Biodiesel – is it still relevant?


Biodiesel demand would be hurt if CPO prices, which are now hovering at RM2,800-RM2,900 a tonne, climb over RM3,000 a tonne in the next few months (photo credit: POIC Sabah Sdn Bhd).Biodiesel demand would be hurt if CPO prices, which are now hovering at RM2,800-RM2,900 a tonne, climb over RM3,000 a tonne in the next few months (photo credit: POIC Sabah Sdn Bhd).

By Kamil Ridzuan

Biodiesel reached the height of its popularity when crude oil prices spiked to over US$100 per barrel in February 2008. Then, vegetable oils-based biodiesel including palm oil-based biodiesel was the world’s next best choice over that of expensive crude oil to power up their engines; and everybody scrambled to join the bandwagon to build biodiesel plants.

But all that seems to have come to a grinding halt with barely a whimper. What’s going on? Is biodiesel still relevant?

Industry captains give their views

IJM Plantations chief executive officer and managing director Joseph Tek Choon Yee said that, for the Malaysian palm oil industry, palm biodiesel creates a new market demand and a new downstream industry which can lead to commodity prices firming up.

“In the process, it reduces the risk of (palm oil) prices falling to low levels as seen during the period of excess supplies. Therefore, it can be used as a price safety net mechanism by keeping palm oil inventory levels checked,” Tek told Business Circle.

Tek (pic) still has a positive view on biodiesel as it is also an optional blend to manage subsidy.

“But be wary that price safety net can be viewed contrary to the rules of the World Trade Organisation. Nonetheless, it is the right of any country to support its biodiesel industry,” he added.

Tek said the available options to offer and change blends ranging from B3, B5, B7 and B10 vis-à-vis the crude palm oil (CPO) feedstock prices can facilitate in managing the level of subsidy required.

At the 25th annual Palm and Lauric Oils Conference 2014 in Kuala Lumpur last month, London-based Godrej International Ltd executive director Dorab E. Mistry said that biodiesel demand is still strong but must be viewed as a safety net which will prevent palm oil prices from falling too much. “At times when crude palm oil prices are very high, biodiesel becomes uncompetitive,” Mistry told some 2,000 delegates from over 50 countries.

He, however, warned that biodiesel demand would be hurt if CPO prices, which are now hovering at RM2,800-RM2,900 a tonne, climb over RM3,000 a tonne in the next few months.

In its report released a fortnight ago, Moody’s Investors Service said the credit quality of palm oil producers remains strong, supported by visibility in long-term supply, resilient demand and low, albeit rising, production costs.

A New Straits Times report quoted Moody’s associate analyst Dylan Yeo as saying that the increasing use of CPO as a feedstock for biodiesel production will be a key driver of demand growth in the next two years.

Malaysia exported 175,032 tonnes of biodiesel valued at RM502.61 million last year, a sharp rise from 28,983 tonnes worth RM98.44 million the preceding year, with the main markets being the European Union and China.

Government still committed to the biodiesel industry

Whatever the naysayers say, the local biodiesel industry is expected to thrive and be readily available at all 3,877 petrol stations nationwide.

Earlier this month, Plantation Industries and Commodities Minister Dato Sri Douglas Uggah Embas (pic) announced that the government will fully mandate the use of B5 nationwide on July 1.

B5 is a blend of five per cent palm oil biodiesel and 95 per cent petroleum diesel.

According to a Bernama report, Uggah Embas said biodiesel consumption sold at the 3,877 petrol stations nationwide is expected to rise to 500,000 tonnes a year.

The B5 programme, implemented in the Central Region encompassing Putrajaya, Melaka, Negeri Sembilan, Kuala Lumpur and Selangor on June 1, 2011, was expanded to the Southern Region covering Johor on July 22 last year.

Annual consumption of palm oil biodiesel in the two regions’ 1,565 petrol kiosks is 150,000 tonnes.

“The programme was later extended to the Eastern Region comprising Pahang, Terengganu and Kelantan in February, raising annual consumption of palm oil biodiesel by 34,938 tonnes and reducing annual diesel consumption by 40.4 million litres,” Uggah Embas said.

All 789 petrol stations in the Northern Region covering Perak, Kedah, Perlis and Penang will implement the mandate this month.

The final phase of the B5 programme will be implemented in Sabah, Sarawak and Federal Territory of Labuan in July.

It is clear that biodiesel is here to stay as the Government will mandate the use of B7 (a blend of seven per cent palm oil biodiesel and 93 per cent petroleum diesel) by January 2015.

Biodiesel will have a place in the country’s palm oil industry to bolster prices when vegetable oil prices are soft as well as support other downstream activities especially in the renewable energy sector.

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