"In a few years we expect it to have a clear profit impact."

Biofuels, which are made from organic matter like vegetable oils, grains and sugar cane, are taking on a new importance as the global costs of petroleum products rise and countries try to cut emissions blamed for global warming.

"The raw material for biodiesel is significantly more expensive than crude - even when oil peaked temporarily at around $70 per barrel," Rinne said. "At the moment, tax incentives are needed to make biodiesel production profitable."

Neste has had talks with various raw material suppliers, and is considering Malaysian palm oil for a planned biodiesel plant, but no supply agreements have yet been sealed, Rinne said.

The European Union wants biofuels to make up 2 percent of total traffic fuel consumption this year and at least 5.75 percent by 2010, but Rinne said this would be hard to achieve.

"This is a clearly growing market. If the (biodiesel) market is now about 2 million tonnes, it is anticipated to be around 13-15 million tonnes toward the end of the decade, which means that the growth will be challenging for the industry," he said.

"There are only five years until the end of 2010 (and) right now if you want to build something, the delivery of a high pressure container takes 2-3 years," he said, adding there was also a shortage of construction engineers.

Neste is building a 170,000 tonne biodiesel plant at its Porvoo refinery in Finland, with production scheduled to start in mid-2007. It is also in talks on a joint biodiesel project with France's Total, using Neste's technology.

"The size and location of the plant have not yet been decided, but talks are ongoing," Rinne said, adding decisions would come early next year.

"We are also involved in other very initial negotiations at the moment, but that's all I can say for now."

CAPACITY TO REMAIN TIGHT

On the refining market in general, Rinne said diesel capacity in Europe looked set to remain tight in coming years and would ease only if demand dropped. For the foreseeable future, Europe will need to import diesel.

Neste's own diesel project in Porvoo, aimed at boosting annual diesel production by 1 million tonnes from 2007, will not affect the European capacity situation significantly, Rinne said, adding that the project was progressing as planned.

"Our 1 million tonnes will not do much to rectify the situation in Europe. There is a gap in diesel and jet fuel, and these gaps are tens of millions of tonnes," Rinne said.