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Palm oil biodiesel programme to cover all of M'sia by July

Publication Date : 13-05-2014

 

Malaysia's B5 biodiesel programme will be fully implemented nationwide this July – three years after the initial phase launch in the central region in the Peninsula.

The B5 biodiesel is a blend of 5% palm oil or palm methyl ester (PME) and diesel. For this palm biodiesel initiative, the PME requirement for the entire B5 programme is estimated at 500,000 tonnes per year to support both the subsidised and non-subsidised sectors in the country.

This initiative is also envisaged to effectively reduce domestic palm oil inventory to below one million tonnes, and provide a floor price to support CPO prices at 2,000 ringgit (US$617) per tonne, says Malaysian Palm Oil Board (MPOB) senior research officer Yung Chee Liang at a recent palm oil conference.

The B5 implementation was launched in phases, starting with the central region (Putrajaya, Kuala Lumpur Selangor, Selangor and Malacca) between June and November 2011. Next was the southern region (Johor) in July last year, followed by the northern region (Perlis, Kedah, Penang and Perak) in October, the eastern region (Kelantan, Pahang and Trengganu) in January, and finally, Sarawak, Sabah and Labuan this July to complete full national coverage.

Meanwhile, the B5 programme has been fully implemented among the subsidised sectors such as retail stations, fleetcard, skid tanks and fisheries in the central region since Feb 15, 2012.

As at November last year, some 35 depots nationwide with in-line blending facilities had been set up by the government together with participating petroleum companies, namely Petronas Dagangan Bhd, Shell Malaysia Trading, Petron (formerly Esso Malaysia Bhd), Boustead Petroleum Marketing and Chevron Malaysia Ltd.

Yung says there is a need to install more in-line blending facilities at another 26 depots for the full implementation of B5 nationwide. There are currently over 1,500 retail stations in the central and southern regions selling the B5 biodiesel, he adds.

On pricing, Yung says further subsidy from the government would be expected to ensure the price of B5 is similar to that of diesel.

Another issue to tackle is the need to finance the construction of in-line blending facilities for petroleum companies.

For full implementation of B5, Yung expects an estimated 300 million ringgit for in-line blending facilities for 35 petroleum depots or terminals, while additional subsidies may be required when the main PME feedstock – crude palm oil (CPO) – price is higher than that of diesel.

At the same time, it is important for on time completion of the blending facilities, as well as to iron out the challenges of logistics and supply in Sabah and Sarawak.

B7, B10 and B20

The government is also considering the introduction of a higher biodiesel blend B7 in the near term and studying the prospects of the B10 and B20 biodiesel programmes.

Yung says the action plans for B7 and B10 would include experts’ consultation, revision of Malaysian Standards (MS), engine warranty issue and full implementation.

For B10, the revision of MS will include the diesel fuel blending up to 10% of PME which is in accordance with the Euro 2M specifications. To this end, MPOB will need to carry out a consumer study, material compatibility test, quality test of B10 and testing of engine components.

In the works right now are the Palm Biodiesel Incentive Scheme, B10 and B20 trial projects on MPOB vehicles, B10 on Peugeot cars and B10 on Alam Flora vehicles.

MPOB is also looking into B10 to be tested on KL City Hall vehicles, the fishery sector, defence and military vehicles, B10 for KTM trains and for burning of olein at Tenaga Nasional Bhd’s power generator plants, says Yung.

On PME supply, the government has issued 60 biodiesel manufacturing licences with total annual capacity of 6.50 million tonnes as at September last year.

Yung points out that 21 biodiesel plants have been commissioned since 2006 with total production capacity of 2.96 million tonnes per year.

In January to September last year, there were only 12 biodiesel plants in operation with total annual capacity of 1.22 million tonnes.

Biodiesel orders

Malaysian Biodiesel Association (MBA) vice president U.R. Unnithan tells StarBizWeek that the government biodiesel mandate on B5 and the strong possibilities of expanding the working perimeters to B7 and other higher biodiesel blends are positive developments for MBA members.

The MBA represents 22 local and foreign biodiesel manufacturers, which have invested over 2.2 billion ringgit in the country since 2008.

For Peninsular Malaysia alone, Unnithan says MBA expects the subsidised sector such as retail stations, fleet cards, skid tanks and fisheries to take up about 250,000 tonnes annually while the non-subsidised sector about 100,000 tonnes annually.

“With Sabah, Sarawak and Labuan being roped in by this July for the B5 programme, we foresee an additional 70,000 tonnes being taken up by the subsidised sector there while for the non-subsidised about 80,000 tonnes,” he adds.

However, Unnithan claims that not all of the MBA members are getting consistent orders from the petroleum companies which participate in the B5 programme. In fact, only eight to 10 members are getting orders from companies such as Petronas, Shell Malaysia, Petron, Boustead Petroleum and Chevron Malaysia.

Unnithan says this could be due to the on-going due diligence process being carried out by the petroleum companies on the respective biodiesel producers prior to their PME being verified as fit for use in the in-line blending facilities at their respective depots/terminals.

“Normally the due diligence process will take about two to three months to complete as the export track record, quality, capacity, ISO system of quality, etc, will need to be carefully vetted,” he explains.

Unnithan says Malaysia exported about 175,000 tonnes of biodiesel last year which is quite a reasonable volume compared to 2012 figures.

However, he says biodiesel export for this year is still vague as the biodiesel discount export parity to diesel fuel may not be so good given the price of CPO is currently seen rising to above 2,600 ringgit per tonne.

In another development, Unnithan concurs that there is a trend among cash rich plantation companies lately to acquire “idle” biodiesel plants in Malaysia.

“I believe the government’s latest commitment in its biodiesel mandates is seen as an attractive investment venture for oil palm planters which already have the main feedstock for the production of PME.

“Therefore, I will not be surprised more such acquisitions will take place this year as plantation companies are finally beginning to realise that biodiesel can provide a safe avenue and act as a good buffer to support the CPO price in case of oversupply,” says Unnithan.

All it needs is a strong government mandate and incentives to support the domestic biodiesel programme, similar to the biofuel mandates undertaken by the US, Europe, Brazil, Argentina and Indonesia, he adds.

*US$1 = 3.24 ringgit

 

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