08/03/2011 (The Star Online) - With crude oil surging passed US$100 a barrel, many are hoping to see the country's stagnant palm-based biodiesel production turning viable again.

The sector has seen some slight improvement from last month as palm oil become a more attractive feedstock for biodiesel given the higher prices of fossil fuels.

There have also been encouraging enquiries from overseas of late.

Last year, the local biodiesel sector reached a standstill with almost zero production as many players were unable to maintain operations due to high cost of production as well as the lack of incentives from the Government, according to Malaysian Biodiesel Association (MBA).

MBA, which represents 22 biodiesel producers from local and international companies with operations in Malaysia, reported that they were churning out less than 100,000 tonnes compared with their combined installed capacity of 2.6 million tonnes.

Furthermore, the Malaysia Palm Oil Board reported zero export of local biodiesel for two months in December last year and in January.

The zero export predicament is a sad situation for many biodiesel producers in the country which have so far invested more than RM21bil over the last three years hence putting many of them into the negative margins territory.

On the other hand, some quarters opined that even with the escalating crude oil prices, the production of palm oil as an alternative feedstock for biodiesel may still not be viable as the cost of the main feedstock - palm methyl ester - was also on the rise as CPO is trading above RM3,600 per tonne!

At one point, based on a market price of RM2,000 per tonne for CPO, the subsidy for full implementation of the Government's B5 programme mandate could amount to RM250mil. (The B5 is the blending of 5% biodiesel with 95% fossil fuel diesel)

This somewhat halted the original plan of implementing the B5 mandate on Jan 1 last year but the Government had made a firm stand setting June this year as the deadline for the B5 programme to be undertaken in stages, starting with the central region.

In fact, five petroleum companies had been allocated with a start-up fund worth RM1mil each by the Malaysian Palm Oil Board (MPOB) to set up infrastructure for B5 biodiesel blending facilities.

Given the high raw material (palm methyl ester) cost, the B5 biodiesel could turn out to be more pricey than the heavily subsidised diesel fuel, sources said.

On the overseas front, many market observers are still worried over the European Union's elimination of palm oil from its qualified list of biofuels which would have a negative impact on the exports of local biodiesel.

Malaysia and Indonesia, both the world largest producers of palm oil, are working hard to find an amicable solution over the matter.

On a more positive note, Malaysia is currently looking at laying the foundation for palm oil to qualify as an advanced biofuel source in the United States under its Renewable Fuels Standards 2.

Hence, with the latest initiatives by the industry players and the Government, it is hope that the sustainability of palm biodiesel can be fully restored.