21/8/2006 (Reuters) SINGAPORE — Singaporean Kom Mam Sun ran his Nissan truck on biodiesel fuel for two years to test his business idea of turning used cooking oil from restaurants into fuel for vehicles.

The experiment was such a success that the 32-year-old entrepreneur opened his first biodiesel plant in June and has already made S$50,000 ($31,600) in profits.

"My customers in the construction industry are happy with biodiesel so far as it's better and cleaner especially when they deal with heavy machinery," Kom said.

Kom's venture highlights growing interest in Singapore, Asia's largest oil-refining center, in the potentially lucrative biofuels industry in the face of rising conventional fuel prices.

Singapore is well placed to develop such an industry as it has easy access to palm oil, a key biodiesel ingredient, from its neighbors Malaysia and Indonesia. Both countries together produce about 80 percent of the world's palm oil supply.

"Biodiesel is a sustainable and renewable fuel that is friendly to the environment," said John Hall, global marketing director of Germany-based Peter Cremer Gruppe energy business.

Peter Cremer (Singapore), the Asian arm of Germany's Cremer Gruppe, plans to set up a $20 million plant in Singapore by May 2007 with enough capacity to produce 200,000 metric tons of biodiesel.

"We are using a feedstock that is renewable in that it can be harvested and grown again, whereas once you use the earth's oil reserves they cannot be replenished," Hall said.

The firm would sell the fuel at $40 per barrel to earn a profit, he said.

Given record crude oil prices of more than $70 per barrel, many countries including the United States are trying to encourage the use of biofuel to reduce dependence on crude oil.

The European Union has set a 2010 target for biofuels to comprise at least 5.75 percent of the transport fuel supply.

"Global trends are driving the development of agricultural products into new sources of energy and materials," said Teo Ming Kian, chairman of Singapore's Economic Development Board.

ENVIRONMENTAL COST

But despite being renewable, biofuels might not be as friendly to the environment as they seem, say environmentalists.

Friends of the Earth and British political activist George Monbiot say the expansion of the biofuel industry could lead to deforestation as plantations to provide the renewable fuel are established on land cleared of rain forests.

In a September 2005 report, Friends of the Earth said that palm oil plantations were responsible for an estimated 87 percent of deforestation in Malaysia.

"In terms of its impact on both the local and global environments, palm biodiesel is more destructive than crude oil," Monbiot wrote on his Web site.

Energy analysts doubt whether biodiesel products will lead to a reduction of dependence on conventional fuels.

"The fuel market is so big that biodiesel can't make a significant difference and will only be a small fraction of the overall diesel use in Asia," said energy analyst Victor K. Shum.

"But with oil prices so high these days, biodiesel does get more and more cost-effective," he added.

As for the Singaporean entrepreneur Kom, he's not concerned about competition thanks to low overheads and a direct-selling strategy.

"I have my truck, which I've been testing out the biodiesel on and it's been my advertisement on the go. That's all I need," said Kom with a laugh.