KUALA LUMPUR: The government’s initiative to roll out B15 biodiesel blends makes strategic sense as a cheaper feedstock can dampen domestic inflation and reduce fiscal costs, said CGS International Securities Malaysia Sdn Bhd.
The investment firm said the estimated fiscal cost of the biodiesel mandate could narrow by over RM1 billion in 2026, largely due to the favourable price of palm oil relative to gasoil.
"Amid high diesel prices and elevated subsidy burden, biodiesel savings can contribute to overall fiscal relief, albeit modestly,” it said in its Economic Focus report today.
However, CGS International said the concerns arise when conditions normalise, namely when palm oil prices exceed those of gasoil.
"This could result in higher consumer costs and a widening fiscal commitment. This is the ‘catch-22’ for the government as it may undermine the very objective of inflation management and cost reduction,” it said.
The firm posited that energy security has emerged as a key priority, especially amid geopolitical tensions such as the US-Iran conflict, where governments are reassessing their economic vulnerabilities to an oil price shock.
"In this context, biodiesel acts as a strategic hedge in reducing reliance on imported diesel and stabilising energy supply.
"While it may entail higher fiscal spending, the value of security and insurance against future disruptions may be justifiable,” it explained.
CGS International said Malaysia’s biodiesel infrastructure requires a significant upgrade to support higher blending mandates, including modifications to storage tanks, blending systems, and distribution networks to ensure consistency and reliability across the supply chain.
It noted that the Ministry of Plantation and Commodities has stated that the industry may require RM643 million in depot upgrades to raise the palm oil content in biodiesel from 10 per cent (B10) to 20 per cent (B20).
"With refineries running on thin margins, additional capital investment is unattractive for the private sector. At the same time, the government’s limited fiscal space may provide a constraint from the policy side,” it said.
The firm said the move towards B15 will raise domestic demand for palm oil by an additional 300,000 tonnes to 400,000 tonnes annually.
It said this will be on top of the current consumption of 930,000 tonnes under the B10 mandate, bringing total consumption to 1.3 million tonnes for the whole biodiesel programme.
"This should help reduce palm oil stocks of 2.4 million tonnes at the end of May 2026.
"Compared to the total annual palm oil production of 20 million tonnes, the B15 mandate can help absorb up to seven per cent of the total output,” it added. - Bernama
