Malaysia urged to go for B10 biodiesel

13.03.2017

Malaysia should not wait too long to implement its B10 biodiesel mandate now that crude palm oil (CPO) prices have settled to lower levels, according to biodiesel industry official U.R. Unnithan.

Unnithan felt that CPO prices at RM3,300 per tonne were unsustainable, stating that prices in the range of RM2,500 to RM2,600 were more sustainable in the longer term for CPO to be used in both food and fuel.

On Friday, palm oil futures fell more than 2%, tracking weakness in rival oils and on weak export data and mixed forecasts by analysts. It fell to its lowest point since Feb 28 at RM2,769, Reuters reported.

Unnithan, who is also Malaysian Biodiesel Association president said when CPO prices were at sustainable price levels, the industry could witness a steady increase in biodiesel usage.

The B10 policy effectively mandates the use of palm oil in diesel and is one of the measures the government has initiated to support the palm oil industry. At the moment diesel sold has a 7% palm oil content and is called B7. The government is looking at increasing the blend to B10 this year, meaning 10% of palm oil content in diesel.

In Indonesia, the government has taken an aggressive approach and is now adopting a B20 policy.

Met on the sideline of the 28th Global Palm and Lauric Oils Conference in Kuala Lumpur recently, Unnithan said Malaysia’s biodiesel production was expected to go up about 80% to 900,000 tonnes this year from 2016, while Indonesia’s production is projected to rise to 3.5 million tonnes this year from three million tonnes in 2016.

The total investments in the Malaysian biodiesel industry is estimated at RM2.2bil, according Malaysian Palm Oil Board’s data.

Based on Unnithan’s forecast, world energy demand is predicted to rise by 30% by 2040.

About 80% of global energy comes from burning fossil fuels and 13.8% of the world’s primary energy supply comes from renewable energy.

He said liquid biofuels constitute only 4.1% in the renewable energy portion and grew at 10.4% from 1990 to 2014 compared with solar photovoltaic at 46.2%.

On Indonesia’s B20 programme, he said the policy created an additional 3 million tonnes of demand in a year.

The successful implementation of the Indonesia’s Estates Crop Fund, set up by industry players there, has caused the country’s biodiesel production to increase from 1.7 million tonnes in 2015 to 3.3 million tonnes in 2016. The biodiesel consumption is expected to hit six million tonnes this year.

Meanwhile, the biodiesel industry in Malaysia has 17 biodiesel plants, with total installed capacity of 2.1 million tonnes.

When crude oil prices fell, the export market for biodiesel shrank and a lot of capacity went unutilised.

He said most industry players were operating at utilisation capacity of below 25%.

“This only covers variable costs but not fixed costs. If they ramp up capacity to nearly 100%, then this would enable them to make profits,” he explained.

On whether the industry was experiencing some consolidation, he said at present, ailing companies that couldn’t survive were being acquired by bigger biodiesel players fitting them into their downstream business.

“Biodiesel as a standalone business is not profitable. I don’t see much investment for this,” he noted.

For downstream palm oil players, he felt that they should focus on technology and value-added. Some of the examples include getting into niche markets such as nutraceuticals or green chemicals where margins are better and volumes are lower.

In the meantime, industry experts at the three-day conference were bearish as the recovery in CPO production, after effects of the El Nino phenomenon, is expected to put pressure on CPO prices this year. Their price forecasts range from RM2,250 to RM3,000 per tonne.


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