Malaysia in talks with several partners to produce palm oil-based biojet fuel

The government has allocated funds in its 2020 budget to study the use of palm oil-based bio-jet fuel.

KUALA LUMPUR (Reuters) - Malaysia aims to start producing palm oil-based biojet fuel within five years and is in talks with several potential partners about setting up a plant, the head of the industry's marketing board said on Wednesday.

Malaysia, the world's second biggest producer of palm oil, is looking for new markets to boost demand for the vegetable oil, widely used in everything from soap to lipstick to snack foods.

Ahmad Parveez Ghulam Kadir, director general of the Malaysian Palm Oil Board (MPOB), said Malaysia was exploring "all possibilities" with potential investors as it expected demand for bio-jet fuel to grow in the coming years.

Last month, Malaysia allocated funds in its 2020 budget to study the use of palm oil-based bio-jet fuel.

"In five years, we hope we can have our first bio-jet production in Malaysia," Ahmad Parveez told Reuters in an interview on the sidelines of an industry conference.

MPOB is a state agency responsible for the promotion and development of palm oil. He did not name the potential investors or say who would fund a plant.

In April, the Malaysian Palm Oil Council in Beijing signed a memorandum of understanding with Chinese industry body the China Chamber of Commerce of Foodstuffs and Native Produce that would see China invest at least RM2bil in a Malaysian biojet fuel plant.

However, Ahmad Parveez said on Wednesday that was not a final agreement and that discussions with all potential partners were at a preliminary stage.

Malaysia's interest in producing biojet fuel comes as global airlines look to reduce emissions from flying to comply with a plan by the International Civil Aviation Organization (ICAO), the UN body that sets standards for international air travel.

The plan, known as Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), looks to cap CO2 emissions from air travel at 2020 levels, mitigating the environmental impact of flying even as passenger traffic is forecast to grow.

Indonesia, the top producer of palm oil, is also eyeing aviation as a new market for palm oil. Indonesian president Joko Widodo in August asked his ministers to study further the possibility of mixing palm oil-based fuel with jet fuel.

MPOB's Ahmad Parveez also said Malaysia's palm oil production will not exceed 20 million tonnes in 2019 and 2020, compared with 2018 output of 19.5 million tonnes.

Indonesia and Malaysia will both see little growth in output next year, potentially leading to a supply deficit and higher prices, leading industry analyst James Fry said on Wednesday.