24/03/2009 (The Star Online) - WHILE the cost of producing biofuels remains high amid the weak price of fossil fuels, Asian biodiesel producers stand united to ensure that the “green” commodity can someday be well integrated into the already established oil markets.

The greater task at hand in 2009 for new biodiesel players like Indonesia and Malaysia is to confront the impediments to unfair legislations set in major export markets like the European Union (EU) and the Unied States, sustainability issues, the feedstock (refined, bleached and deodorised palm oil) costs as well as hefty internal infrastructure investments related to storage, blending and distribution of biofuels.

Currently, Malaysian biodiesel producers are believed to be grappling to find buyers willing to take up palm methyl ester (PME or palm-based biodiesel), which is traded higher than the price of diesel itself.

The palm-based biodiesel is currently sold at about RM2.80 per litre compared with about RM1.70 per litre for diesel.

In fact, major oil companies are also to be blamed for their reluctance to expedite the setting up of suitable blending facilities for palm biodiesel in Malaysia.

Having said that, Malaysia’s full implementation of B5 biodiesel programme for domestic consumption by 2010 is expected to provide consolation in the form of reducing the high palm oil stockpile by 500,000 tonnes annually, thus stabilising crude palm oil (CPO) prices.

The Indonesian government, meanwhile, plans to pay a subsidy to biofuel producers starting this year to encourage them to remain in the business and promote widespread use of the alternative energy source.

This will ensure the survival of the fledgling industry, an aim made more urgent since biofuel became more expensive than crude oil-based fuel after oil prices dived more than 70% from their peak in July last year.

Indonesia will only pay the subsidy if biofuel prices are higher than crude oil-based fuels.

For Malaysia, it will use the Malaysian Palm Oil Board’s RM250mil palm oil price stabilisation fund, which is an accumulation of the RM4-a-tonne cess collected from the local oil palm industry, to support the biodiesel price until end 2009.

While it may seem to be a worthy effort among the governments to ensure the survival of the biofuel industry, however it is a fact that the consumption of biodiesel/biofuel is very limited for the domestic market.

Asian biofuel producers are primarily export-oriented.

The Malaysian biodiesel industry has both the production capacity to a tune of 1.67 million tonnes and feedstock available to meet market demand both in the domestic and world market.

According to the Malaysian Biodiesel Association, there are 10 active biodiesel plants in Malaysia – five in Pasir Gudang, one in Kuantan, two in Lumut and the remaining two in Lahad Datu.

On the whole, 2009 will indeed be a challenging year because of the issues confronting the industry in the world market, including exports of subsidised US biodiesel to the EU which is distorting biodiesel prices and trade, the EU’s Renewable Energy Directive (EU RED) and the global economic slowdown which might distort biofuel producers’ export.

The biggest challenge for biofuel exporters in 2009 will no doubt be the EU RED’s latest directive on biofuel content, which encompasses regulations on carbon emissions.

The directive to be made into national law within the next 17 months is perceived by many trade industry observers as a tactical unfair business practice and a non-tariff trade barrier move by the EU on the pretext of “sustainability and environment” requirements designed to reduce greenhouse gas emissions.

Therefore, it is imperative for Asian governments and exporters to ensure that the EU sustainability scheme does not discriminate against third country producers and that the criteria used are science-based, verifiable and in accordance to World Trade Organisation principles.