Biofuel

Written by Sabrina Deparine   
Monday, 29 March 2010

The long wait is finally over, Malaysia will finally launch its biofuel mandate by next year after a four-year delay. In a report released last March 24 by Reuters, the Malaysian biofuel mandate will implement the use of palm-based biofuel blend in several stages. The Malaysian government will approve and release budget of 43.1 million ringgit for six depots but oil companies will have to shoulder the costs of extra subsidies such as selling diesel blended with palm oil starting June 2011.

Malaysia is the second palm oil producer in the world but it took time to implement a mandate that will push the promotion and use of alternative fuel. The first initiative was introduced in 2007 but the Malaysian government was reluctant to subsidize biofuels because its production costs could not match the pump prices for diesel. After four years of research, talks and studies, the Malaysian government finally heeded to the call to support palm-based biofuel blend because they believe that the use of this alternative fuel will not only cut down emissions but will also reap economic benefits especially for the planters.

As mentioned, the rollout of biofuels will be done in stages. According to Commodities Minister Bernard Dompok, the first stage involves the introduction of 5% palm oil and 95% petroleum blend in gasoline stations on the mainland. Eventually, the mandate will expand to cover other Malaysian states. No definite timeframe was given to complete each stage but if the rollout of palm-based biofuel blend is successful, it will consume half a million tons of Malaysia's total annual crude palm oil production. As of now, the government will bear the costs of developing six oil depots that have blending facilities. It has also approved about 56 licenses for biofuel production for a total capacity of 6.8 million tons. However, petroleum companies like the state oil firm Petronas, Royal Dutch Shell, Exxon  Mobil and Caltex will have to shoulder the subsidies involved in selling palm-based biofuel blends.

In a way, the Malaysian government's decision to implement the biofuels mandate is timely as it also provides support for palm oil traders and for palm oil futures. Traders are currently on the verge of turning their focus to lower crude oil and soyoil markets.   

To date, petrolem diesel sells at 1.70 ringgit per liter in Malaysia. The price is regulated by the government and is actually among the lowest in the Asian region. As such, any changes particularly increases in petroleum prices are politically-sensitive. Based on the estimates of local biofuel manufacturers, the blending of 5% palm oil into diesel may increase the prices of diesel by 0.02 to 0.06 Malaysian ringgit per liter.
Kamarul Hj. Sulaiman

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