FOCUS: Asian biofuels industry faces challenges

23 November 2006 03:29  [Source: ICIS news]

By Anu Agarwal

SINGAPORE (ICIS news)--The fledgling biodiesel industry in Asia is still fraught with obstacles despite its potential for growth, biodiesel makers and raw materials suppliers said on Thursday.

Competition with lower petrodiesel prices in the recent past, rising feedstock costs, and the problems associated with handling and selling by-products like glycerine have emerged as key challenges, they noted.

Although at current crude oil prices it is economically feasible to produce biodiesel, high palm oil prices and similarly high prices of feedstocks like methanol are squeezing the margins of the industry, a biodiesel seller said.

Crude palm oil prices have increased by 30% since early this year at Malaysian ringgit (M$) 1,800/tonne ($496/tonne).

Methanol prices have increased nearly 70% since mid 2006 at $460-480/tonne CFR (cost & freight) Southeast Asia.

These cost increases in the face of sliding crude oil prices have put pressure on biodiesel production margins, Asian sellers said. Biodiesel spot prices have varied between $730-750/tonne FOB (free on board) Malaysia, mostly heading for European destinations.

Another key issue faced by biodiesel producers has been to dispose the crude glycerine, which is a by-product in making biodiesel.

Several biodiesel makers do not have facilities to distill crude glycerine to pure glycerine and the market for crude glycerine is limited, given that distillation capacity in Asia is insufficient, an Asian trader said.

The ideal situation for a biodiesel producer is to have captive palm oil supply as well as have a distillation facility for crude glycerine, according to sellers. However, the former is not always the case and the latter is expensive, they pointed out.

Still, demand for biodiesel from Europe continues to be strong, given the European Union’s directive to increase the share of biofuels in transportation to 5.75% by 2010.

Advantages associated with biodiesel like the reduction in sulphur content and greenhouse gas emissions is likely to keep the product in favour.

By: Anu Agarwal
+65 6780 4359

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