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14 December 2008

CPO and the Biodiesel Initiative

In a speech on crude palm oil (CPO) on 21 Nov 2008, YB Datuk Ian Chin Kah Fui, Minister of Plantation Industries and Commodities said that:

  • Oil palm requires only 1 hectare of land to produce 3.7 tonnes of oil per year, compared with soyabean which requires 10.2 hectares, sunflower which requires 9 hectares, and rapeseed which requires 6 hectares to produce 3.7 tonnes of oil per year. 
  • Oil palm is able to produce oil for about 25 years after being planted, a significant advantage over its competitors.

In Malaysia, crude palm oil has been one of the top earners for the agricultural sector. When petrol prices surged in 2008 to the historic high of USD$147 per barrel, crude palm oil (CPO) prices surged as well to RM4,486 per tonne in the first quarter of 2008. Malaysia and Indonesia, taken together, account for 85% of the world's production of crude palm oil. [Source: The Star (Star Biz), 11 Dec. 2008. At page B5. Huge global stock will continue to plague CPO. By Hanim Adnan.] Sadly, this high in the CPO price could not last once petrol prices came down. National palm oil stocks currently stand at 2.01 million tonnes. Crude palm oil is currently about RM1,500 per tonne. According to H. Adnan:

... the longer the inventory piles up, the more discount the CPO price will command due to increasing Free Fatty Acid. .... There is consensus that prices could recover by the first half of 2009 as local planters have recently put on hold or lowered their fertiliser applications, and this may result in lower yields by the third quarter. Efforts are also being made by Malaysia and Indonesia to cut palm oil production by encouraging replanting activities and the implementation of mandatory biodiesel initiatives next year.

As a result of the mandatory biodiesel initiatives that the government is making, palm biodiesel will be made available at domestic fuel pumps by January 2010. YB Datuk Peter Chin, Plantation Industries and Commodities Minister, said that "the Government in talks with independent power producers (IPPs) on burning palm oil as biodiesel." [Source: The Star (Star Biz), 11 Dec. 2008. At p. B10. Palm biodiesel at pumps in January 2010.] The government was considering allowing IPPs to burn palm oil to generate energy in light of the fact that Tenaga Nasional Berhad was not using diesel generators anymore. Datuk Ian Chin forecasted that Malaysia would consume 500,000 tonnes of CPO for transport and industries in 2009. The news report also put Malaysia's annual consumption of diesel at 10 million tonnes a year. 

In an interview with Carotech Bhd managing director David Ho, it was reported that phytonutrient extraction from CPO produces biodiesel as a side product. David Ho said that in order for the extracted biodiesel to compete with fossil fuels, an ideal price for CPO would be about USD200 less per tonne compared to fossil fuels. David Ho also revealed that every 1,000 kg of CPO processed, yields about 700 grammes of vitamin E and carotene combined. At full capacity of 90,000 tonnes of CPO, Carotech can produce about 31,500 kg of vitamin E and carotene yearly. [Source: The Star, 28 July 2008. Carotech sees higher biodiesel output. By Yvonne Tan.] 

Let's talk about the mandatory biodiesel initiatives. What exactly do they cover? They comprise the following:

  1. Beginning February 2009, government vehicles will commence usage of Envo Esther Diesel (B5) brand, a type of biodiesel composed of 5% palm oil and 95% diesel. [Source: Bernama, 10 Dec. 2008. Biodiesel to be Mandatory for Transport and Industrial Sectors by January 2010.]
  2. The Government expects that by January 2010, 500,000 tonnes of palm based biodiesel will be required for the transport and industrial sectors. It did not state 500,000 tonnes per month, or per year. [Source: Bernama, 10 Dec. 2008. Ibid.]
  3. Commercial vehicles will be required to commence usage of biodiesel (presumably B5) in mid-2009. [Source: Bernama, 3 Dec. 2008. Biodiesel Usage May Be Brought Forward To January, Says Chin.]
  4. Old oil palm trees would be replanted to cut crude palm oil production and to stabilize the price of CPO to RM2,000 per tonne. [Source: Bernama, 3 Dec. 2008. Ibid.]

Experts in the industry say that biodiesel is the solution for the long term. Biodiesel emits less than half the greenhouse gases and carcinogens that fossil fuel emits. [Source: SpokesmanReview.com, 13 Dec. 2008. Greener biofuels still have environmental impact.] The European Union has agreed to implement a policy that 10% of road transport fuels would come from renewable sources by 2020. These were expected to come from biofuels. However, a stand-off over the biofuels was resolved when the proposal was amended so that one-third of EU's 10% goal would come from electric cars and electric trains. It is possible that the future direction in EU would be the production of green electricity. [Source: International Herald Tribune, 4 Dec. 2008. EU adopts renewable energy proposals.]

Nevertheless the important question for Malaysia is how long will it take before Malaysians actually use biodiesels in the long term. Teething problems may discourage early adopters. Further, due to the theory of economies of scale, there has to be widespread adoption of biodiesels before production can be deemed economically viable. Forcing the oil companies to sell biodiesels may be part of the long term solution. In that respect it will mean that the oil companies will be purchasing crude palm oil in bulk (which guarantees that CPO prices will remain high). 

A note of caution. Bloomberg reports that New Zealand has done away with a mandatory requirement that oil companies sell biodiesel products in addition to their existing product lines. Instead, the New Zealand government is giving tax breaks to oil companies that sell clean fuels that are sourced from sustainable sources. The tax exemptions would be based on the emission levels of such fuels. Critics have said that the effect would be to favour imported ethanol over locally produced biodiesels. [Source: Bloomberg, 11 Dec. 2008. NZ to scrap Biofuel Obligation, Offer Tax Break on Clean Fuel.] Former Climate Change Minister of New Zealand, David Parker, has denounced the move. He said that fledging industries would be destroyed by the move. He stressed that the previous government's efforts to institute a policy of "sustainable biofuels with a strict sustainability criteria" would be wasted. Peter Dunne, United Future Party chairman, said that domestic biodiesel producers would be forced out of business by cheap, unsustainable imports. [Source: Int'l Herald Tribune, 12 Dec. 2008. NZ Govt dismantles climate-friendly policies.]

Interestingly enough, the search for a biodiesel component has recently yielded results identifying wasted coffee grounds as a source of biodiesel. Researchers at Nevada-Reno University found that wasted coffee grounds was a more stable material for biodiesel due to its high antioxidant content. About 16 billion pounds of wasted coffee grounds is produced yearly. [Source: All Headlines News, 12 Dec. 2008. Coffee Grounds Identified As Biodiesel Source.] This can produce about 340 million gallons of biodiesel fuel per year. [Source: Greentech Media, 11 Dec. 2008. Old Coffee Grounds a New Source of Auto Fuel?] Also interesting was this portion of the report, which is best reproduced verbatim:

Although bigger than most fish tanks, 340 million gallons a year is a small amount of oil. The world consumes around 85 million barrels of oil a day right now and there are 42 gallons of crude oil in a barrel (which means 3570 gallons a day) Thus, if you started on January 1 and tried to run the world of coffee biodiesel, we’d run out while most New Year’s Eve parties are still going. But still conservation helps and every little bit count.

You can check out the international price of coffee at the website of the International Coffee Organization.

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