude, the USD/EUR exchange rate, and the price differentials between different vegetable oils.
More information on the risks and uncertainties recognized by Neste Oil can be found in the Risk management section of the Annual Report.