International Business Review


The Biofuel Advantage
The days of the fossil fuels are numbered. As finite oil reserves are being inexorably depleted to satiate global demand by various industries, the search to find substitutes has been initiated.

by IBR Malaysia
21 August 2015

The days of the fossil fuels are numbered. As finite oil reserves are being inexorably depleted to satiate global demand by various industries, the search to find substitutes has been initiated. One of the more promising candidates to fit the bill is a selection of biofuels, such as ethanol and biodiesel because existing internal combustion engines need only slight modifications to accommodate them. As a significant producer of palm oil – a key ingredient in biodiesel – Malaysia has the potential to be a key player in the biofuel game.

Palm Power

Oil palm plantations can be found in almost every state in Malaysia. While the country may be ranked second after Indonesia on the list of producers in the world, it leads global exporters of the fruit-based oil. Being a perennial plant, the oil palm is the highest yielding among oilseed biofuel crops, producing up to seven times more output than rapeseed and 10 times more than sunflower per hectare annually.

This oil is incredibly versatile in its application, able to be made into cooking oil, butter substitutes, detergents, lubricants and biodiesel. Also referred to as palm oil methyl ester, biodiesel is a biofuel yielded through a process called Trans esterification, which is a reaction between oil and alcohol, and biodiesel blends are often created by mixing palm oil biodiesel with other fuels.

Malaysian Makers

Considered to be a successful technology provider for the production of biodiesel, the Malaysian Palm Oil Board (MPOB) has invested considerable effort in the research and development in the yield of biodiesel from palm oil since the 1980s, and used the technology accumulated through the years to build its first commercial plant in 2006. As expected, the fuel produced meets the stringent requirements of international biodiesel specifications. These include ASTM D6751, which outlines specifications for biodiesels blended with middle distillate fuels and EN 14214, which lists the requirements and test methods for biodiesel.

Local oil palm plantation companies such as Sime Darby have also tapped into the potential of biodiesel, creating divisions that are dedicated to its production.

Cardinal Challenges

Despite its numerous advantages, the outlook of palm biodiesel in the country is not quite as rosy as the hue of the oil it is based on. The planned October 2015 introduction of B10 biodiesel, which uses a blend of one part palm oil to nine parts diesel hit some speed bumps after a number of automakers voiced their disapproval of the biofuel. BMW Malaysia explained that B10 is not suitable for its diesel engines. “In our tests with B10 biodiesel worldwide, we have found technical challenges present when blending 10% of palm based methyl ester with the current conventional fuel,” BMW Group Malaysia Managing Director and CEO Alan Harris stated.

However, after performing compatibility tests, Mercedes- Benz Malaysia announced that the fuel can in fact be used with their diesel-powered vehicles. Mercedes-Benz Malaysia President and CEO, Roland Folger explained, “Our diesel-powered vehicles currently sold in Malaysia were seen to have run both smoothly and safely with the use of the B10 Biodiesel blend.”

Malaysia Automotive Institute (MAI) CEO Mohd Madani Sahari said that it will engage in talks with MPOB and involve automotive players more in the discussions. “A number of automotive industry players have said it’s not compatible in the past two to three years,” he noted, emphasising the need to find a solution to satisfy all players. According to Plantation Industries and Commodities Minister Datuk Amar Douglas Uggah Embas, with B10 in place, consumption of palm would rise to 1 million tonnes from about 700,000 with B7, making it a viable venture.

Driven Demand

A study done by Navigant Research, which is a market research company based in Colorado, estimates that the global demand for biofuels will grow from the 342 million tonnes in 2013 to 539 million tonnes in 2022, indicative of the gradual shift of dependency from traditional oil-based fuels to the more environmentally-friendly ones derived from plants such as soybean, corn and oil palm. “The continued growth of conventional biofuels relies either on policies increasing biofuel blend requirements, or on growing vehicle markets in the Asia Pacific region,” says Scott Shepard, a research analyst at the company.

Exports of Malaysian biodiesel have been substantial. For instance, 22,670 metric tonnes of the fuel was exported in June 2015, according to MPOB. This can be attributed to the open arbitrage to Europe, which spurred buying interest from Western importers. Platts, a global provider of information pertaining to energy, petrochemicals, metals and agriculture, states that the Asia-EU trade agreement had been ongoing since the end of May 2015.

It is clear that Malaysia has an edge in the biodiesel market thanks to its considerable palm oil resource. The onus, therefore, is on policy makers in the country to come up with new impetus and see current incentives through to promote the production of this fuel source. For instance, the smooth transition of the B10 biodiesel policy from the discussion stage to an of implementation that meets conditions set by various players would do wonders to propel Malaysia into becoming a global biodiesel hub.

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