6/11/06 (The Edge Daily)  - Plantation companies looking to tap into the biodiesel demand in the European Union (EU) could face a setback if the EU parliament’s industry committee’s call for a ban on palm oil-based biodiesel is passed.

In October, the industry committee had said in a draft response to the European Commission’s proposals for an EU transport biofuels strategy that further increases in palm oil production may lead to more deforestation.

The EU has targeted minimum levels of biofuels at 5.75% by 2010 and 20% by 2020 in an effort to cut carbon dioxide emissions by the transport sector. To meet the 2010 target, it would need up to 18 million tonnes of biodiesel.

However, analysts believe the call for a ban on palm oil-based biodiesel was a protectionist measure towards rapeseed oil, which is produced in the EU and used as the main source to produce biodiesel.

An industry analyst told FinancialDaily that he was not expecting a EU ban on palm oil-based biodiesel as it did not have enough rapeseed oil to meet its target of 18 million tonnes of biodiesel by 2010.

He said production of rapeseed oil by 2010 was only expected to be between 14 million and 16 million tonnes and there would still be a need for other vegetable oil-based biodiesel.

Another analyst said a protectionist stance would have a negative effect on local biodiesel players as they would lose their main source of demand.

He said about half of the 52 companies that received biodiesel licences from the government this year had already begun producing biodiesel, with an estimated cost of between RM35 million and RM40 million per plant.

“More than 70% of their cost is from feedstock or raw materials which are always fluctuating and if these companies can’t secure a market for biodiesel, it will be a loss,” he said, adding the processing cost for a tonne of biodiesel was between US$100 (RM365) and US$190.

The analyst said other than the EU, there was a lack of proper market demand for biodiesel that had been identified.
“A lot of companies have jumped into biodiesel without knowing their market. In the case of exports to Japan, China and Korea, these countries may choose to increase their own biodiesel production.”

Golden Hope Plantations Bhd’s chief executive officer Datuk Sabri Ahmad told reporters recently that the company would invest RM263.6 million in four biodiesel plants with RM70 million already invested, with its main markets being the EU and Japan.

Another industry analyst said Malaysia’s biodiesel production was solely for export and not domestic consumption as the yet-to-be- approved government biofuel policy only called for the mandatory use of 5% palm olein with petrol diesel in diesel engines.

He said palm olein was cooking oil and not biodiesel, which is methyl ester.

“It has never been good to produce biodiesel for the local market as the cost per litre of biodiesel ranges between RM1.70 and RM1.80. With petrol and diesel subsidised by the government, they can’t sell biodiesel here,” he said.

However, he said the possibility of a EU ban on palm oil-based biodiesel was unlikely as it did not have enough rapeseed oil to meet its target of 18 million tonnes of biodiesel by 2010.

He said production of rapeseed oil by 2010 was only expected to be between 14 million and 16 million tonnes and there would still be a need for other vegetable oil-based biodiesel.