31/12/05 (NSTP)  -  WILL the lights go out in certain countries in about 50 years when the world’s fossil fuel resources dry up and new reserves are not found?

As the answer rests squarely on whether the world can find renewable energy to replace depleting fossil fuels, many countries have joined the race in search of sustainable energy. Many have turned to vegetable oil for the production of biofuel.

Having put the biofuel policy on the backburner, Malaysia is now set to venture full steam into biofuel.

In 2001, the crude palm oil price was below RM900 per tonne. To stabilise the price, the Government used palm oil in power stations and boilers to get rid of excess stocks. However, the Government’s interest was not sustained after CPO prices recovered.

However, rising oil prices have reignited interest in biofuel.

On Aug 10, the Government indicated that a National Biofuel Policy would be announced by the year’s end to reduce the fuel import bill and promote the demand for palm oil, which will be the primary commodity for biofuel production.

Among the initiatives expected under the policy are:

• Promoting or mandating use of diesel fuel of five per cent processed palm oil with 95 per cent petroleum diesel;

• Establishing industry standards for biodiesel quality; and

• Supporting or giving tax incentives for setting up palm oil biodiesel plants.

In March, the Malaysian Palm Oil Board announced its desire to push for biofuel implementation.

This forms part of the price- stabilisation strategy as practised for other commodity products such as sugar, corn, soy and rapeseed.

Seven months later, MPOB announced that three companies (Golden Hope Plantations Bhd, Kumpulan Fima’s Fima Bulkers Sdn Bhd and JC Chang Johor Group’s Carotino Sdn Bhd) had been selected to implement and operate palm biodiesel plants using MPOB technology.

Malaysia is likely to be the first country in Asia to implement a mandatory biodiesel policy, which may be announced in 2007.

The policy could be the first step towards making Malaysia a major player in global biofuel/biodiesel production, together with Germany, France and Italy.

Palm oil, often said to be God’s gift to Malaysia and Malaysia’s gift to the rest of the world, certainly has the advantage over other vegetable oils in the production of bio- diesel.

It does not pollute the environment. Blending palm oil with diesel will, therefore, reduce pollution levels.

Furthermore, a hectare of oil palm can produce five tonnes of palm oil, compared with other vegetable oils like rapeseed and soybean, which can produce 500kg each.

As many countries race to reduce greenhouse gases by five per cent relative to the 1990 level by 2008-2012, the demand for biofuel will increase tremendously.

If only five per cent of palm oil is blended with diesel, a total of 500,000 tonnes of palm oil would be used for this purpose each year.

A =RM100 increase in the price of palm oil would translate into RM1 billion in additional revenue.

Malaysia’s move towards biofuel will stabilise the price of palm oil as proven in the case of other vegetable oils used in biodiesel.

The potential for payback is good as market research indicates high returns from biodiesel for the reasons mentioned above. In fact, the payback period is expected to be less than three years.

However, venturing into biodiesel comes with challenges, which are not uniquely Malaysian but are faced by other biodiesel producers as well.

The main challenge will come from the technological and scientific aspects. It is often said that palm biodiesel does not perform as well as other fuels in cold weather.

This is a challenge to scientists in the industry. Palm oil producers have to invest in research to find ways to ensure palm biodiesel works more efficiently in winter.

Also important is the consistency in the quality of biodiesel to build consumer confidence in the new alternative fuel. Technical standards will need to be established and quality benchmarks set.

For biodiesel to be competitive, the price of crude petroleum should remain high. If crude oil reverts to below US$50 (RM188) per barrel, biodiesel may not be competitive.

Recent times have seen Malaysian companies embarking on ventures to produce palm biodiesel.

The competition between food and non-food uses of CPO can lead to upward price adjustments. Higher raw material costs for food, especially cooking oil, can lead to inflation.

Having said that, the onus is on palm-oil producers to ensure the continued supply of palm oil to the food industries at a reasonable price is not compromised.

In fact, this should always remain a priority.

The writer is chairman of the Malaysian Palm Oil Association and group chief executive of Golden Hope Plantations Bhd.