24/2/06 Kuala Lumpur (Independent Online) - The costlier rapeseed and the cheaper palm are fighting for the biggest stakes biofuel can offer edible oils, but prices and supply must be right for both to remain an energy source since conversion costs are high.

From Europe to Asia, green fuel plants are being put up at a dizzying pace as the world is told it cannot live without cheaper and renewable energy from vegetable oils with rising prices of crude oil.

But few proponents of the projects are saying how much higher prices of rapeseed oil and palm oil - which are bound to rise with their increased use for biodiesel - could go before they become too expensive for burning or eating.

Also, it's unknown if there'll be enough production of the edible oil in the future as people depend on them for both uses.

"Today, the industry is looking at terrific potential profits from a palm-based biodiesel," said Martin Herrington, managing director of FPG Olechemicals, a joint venture between Malaysia's Felda and Procter and Gamble.

"The outlook for demand is far greater than existing capacity and we are looking at a feedstock that is based on existing edible and oleochemical demand, and has not taken account of fuel uses," Harrington told a conference in Kuala Lumpur on Friday.

The two-day "Price Outlook Conference" for edible oils was attended by more than a thousand people from the global oils industry, featuring speeches peppered with subjects of biofuel and its growing profile in the world energy mix.

"It must be said that interest in biodiesel, and more importantly in bio-energy, has turned out to be far higher than even a bio bull like myself had anticipated," Dorab Mistry, a London-based director of India's Godrej group, said.

"The number of projects under various stages of consideration and implementation is quite staggering," Mistry told the conference. "If even half of these actually materialise and run to capacity, the vegetable oil world will be transformed."

Herrington said in just six months, over 800 000 tonnes of biofuel capacity had been planned in Malaysia, the world's top palm oil producing country, and in neighbouring Singapore.

The catalyst for the projects was the EU's policy that 5,7 percent of diesel sold in that market by 2010 must be biodiesel.

"On this basis, the European diesel market of around 130 million tonnes implies a demand for seven million tonnes of biofuel," Herrington said.

"The European rapeseed crop produces only between three and four million tonnes of oil, which would leave a huge gap for imported products. This is the gap many of the Asian projects are looking to fill."

Analysts said it was no coincidence that the price of rapeseed oil had surged along with the price of diesel.

European rapeseed oil prices have more than doubled to nearly $750 a tonne in just five years, with buyers willing to pay top dollars for biodiesel making.

Palm oil, in contrast, has gone up about 50 percent to $395 (about R2 400) over the same period and could hit $430 a tonne before the end of the year, industry experts said. A tonne of oil at today's rates costs about $432.

"Rapeseed oil was the single biggest beneficiary from the biodiesel and biofuel demand, but it is striking to see that palm oil has also benefited to the tune of over a million tonnes as a result of direct burning," James Fry, managing director of the UK-based LMC International, told conference.

With such numbers, investors in new biofuel plants will have to be prudent.

"There is clearly a demand for alternative fuels, and the high yields that palm offers make it an efficient feedstock," Herrington said. "But it will not be a question of simply putting up a plant and waiting for the profits to roll in."

"As the market develops, the winners will be those with secure feedstock positions, low-cost operations and good market understanding."