7/6/06 (Reuters) KUALA LUMPUR - Hunger for palm-based biofuel is growing so fast that Malaysia has decided to stop licensing new producers while industry works out how to divide up its raw material between the food and energy

"The moment you have more and more biodiesel plants, the palm oil supplies will be limited, not enough for food and not enough for biodiesel," Yusof Basiron, chief executive of the industry-funded Malaysian Palm Oil Council said in an interview.
"The government wants to maintain a balance."

From Europe to Asia, green fuel plants are sprouting at a dizzying pace as the world is told it cannot live without cheaper renewable energy from vegetable oils and the price of crude rises inexorably, reaching a record-high of US$75.40 a barrel this week.

Malaysia's edible oil industry says the government has already approved 32 manufacturing licences for units estimated to produce around 3 million tonnes of biodiesel a year, from a total of 87 applications received.

"This shows the attractiveness for investment in biodiesel," Yusof said on Thursday. "The biodiesel industry can use any amount of palm oil, but we must have some idea how much we want to allocate to biodiesel and how much for food."

It was this concern that prompted Malaysia to say last week that it would stop issuing new licences for biodiesel production until it completes a review of downstream industries.


RISING CONSUMPTION

Biodiesel consumed about 45 percent of Europe's rapeseed oil output last year, leaving some major food producers scrambling for material to cover their needs.

Malaysia, the world's top producer of palm oil, plans to sell biodiesel at domestic pumps and also export it by October. It is expected to produce 120,000 tonnes of biodiesel in 2006 and 500,000 tonnes in 2007.

Traders and government officials say additional demand will push Malaysian crude palm oil prices to around 1,550 to 1,600 ringgit a tonne (US$423-437) later this year from around 1,420 to 1,430 now.

Basiron said the government wanted to avoid a situation in which palm oil prices rose to a level that made the commodity unattractive as an alternate source of energy.

"It would be logical to think that after sometime the palm oil supplies become short and prices go up," he said.

"Biofuel people, even if they have built plants, will find that they cannot have cheap raw materials any more."

But it is for the industry to decide where that balance lies, he said. "It's a business decision because it is not the government money, it is the private sector's money."

The temporary halt on fresh licences was a signal to industry, he said.

"We are just warning them, when we have so many applications, it's already an indication that we are close to the allowable amount that can be diverted for biodiesel." (US$ = 3.661 ringgit)