22/10/05 (The Star) - Biofuel is being touted as the next big thing in an energy-stingy world. Malaysia is jumping on the bandwagon with its palm oil derivative.
THE country's solution to rising fossil fuel prices, worsening air pollution and the depletion of its petroleum reserves is grown on trees - oil palm trees, that is.

All it takes is just to blend processed liquid palm oil with petroleum diesel and, lo and behold, we have palm biofuel.

The cocktail is cheap, particularly as world oil prices rise, produces less carbon monoxide and is renewable. Really, the technology involved is not much more complex than getting the mix right.

In fact, the first diesel engine created by Rudolf Diesel in 1897 ran on peanut oil.

Diesel-powered vehicles can switch to palm biofuel without any modifications to the engine and any deterioration in performance. If the National Biofuel Policy, to be unveiled next year, goes according to plan, users can fill up their vehicles with palm biofuel at petrol kiosks in 2007.

Once implemented, Malay-sia is expected to reduce diesel imports by 500,000 tonnes a year based on current usage.

"Depending on the price, the country is going to save millions of ringgit on subsidies. The Government has spent some RM16 billion on petrol and diesel subsidies," says Plantation Industries and Commodities Minister Datuk Peter Chin. At about RM1,400 per tonne, palm oil is also cheaper than imported diesel which costs between RM1,700 and RM2,000 per tonne.

Besides cleaner emissions and renewability, the use of palm biofuel can help support the price of crude palm oil, of which Malaysia is the world's biggest producer.

Malaysian Palm Oil Association chairman Datuk Sabri Ahmad says biodiesel is the "safety valve" for crude palm oil, which until recently has been dogged by fluctuating prices.

After the recent interest generated by biofuel, CPO prices bounced from RM1,350 early this year to nearly RM1,450.

The case for using biodiesel also gains currency against the backdrop of the country's fast-depleting petroleum reserves. At last count, these reserves amount to 4.8 billion barrels, which can last another 16 years unless new discoveries are made.

But while it makes economic sense to introduce palm biofuel at the pumps, it is at the global level that the commodity can gain a reputation as renewable liquid gold.

Many signatory countries to the Kyoto Protocol are rushing to reduce their greenhouse gas emissions by 2012.

In the European Union, the diesel consumed must consist of 5.75 per cent biodegradable oil by 2010, up from the 2.5 per cent now.

All these could spell an upswing in demand for palm biofuel, especially since production of other agricultural oils like rapeseed and soyabean has been stretched.

"If Malaysia can export 750,000 metric tonnes of biodiesel per year, we can earn RM1.7 billion," says Sabri, who is also group chief executive of Golden Hope Plantations Bhd.

Palm oil is also highly competitive. Sabri says one hectare of oil palm can produce five tonnes of oil, compared to soyabean and rapeseed, which can only produce half a tonne.

The production costs of palm oil is also about 40 per cent lower than other biofuel sources.

The Malaysian Palm Oil Board wants a share of this lucrative pie. It is setting up joint-ventures to build two biodiesel plants in Port Klang and one in Pasir Gudang - presumably for easy access to the two ports.

The first major overseas supply deal, with German-based train operator Prignitzer Eisenbahn (PE) Arriva to fuel its locomotives, is being negotiated.

But Malaysia still has a long way to go to become the Saudi Arabia of biofuel.

Even at the local level, palm biofuel is not yet attractive to vehicle owners despite its environmental-friendly properties for one reason: price.

Right now, palm biofuel costs more than subsidised diesel at the pumps.

Pan Malaysia Bus Operators' Association president Datuk Ashfar Ali says unless there is a significant price difference, vehicle owners have no compelling reason to switch.

"But if the Government reduces its subsidy for diesel and makes biofuel relatively cheaper, then it's a different story. For many businesses, it is about the bottom line.

"But there is also the question of availability. Look at what happened to NGV (natural gas for vehicles). It is only largely available in the Klang Valley and that, too, only at selected kiosks. That is why buses are not using NGV now."

Tariff structures in the EU countries, Japan and the United States are also putting palm biofuel at a disadvantage.

Last August, TSH Resources group managing director Datuk Kelvin Tan had pointed out that palm oil-based biofuel was not enjoying the same tax rebates as rapeseed, soyabean or sunflower.

Palm oil has also been the target of consumer campaigns in the West. The last one, which started in the United Kingdom, blamed rising demand for palm oil for the loss of the orang utan's natural habitat.

Lobby groups in the developed countries have a knack for making their Governments cave in to pressure and the graphic portrayal of maimed orang utans is but one such attempt.

M.R. Chandran of Oilpalmworld Sdn Bhd, which runs a business-to-business palm oil exchange, says that sometimes it feels like a Catch-22 situation. On the one hand, palm biofuel is considered an environmental-friendly product, but on the other, there is a perception that increased demand causes the destruction of natural resources.

Chin, however, allays fears that more forests will be cleared and hillslopes slashed to make way for oil palm plantations and export earnings.

He adds that Malaysia will focus on improving farm management, adopting good husbandry practices and increasing processing efficiency.

Despite the mounting opposition, the EU is not expected to keep palm biofuel at arm's length for long.

With rapeseed and soyabean oils unable to meet demand and World Trade Organisation (WTO) rulings prohibiting unfair tariffs, it is only a matter of time before palm oil competes on a level playing field with its traditional rivals.

But will Malaysian vehicles make a beeline for biofuel in 2007 or, for that matter, will petrol companies want to sell what is now a more expensive product than conventional diesel?

"We are drafting several legislations, including the Biodiesel Bill. Issues like price, proportion of blending involved and whether to compel petrol companies to sell the blend will be addressed," says Chin.

He declines to say to what extent the Government is prepared to make palm biofuel more competitive by reducing diesel subsidies.

"The biggest challenge is to convince consumers to accept biofuel. The ministry will undertake a major public relations exercise to educate the public on this," says Chin.

For now, he says, the Government wants to focus on laying the groundwork for the country to capture a big slice of the biofuel market, in and especially outside the country.

"It is a big thing. Demand will increase in the future and we do not want to lose out."
18/10/05 (Business Line) - FIRM crude prices and no prospects of a major downward correction anytime soon have forced all major economies to examine cheaper alternatives, including bio-ethanol and bio-diesel. Demand for bio-diesel translates into a diversion of a part of global vegetable oil pool for energy purposes.

For the last four years, the use of bio-diesel - blending diesel with trans-esterified vegetable oil to the extent of 5-10 per cent - in the European Union and the US has been rising, with policymakers supporting the mover with tax breaks. With crude market threatening to breach the $70-a-barrel mark, exploration of cheaper substitutes has become all the more urgent and necessary.

For the global vegetable oil market, which by its very nature is volatile, the widespread expectation of the increased use of vegetable oil for bio-diesel purposes has sent bullish signals.

Experts and analysts are going overboard in projecting a massive diversion of vegetable oil from the existing pool for energy purposes and suggesting a huge increase in global vegetable oil prices.

The world usage of vegetable oil for bio-diesel purposes was an estimated 3 million tonnes (mt) or just under 3 per cent of the global vegetable oil production last year. Major users are the EU (mainly rapeseed oil) and the US (mainly soyabean oil). The EU usage of vegetable oil for bio-diesel has been rising at about 30 per cent annually in the last two years. The US utilises about 600,000 tonnes of soyabean.

With the crude market ruling firm for the last several months, there is a justified expectation of a larger diversion of vegetable oil for bio-diesel purposes in the year ahead. This has lent a firm undertone to global vegetable oil market.

On the production side, the world is likely to witness a healthy 4.0 mt of additional vegetable oil in 2005-06, following a forecast of higher oilseeds output and rising palm oil production. Demand too is likely to grow robustly, primarily for food purposes. Higher demand for bio-diesel would be a supplementary factor. With the current reckoning and the recent trends, it may be safe to assume that no more than an additional quantity of 1 mt may be diverted for energy purposes during the year.

The latest US Department of Agriculture (USDA) report has raised global oilseeds output to a new high of 385 mt (379 mt). Soyabean output in the US is revised upwards to 80.7 mt. Interestingly, crop size of Brazil is projected at 60 mt (51 mt) and for Argentina 40.5 mt (39 mt). If these crop projections are realised, the world will have enough oil to go around, including additional demand from the energy sector. Importantly, firm prices will raise oilseeds crush by around 5 per cent to make additional oil available to meet demand.

Therefore, while prices are expected to remain firm, the vegetable oil market is unlikely to see a bull-run as projected by some analysts. Already, prices of major oils " soyabean oil and palm oil "are at a relatively high level.

Crude palm oil is around 1,450 Malaysian ringgits (MYR) a tonne ($375-380 a tonne), soyabean oil is available at $475-480 a tonne, both at the origin.

There is still an upside for the vegetable oil market, but the upside potential is limited. In the short run, one can expect crude palm oil to trade between MYR 1,450 and 1,550 a tonne, which on occasion may cross MYR 1,550. But this is unlikely to sustain for long, given the potential of supplies to creep up. The same goes for soyabean oil, which can potentially improve by 5-6 per cent ($20-25 a tonne).

Domestic crop harvest in importing countries (such as India) will also slow down purchases by importers during the next 6-8 weeks.

A bull run in the market " palm oil crossing MYR 1,600 a tonne or soyabean oil moving up to $550 a tonne " can be safely discounted, notwithstanding higher demand from the energy sector.

The only factor that can catapult prices to a higher trajectory is South American weather. If it is unfriendly, vegetable oil prices could shoot up from December onwards once the crop prospects become suspect. Thus, any upward market movement would be the result of weather aberrations and not bio-diesel demand as sought to be projected.

It makes commercial sense for countries that are large producers and net exporters of vegetable oil to create a psychosis of shortage of vegetable oil to prop up prices. But available data suggest that there is no significant demand-supply mismatch that can seriously impact prices.

The condition of India's rabi oilseed crop size would also make some difference. Currently, it is too early to talk of the crop size. But the market does know that 15 lakh tonnes of rapeseed/mustard stocks are lying with the procurement agency for crushing. A bumper crop of cotton (nearly 255 lakh bales) is expected to make available 75 lakh tonnes of cottonseed. Firm prices will encourage crushing.

It is possible that the bio-diesel card is a little overplayed. Caution is necessary in taking long positions. Continuous monitoring of market conditions would be beneficial in tracking price-sensitive changes.
17/10/05 SERDANG, (Bernama) -- Golden Hope Plantation Bhd hopes to get a sizeable revenue from biodiesel in three to four years' time, with production starting in the next 12 to 15 months, said its group chief executive Datuk Sabri Ahmad.

"It is too early to tell. It should be sizeable revenue," he said at the memorandum of understanding (MoU) signing ceremony between Golden Hope and Universiti Putra Malaysia (UPM).

Golden Hope was recently picked as one of the three joint venture partners of the Malaysian Palm Oil Board (MPOB)'s biodiesel plants. The plant is said to be located in Banting.

"We will start operations next 12 to 15 months," he said, adding that plans were underway to ensure smooth operations of the biodiesel plant.

Biodiesel is seen as the next big thing in reducing global pollution level, as well as to counter the high price of conventional diesel and fuel due to rising crude oil prices.

Moreover, industrialised nations especially in Europe, are prepared to go "green" as they hurry to meet the Kyoto Protocol target, where they need to reduce the carbon dioxide emission to as low as the 1990 level.

"The market is ready and expanding," Sabri said, adding that cost-wise, palm oil was more competitive than its rival, rapeseed.

"We can market it as a speciality product, complete with the brand. This would not only bring revenue to the industry, but the country in general," he said.

Earlier, Sabri said the group would be hosting around 20 to 30 UPM students per intake at its Golden Hope Academy in Carey Island, to complete their agriculture diploma course with an option in plantation industry.

Golden Hope has spent around RM15 million to set up the facilities, and will spend around RM5,000 per student for their course there.

"It is a smart partnership between Golden Hope and UPM. We hope the new generation of graduates in plantation industries will bring new innovative ways of management to plantations," Sabri said.

He said undergraduates for the programme would be offered jobs with Golden Hope upon graduating, adding that more technologies and human capital were needed to increase plantation production.