10/03/2008 (The Star Online) - RECENTLY, the first biofuel-powered commercial aircraft flew from London to Amsterdam. The test flight of the Boeing 747, a joint initiative between The Boeing Company, Virgin Atlantic Airways Ltd and GE Aviation, used a 20% biofuel mix of coconut and babassu oil in one of the plane's four main fuel tanks.

Virgin Atlantic president Sir Richard Branson said in a statement the demonstration flight would help the airline to use clean fuel sooner than expected. 

“The demonstration flight will give us crucial knowledge that we can use to dramatically reduce our carbon footprint,” he added.

With higher crude oil price and the quest for energy security, biofuel has become an increasingly attractive alternative. In Malaysia, Prime Minister Datuk Seri Abdullah Ahmad Badawi announced in August 2005 that a National Biofuel Policy (sometimes known as National Biodiesel Policy) was being formulated.

Malaysia is the second largest palm oil producer in the world and crude palm oil (CPO) is the main feedstock for biodiesel. It is also hosting the Biofuels Asia 2008 conference from June 17 to 20.

The policy called for the production of a biofuel blend of 5% processed palm oil and 95% diesel known as B5. It will encourage the use of this blend by the public, establish an industry standard for palm biodiesel quality and promote the setting up of biodiesel plants in the country for export purposes. 

The price of CPO has more than doubled since the policy was announced and has moved in tandem with the price of crude oil, which recently closed above US$105 per barrel on the New York Mercantile Exchange.

For example, CPO was trading between RM1,350 and RM1,400 per tonne from August to December in the year the policy was announced. CPO closed at RM3,710 for the May contract on March 7. At the current price of CPO, the production of biodiesel is not commercially viable.

Up until last year, the Government has issued over 90 licences to companies for the production of biodiesel but the high CPO price has derailed or temporarily stopped the implementation of the other initiatives of the policy. 

The palm oil industry cluster on a 2,000ha site in Lahad Datu has also managed to attract RM1.8bil in investments from a number of companies, including foreign ones. The bulk of the investments are in biodiesel and fertiliser projects with SPC Biodiesel Sdn Bhd and South Korean-based Global Biodiesel Sdn Bhd already operating there.

A made-in-Malaysia biodiesel – the Envo Diesel – was launched in March 2006, but plans for its limited use is still to be implemented. There may be plans for a gradual implementation this year. 

“We are looking at 2008 in terms of slowly implementing a 2% blend at least,” Malaysian Palm Oil Board chairman Datuk Sabri Ahmad said at the Reuters Global Agriculture and Biofuel Summit in January.

He added that Malaysia might have to look at implementing it since Thailand and Indonesia had made it mandatory.

In fact, according to a Reuters report in January, Malaysia's total biodiesel production capacity amounted to 10 million tonnes but only seven plants were running and most of them at below capacity. Total output this year was likely to be less than 100,000 tonnes, it added.

The producers also have to contend with the local subsidy policy for petrol and gas as well as subsidies for corn farmers in the US, whose produce is the main feedstock for ethanol-based fuel. A slowdown in demand for biodiesel from Europe after protests by certain environmental groups on the environmental feasibility of oil palm plantations does not help either.

Just recently, Plantation Industries and Commodities Minister Datuk Peter Chin Fah Kui said the Government was reviewing plans for mandatory blending of palm oil and diesel due to the high CPO price.

“The Government is still studying the costs and benefits of implementing biodiesel blending,” he said, adding that companies with the biofuel licences should return them if they were not interested in producing the fuel.

“We are looking into the costs involved and how they will fit into the decisions of the Government regarding subsidy and price mechanism for diesel,” Chin said.

According to a report by Frost & Sullivan, the demand for biodiesel has increased in the Asia-Pacific over the past two years. For Malaysia, demand would increase to 563,000 tonnes in 2013 from the present 110,000 tonnes.

It said that while Asia-Pacific was still a nascent market for biodiesel, “there are several strong drivers of growth, both for increased supply as well as demand.”

It said many countries in the region were developing domestic markets although targeting export markets was a primary objective for producers, especially in Malaysia and Singapore, while in several countries, the governments had introduced mandates for biofuels.

The report stated that the total production capacity for Malaysia as of 2007 was 1.04 million tonnes per annum, incidentally the highest in the region. Indonesia came next with 633,000 tonnes. Capacity was based on plants believed to be operational or in commissioning phase, it said.

For Malaysia, plants likely to be completed by year-end would have a total production capacity of 1.98 million tonnes while Indonesia's capacity would be raised when plants with capacity of 1.31 million tonnes were completed, it said.

It added that China topped the list with two million tonnes of plant capacity to be completed.