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Saturday February 23, 2013 MYT 12:00:00 AM
Wednesday April 17, 2013 MYT 12:53:27 AM
by hanim adnan
The B10 programme, if fully implemented, may lead to a positive outlook for CPO price by next year. It can also raise palm oil usage in Malaysia by one million tonnes, according to CIMB Research.
THE journey to transform palm oil-based biodiesel into a financially viable venture in Malaysia for the past 10 years has been beseiged by a series of intense challenges, often hitting speed bumps along the way.
Coincidentally, after the launch of the National Biofuel Policy in 2006, the industry has gone downhill as biodiesel players struggled with the increasingly high crude palm oil (CPO) feedstock prices and poor export market prospects.
At the same time, the Government is seen grappling with high subsidies to support the development of the domestic biodiesel mandates.
As the CPO price continues to strengthen with no sign of falling below RM2,000 per tonne between 2008 and the first half 2012, the economic viability of many biodiesel producers were also fast eroding, hitting a critical level of almost zero production when CPO prices shot above RM3,000 per tonne in late 2010 and remained on a high note in 2011.
Biodiesel production is already rendered “unprofitable” when the CPO feedstock price stays at RM2,000 per tonne or above and Tapis crude oil at between US$80 and US$90 per barrel. It all boils down to economics, as it costs 60 sen a litre more to produce biodiesel compared with petroleum diesel.
The price of crude oil is not the only issue. In fact, many palm biodiesel producers will only start production once the CPO price falls below RM2,000 per tonne.
In 2007, the Government approved 92 biodiesel licences with a combined installed capacity about 10.2 million tonnes.
But in 2010, there were only 10 biodiesel plants operating in Malaysia although some 29 biodiesel plants have been set up with total production capacity of 3.37 million tonnes per year.
This clearly shows that many of the proposed projects have been either delayed or cancelled due to the uncertainty over the viability of palm biodiesel given the impact of the high feedstock price situation.
Market talk has it that major biodiesel player, Mission Biofuels Sdn Bhd with a capacity of 380,000 tonnes per year, finally closed down its business last year while another player, Carotech Sdn Bhd with 200,000 tonnes capacity has put up its biodiesel plant for sale.
At the same time, the Government is saddled with the high subsidies estimated at RM250mil to RM300mil per year to support its B5 biodiesel programme (the blending of 5% palm methyl ester with 95% fossil fuel diesel).
It is also said that the petroleum companies want the Government to provide funding for them in terms of blending and distribution facility for the B5 biodiesel.
This caused the initial plan to implement the B5 mandate on Jan 1, 2010 to be deferred to June 2011. In addition, the coverage has been limited to the central region namely Kuala Lumpur, Malacca, Negri Sembilan, northern Johor, Putrajaya, Selangor, southern Perak and west Pahang.
Strangely, while the implementation of the B5 mandate for nationwide coverage is slated for the middle of next year, many are now questioning the Government's latest drive to push for the B10 biodiesel programme by June 2014.
Plantation Industries and Commodities Minister Tan Sri Bernard Dompok, in explaining the Government's plan to reduce high palm oil stocks and support for the CPO price, had given the assurance that there would be a subsidy for the implementation of B10 mandate.
Of the total RM300mil in subsidies, about RM80mil is already spent to build the blending and distribution facility for B5 which can easily be upgraded to B10.
Subsidies are one thing. But what about the price of the feedstock, which is CPO?
The industry was told that should CPO feedstock price cross above RM2,500 per tonne, the Government is willing to bear the additional feedstock costs to ensure that biodiesel price is kept competitive to the fossil fuel diesel.
Dompok had also said petroleum companies would not be burdened by the B10 implementation and he hoped that 75% of the B10 programme could be completed by year-end.
Will local biodiesel plans make an impact?
Malaysian Biodiesel Association (MBA) secretary Azimi Othaman tells StarBizWeek that the migration from B5 to B10 programme will not make a big difference “if the take up rate of our palm methyl ester (biodiesel) product continues to be low and slow in the domestic market with poor export outlook”.
MBA represents 22 local and foreign biodiesel manufacturers which have invested over RM2.2bil in the country since 2008.
“All these investments have gone to waste and put many MBA members into negative margins given the lack of incentives by the Government back then,” MBA vice-president U.R. Unnithan had said.
Therefore, the Government's latest move to fully-subsidise the development of local biodiesel is certainly a move in the right direction especially when Thailand, Indonesia, the Philippines, Argentina and Colombia are already heavily subsidising their biodiesel products.
Azimi explains: “Given the right subsidy and incentives, biodiesel players in Malaysia can take up 500,000 tonnes of CPO from the high palm oil stocks for the B5 mandate and also help to restore CPO prices back to stable levels”.
Based on a recent Plantation Industries and Commodities' biodiesel steering committee meeting with industry players, he points out that there is a plan to speed up the B5 implementation to cover the entire Peninsular Malaysia by end of this year, instead the middle-2014 deadline.
“The southern part will be implemented by June, the northern part this October while Kelantan and Terengganu by December,” says Azimi.
Judging by the speed to implement B5, he expects the Government to seriously push for B10 implementation by middle of next year.
This will see some one million tonnes of CPO taken out of the current high palm oil stockpile.
Azimi says that the usage of biodiesel by government-owned vehicles within the various ministries and for diesel engine vehicles used in the oil palm plantation estates should be further encouraged.
This can directly create a significant impact on the wider usage of palm biodiesel in the country.
“The Sime Darby Group, for example, has been using biodiesel in many of its diesel engine vehicles such as trucks and tractors since 2008. It has been proven to be quite successful,” adds Azimi.
Meanwhile, five petroleum companies in Malaysia BHP, Chevron, ExxonMobile, Petronas and Shell have been given the start up funds by the Government to undertake in line blending of B5 at the petroleum depots in Klang Valley Distribution Terminal and Port Klang in Selangor, Port Dickson in Negri Sembilan, and Tangga Batu in Malacca.
For the B10 programme, a source close to the petroleum industry says the Government is now offering an incentive of RM3,000 per tonne biodiesel to industry players i.e. petroleum companies, direct diesel dealers and biodiesel producers who are interested in getting involved in the production, blending, storage, transportation and export of B10.
For this purpose, a sum of about RM3mil has been allocated by the Government.
However, despite the new incentive, the source says: “While many petroleum companies are comfortable with the B5 programme, many are not keen to pursue further blending and selling of B10 as there is limited usage of B10 in Malaysia and also for exports.
“Even Malaysian Automotive Association president Datuk Aishah Ahmad has said that the Japanese market does not accept biodiesel blending that goes beyond B5.
“What more with the uncertainty in the restricted biofuel policies in the European Union market, where there is an anti-dumping action against Indonesia's palm based biodiesel which is deemed as unsustainable with high greenhouse gas emissions”.
Therefore, to make B10 programme a success, it must be done domestically with more measures to be put in place by the Malaysian Palm Oil Board and the ministry by way of extending the biodiesel usage by power plants or diesel engine vehicles in the major plantation companies nationwide,” adds the source.
He points out that electricity in Malaysia is currently generated by 20 hydro power plants, 24 gas fired plants, six coal fire plants, nine biomass plant and five oil fired plants.
“What is relevant is that only the oil fired plants which used diesel engines can be burn with palm biodiesel that represents only a small fraction of the total power supply in Malaysia,” explains the source.
The power stations include the Gelugor power station in Penang (398MW) and the remaining four in Sabah Melawa power station (50MW), Stratvest power station, Sandakan (60MW), Sandakan Power Corp Plant (34MW) and Tawau power plant (36MW).
B10 is useful
While the prospects of B10 is still up on the air, CIMB Research regional analyst Ivy Ng, in her latest plantation report, says that the B10 programme may prove to be a game changer if fully-implemented.
This may lead to a positive outlook for CPO price by next year. It can also raise palm oil
usage in Malaysia by one million tonnes and pare down the current high palm oil stocks which are above two million tonnes.
Ng says: “The Government appears to have addressed most of key hurdles that delayed the biodiesel implementation in the past,
“The last hurdle now appears to be a green light from vehicle makers that it is safe to use the B10 in the vehicles”.
Another new initiative is to encourage the top five plantation producers to start using biodiesel in their vehicles.
Having said that, given the historical delays in meeting the B5 biodiesel mandate, the research unit expects that the market will not likely price in (the B10 implementation) until there is a material progress on this issue.
Therefore, the research unit is maintaining its CPO price forecast at RM2,840 per tonne and RM3,000 per tonne in 2014.
“Overall, we are net positive that the attempt to implement the biodiesel blend may be successful this time round based on the estimated 10% blend by one million tonnes.
“This in turn will raise Malaysia's palm oil consumption by 50% per annum and can over time cut palm oil stocks by 40% from the record stock level of 2.6 million tonnes as at end Dec 2012,” adds Ng.
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News, Business, Business, biodiesel, Malaysia, B10, B5
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