31/7/06 (Reuters)  -  SINGAPORE: Southeast Asian countries are racing ahead with plans to put a lid on oil demand by boosting domestic biofuels, a sign that record prices are spurring the substitution that Opec producers fear will lead to oversupply.
The rush to turn crops such as palm oil into transport fuels has picked up as the cost of importing oil has more than tripled since 2002, but only in the past year have Asian countries joined Europe in setting targets for biofuel consumption.
This is also politically easier than measures to rein in growing demand through unpopular retail fuel price hikes, or capital intensive longer-term measures to enhance energy security such as oil stockpiles and regional power grids.
But there are still plenty of constrains that could delay or halt biofuel development, analysts say.
A Thai official said last week that Bangkok hoped to replace over a quarter of its oil demand by 2020 through vehicles using ethanol-blended gasoline or natural gas, while Opec-member Indonesia this month set a target to use 10% biofuels for its more than 1mn barrels of daily consumption by 2010.
“We believe we can do more than that – we are not dreaming,” Indonesia’s energy minister Purnomo Yusgiantoro said. The country is examining the possibility of using biofuel in power plants, Purnomo told Reuters at an industry meet in Laos.
For the plan to work, Indonesia will need to find 6mn hectares (15mn acres) for plantations of cassava, sugarcane, jatropha and palm oil. Indonesia and Malaysia last week pledged to use 40% of their palm oil crops for biofuels.
Malaysia, the world’s top producer of palm oil, is due to start selling a 5% palm oil-diesel blend at domestic pumps in October and new legislation may set out a firm target for nationwide use.
Myanmar hopes to replace all of its 40,000bpd oil import demand if it grows enough of a nut-based biofuel, while the Philippines is pushing ahead with ethanol and coconut plantations for biofuel.
Biofuels are just the kind of oil substitute that Opec fears will erode future demand for its crude, leading to calls for “demand road map” from consumers who want billions of dollars of investment in new capacity.
The volume of oil Thailand hopes to replace - 230,000bpd – is equivalent to production from West African producer Gabon, a former Opec member.
“Next year there’s going to be oversupply,” said Purnomo, pointing to new crude oil fields expected onstream and the impact of oil prices on demand. – Reuters