07/01/2008 (Sun Star Network Online, Philippines), Kuala Lumpur - Malaysia is working to develop new, cost-effective fuels based on palm oil, after prices of the commodity recently rose to record highs, an official said.

Benchmark crude palm oil futures hit an all-time high of 3,159 ringgit (US$962; euro652) per metric ton Jan. 3. The sharp rise in prices has neutralized the commodity's advantage as a cheap raw material for producing biofuels.

Chow Mee Chin, who heads the Malaysian Palm Oil Board's Energy and Environment Unit, said the board is working to develop cheaper biofuels from alternative sources such as palm kernel cake, empty fruit bunches, palm fiber and palm shells.

"Prices are a manifestation of market forces, but (crude palm oil) is only one of seven raw materials available from oil palm plantations to make biofuels," Chow told Dow Jones Newswires in a recent interview.

Ninety-one licenses have been issued to companies in Malaysia for manufacturing palm diesel. Only five of the companies have started up biofuel processing, however, with one of them stopping operations recently due to the exorbitant cost of crude palm oil.

So far, palm-based fuels have mostly been made from methyl esters obtained from crude palm oil. But Chow said the Palm Oil Board has embarked on a research program to try to develop a second generation of environment-friendly fuels.

"Other than crude palm oil and palm kernel oil, the raw materials from oil palm trees are in the form of solids," she said.

Chow said if these could be successfully processed into gaseous and liquid fuels, it would open up new alternatives to crude palm oil.

Even as solid fuels, they could be conventionally combusted in mills and used for heat generation in factories, said Chow.

She said on an annual basis, the energy potential per hectare of all oil palm-based raw materials is equivalent to 45 barrels of petroleum-based crude oil.

Crude palm oil's use as a raw material for fuel is considered one of the reasons for global food inflation. The use of soy oil, rapeseed oil, sunflower seed oil and corn is also said to have contributed to higher food prices.

Analysts say the use of palm biomass to manufacture fuels could help address these concerns.

"Tests are being conducted to look at the compatibility of converting these raw materials into next-generation fuels," Chow said. (AP)