FocusSoutheast Asia ‘green fuel’ mandates, US to buoy up PME demand

25 October 2013 07:36  [Source: ICIS news]

By Heng Hui

Southeast Asia ‘green fuel’ mandates, US to buoy up PME demandSINGAPORE (ICIS)--Demand for palm methyl ester (PME) in the medium-term will mostly come from Asia as countries in the region are at different stages of adopting government-mandated use of environmentally friendly fuel, and from the US following the reinstatement of the $1/gal tax credit on biofuel blending, industry sources said on Friday.

Indonesia and Malaysia are the biggest producers and exporters of PME - which is a type of biodiesel - catering to the regional and world markets.

Within Asia, the outlook for demand is robust with the concerted efforts among governments to increasingly embrace reforms that address environmental concerns and reduce their countries’ respective greenhouse gas emissions, industry sources said.

In Indonesia, government-mandated biofuel blending was raised to 10% from September this year. The blending requirement will increase to 20% for power plants starting next year.

Thailand, meanwhile, has an existing blending mandate of 5% due for a nationwide implementation in 2014, with a view to increasing the rate to 7% by 2017.

Malaysia also has a blending mandate of 5% and has plans to raise the ratio to 10% sometime in the near future. PME exports from Indonesia are expected to hit 1.5m tonnes/year in 2013, higher by a third from 2012, a major domestic producer said.

Malaysia is boosting its own PME production with the opening up of opportunity to export more to Europe, following the western region’s implementation of antidumping duties (ADDs) on biodiesel imports from Indonesia.

In the first nine months of the year, Malaysia’s biodiesel exports totalled 122,760 tonnes, representing more than a fourfold jump from  the export volume for the whole of last year. In 2012,  its exports stood at 28,983 tonnes, data from the Malaysia Palm Oil Board showed. (Please see table below)

The US is expected to prove to be a strong market for Asian PME producers.

PME can generate higher netbacks in the US market, on par with the general prices of heating oil. The prices are expected to be higher than those in Asia even after deducting the freight cost of $100/tonne from southeast Asia to the US, market sources said, citing that buyers and sellers get to share the $1/gal tax credit on green fuel that was reinstated this year in the US market.

But raising export volumes to the US faces some hurdles for southeast Asian producers given a stringent definition on what qualifies as renewable fuel in this market,  industry sources said.

Renewable Fuel 2 (RF2) of the US’ Environment Protection Agency (EPA) stipulates that biodiesel output from processing plants built after 2007 has to be qualified by EPA It requires greenhouse gas emissions from producing the fuel be under a certain limit.

The product  being exported must also not processed out of land specifically cleared for palm plantation for biofuel production, thus the EPA requires processing plant built after 2007 to undergo a “lifecycle analysis”.

A number of newer processing plants in Indonesia and Malaysia failed to meet the EPA requirements, industry sources, with players deeming it too much of a hassle to undergo the analysis, especially when there are other export markets that can absorb their produce.

Malaysia biodiesel exports

 

Jan

Feb

Mar

Apr

May

June

July

Aug

Sept

Tonnes

9,407

7,173

14,583

9,677

12,261

19,492

33,336

8,486

8,345

RM Mil

26.33

19.69

42.86

27.74

34.31

54.09

95.73

26.14

24.57

Ringgit per tonne

2,798.98

2,745.02

2,939.04

2,866.59

2,798.30

2,798.30

2871.67

3080.37

2944.28

Exchange rate

3.03

3.09

3.11

3.2

3.19

3.19

3.19

3.19

3.2

US dollar per tonne

923.76

888.35

945.03

895.81

877.21

877.21

900.21

965.63

920.09

Source: Malaysisa Palm Oil Board

($1 = €0.72)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections


By: Heng Hui
+65 6780 4359



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