FOCUS: Malaysia biofuel makers cautiously hopeful

03 November 2006 05:54  [Source: ICIS news]

By Anu Argawal

SINGAPORE (ICIS news)--Malaysian biodiesel producers are bullish about the prospects of biodiesel production and its uses over the coming years, but are concerned that its growth could be constrained, speakers at the Ethanol and Biofuels conference said late on Thursday.

Biodiesel is expected to grow in the transport, power generation and exports sectors, they said.

“Palm oil-based biodiesel continues to be economically viable at current crude oil prices and palm oil prices,” said Golden Hope chief executive Sabri Ahmad. Golden Hope is one of the largest palm oil plantation groups in Malaysia.

The potential for palm oil-based biodiesel to be blended in European rapeseed-based biodiesel also remains high, given the lower prices of palm oil over rapeseed and soyabean oil, he said, noting that palm oil is currently sold at 40% discount to rapeseed oil and 24% discount to soyabean oil.

Once the palm oil-based diesel undergoes treatment to make it usable at lower temperatures prevailing in Europe and its pour point reduced - a process known as winterisation - blending becomes viable, Ahmad said.

Meanwhile, the Malaysian government has emphasised the development of local biodiesel industry.

Malaysia and Indonesia, Southeast Asia’s largest palm oil producers, are likely to keep 40% of the total crude palm oil produced for biodiesel production in view of the product’s future potential, said Lee Yeow Chor, executive director at IOI Group, another large palm oil plantations firm in the country,

Malaysia has already granted 52 licences to produce around 3.2m tonnes of biodiesel and has now frozen fresh licences, he noted.

However, both Ahmad and Lee cautioned that there could be less than expected growth rates in this area due to natural and market constraints.

The first natural limitation to biodiesel production is the availability of crude palm oil as land resources become scarce.

According to Ahmad, 22% of land in Malaysia is agricultural and it is difficult to secure more land for plantations. There needs to be technology improvements to increase yield from existing plantations, he said.

Another factor that could hinder biodiesel production is the food versus fuel issue, which cannot be left to market forces alone, Ahmad said.

On that issue, Lee noted that global demand for vegetable oil over the last few years was growing at 3-5% annually against a supply growth that has varied between 1.6-8%.

Although Indonesia and Malaysia are targeting to allocate nearly 6m tonnes of crude palm oil for biodiesel production over the next few years, food requirements will also dictate the quantities actually available, he said.

Other constraints that the speakers outlined included the mandatory use of double hull ships for shipping biodiesel from January 2007, which is likely to make the availability of shipping vessels tight.

The larger super oil tankers used for crude oil are not suitable for biodiesel, given the relatively smaller size of cargoes, they said.

The two-day conference organised by Terrapinn ends on Friday.

By: Anu Agarwal
+65 6780 4359

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