06/12/2007 (Channel News Asia), Singapore - As Singapore seeks to build itself as a biodiesel hub, industry watchers say the next couple of years will be critical.

The emerging industry is facing a lack of feedstock supplies and rising crude palm oil prices.

Analysts say these concerns will need to be effectively addressed before bio-energy industries can grow.

The Finnish oil refiner Neste Oil is investing nearly S$1.2 billion to build the world's largest biodiesel plant in Singapore.

While that is seen as a boost for Singapore, analysts say rising palm oil prices are a real concern. Palm oil is a common feedstock used to produce biodiesel.

David Ernsberger, Editorial Director - Asia, PLATTS, said: "Well, the key swing factor for everybody is the price of palm oil - and (if) the price of palm oil begins to calm down, I think it will become competitive for the producers of biodiesel.

"That's the thing to watch out for. The price of palm oil is being set in Jakarta and in KL so we all need to watch quite nervously what's happening in those two cities to understand where the future of biodiesel in Singapore lies right now."

There is also increasing demand from countries such as India for palm oil. Industry watchers say this was not factored in when discussions for such biodiesel plants began nearly two years ago.

At the moment, palm oil is trading at about US$900 a tonne. That is roughly the equivalent to US$90 a barrel, making it hardly competitive to produce biodiesel.

Analysts see the next two years as being critical for the emerging industry. From an economic point of view, there are benefits to the push towards renewable fuels.

Benjamin Sovacool, Post-Doctoral Fellow, LKY School of Public Policy, said: "One of the biggest benefits to renewables - whether it's renewable fuels or renewable electricity - is the domestic economic benefits - in terms or labour and transfer of wealth.

"Every barrel of oil that we buy in Singapore sends money half way round the world to the Middle East or wherever those barrels of oil came from. If you produce those things domestically or regionally, those dollars stay here in Asia.

"And studies that have been done in the US, that I am familiar with, talk about how every dollar spent on energy efficiency or renewables created seven dollars in the local economy.

"So you can clearly see the benefits to the economy at large because people will have more money they can spend that they aren't spending on oil and they are spending here in Singapore."

Biodiesel producers are also looking for alternative feedstock such as Jatropa and even algae, which may become viable in three to four years from now. - CNA/ch