Biodiesel to boost Malaysian palm oil prices - the dilemma of a janus-faced crop
Recently Malaysia's government stopped issueing new biodiesel production permits because demand for those permits was overwhelming. Today, a Malaysian top industry official added that Malaysian palm oil prices are likely to range between 1,600 Malaysian ringgit (RM) and RM1,700 a tonne in 2007, up from RM1,450 now, driven by growing demand for biofuels. The output of palm oil in Malaysia, the world's largest producer, is likely to rise to around 15.5 million tonnes this year from 14.9 million tonnes a year ago, said Sabri Ahmad, chairman of trade body the Malaysian Palm Oil Association.
This is obviously good news for the thousands of small-holder families who cultivate the crop, and for Malaysia's "palm GDP". But the picture is not that simple. As many other energy crops, palm oil has become a janus-faced crop, playing on two markets at the same time - the food and the fuel market. Demand for palm oil from the food industry is only increasing by 1.5% per year, whereas the demand from the biofuels industry is rising at a much faster pace. The biofuels fever results in plantation holders expanding their hectarage and planting new trees. The risk of over-production is real.
So what if petroleum prices were to decline? First generation biodiesel made from palm oil is profitable as long as oil costs more than US$55 per barrel. But suppose the price of oil goes below this threshold, then the amount of palm oil released on the market could never be taken in by the food industry. The result would be a palm oil crash, with devastating consequences for many people, as 50% of palm oil is produced by small farmers, and 15% of Malaysia's entire workforce depends on the industry.
That's why, despite all the upbeat news about palm oil as the biofuels feedstock par excellence, it remains a risky crop. Nobody can predict the price of oil. If it stays high, thousands of farming families in the developing world will rapidly see their living standards increase. If it suddenly crashes, the social consequences would be devastating for palm oil farmers.
Let's leave the word to Sabri Ahmad, though:
"The production up to second half has not been so good, but in the second half we are seeing good crop recovery." He said Malaysia's biodiesel production of around 200,000 to 250,000 tonnes in 2006 would be friendly for prices in the second half of the year. "Moving into 2007, there will be a big surge in the new capacity for biodiesel," Sabri told Reuters in an interview. "We are looking at 1.5 million tonnes of biodiesel in 2007." He said 10 biodiesel plants were under construction and 10 more had ordered machinery to set up the facilities. "In about 12 months' time 20 should be in production."
As countries from Europe to Asia seek ways to cut dependence on imported oil, curb greenhouse gas emissions and boost local agriculture, biofuel plants are sprouting at a dizzying pace.
Biofuels are plant-based fuels, either ethanol made from sugar or grains, which can be added to gasoline and biodiesel derived from oilseeds or palm oil and added to diesel.
Hunger for palm oil-based biofuel is so fierce it has prompted Malaysia to stop licensing new producers while the industry works out how to divide up the raw material between the food and energy sectors.
Malaysia's edible oil industry says the government has already approved 32 manufacturing licences for units estimated to produce around three million tonnes of biodiesel a year, from a total of 87 applications received.
The official, who also heads the country's palm oil giant Gloden Hope Plantations Bhd, said the company was expected to post strong earnings in the year to June 2007, fuelled by higher palm oil prices.
"If we look at 2006/07, the future is bright," Sabri said, adding that every increase of 100 ringgit in the price of crude palm oil would bring the company an additional profit of RM70 million.
Golden Hope this month started the country's first commercial biodiesel plant having an annual capacity of around 35,000 tonnes. "It has just started in July and shipments will start in August."
The company is setting up three more biodiesel plants, two in Malaysia and one in Holland, which are all expected to start in 2008. Sabri said the combined capacity of the company's biodiesel plants is 390,000 tonnes. - Reuters
Article continues
This is obviously good news for the thousands of small-holder families who cultivate the crop, and for Malaysia's "palm GDP". But the picture is not that simple. As many other energy crops, palm oil has become a janus-faced crop, playing on two markets at the same time - the food and the fuel market. Demand for palm oil from the food industry is only increasing by 1.5% per year, whereas the demand from the biofuels industry is rising at a much faster pace. The biofuels fever results in plantation holders expanding their hectarage and planting new trees. The risk of over-production is real.
So what if petroleum prices were to decline? First generation biodiesel made from palm oil is profitable as long as oil costs more than US$55 per barrel. But suppose the price of oil goes below this threshold, then the amount of palm oil released on the market could never be taken in by the food industry. The result would be a palm oil crash, with devastating consequences for many people, as 50% of palm oil is produced by small farmers, and 15% of Malaysia's entire workforce depends on the industry.
That's why, despite all the upbeat news about palm oil as the biofuels feedstock par excellence, it remains a risky crop. Nobody can predict the price of oil. If it stays high, thousands of farming families in the developing world will rapidly see their living standards increase. If it suddenly crashes, the social consequences would be devastating for palm oil farmers.
Let's leave the word to Sabri Ahmad, though:
"The production up to second half has not been so good, but in the second half we are seeing good crop recovery." He said Malaysia's biodiesel production of around 200,000 to 250,000 tonnes in 2006 would be friendly for prices in the second half of the year. "Moving into 2007, there will be a big surge in the new capacity for biodiesel," Sabri told Reuters in an interview. "We are looking at 1.5 million tonnes of biodiesel in 2007." He said 10 biodiesel plants were under construction and 10 more had ordered machinery to set up the facilities. "In about 12 months' time 20 should be in production."
As countries from Europe to Asia seek ways to cut dependence on imported oil, curb greenhouse gas emissions and boost local agriculture, biofuel plants are sprouting at a dizzying pace.
Biofuels are plant-based fuels, either ethanol made from sugar or grains, which can be added to gasoline and biodiesel derived from oilseeds or palm oil and added to diesel.
Hunger for palm oil-based biofuel is so fierce it has prompted Malaysia to stop licensing new producers while the industry works out how to divide up the raw material between the food and energy sectors.
Malaysia's edible oil industry says the government has already approved 32 manufacturing licences for units estimated to produce around three million tonnes of biodiesel a year, from a total of 87 applications received.
The official, who also heads the country's palm oil giant Gloden Hope Plantations Bhd, said the company was expected to post strong earnings in the year to June 2007, fuelled by higher palm oil prices.
"If we look at 2006/07, the future is bright," Sabri said, adding that every increase of 100 ringgit in the price of crude palm oil would bring the company an additional profit of RM70 million.
Golden Hope this month started the country's first commercial biodiesel plant having an annual capacity of around 35,000 tonnes. "It has just started in July and shipments will start in August."
The company is setting up three more biodiesel plants, two in Malaysia and one in Holland, which are all expected to start in 2008. Sabri said the combined capacity of the company's biodiesel plants is 390,000 tonnes. - Reuters
Article continues
Wednesday, July 12, 2006
G8 to announce biofuels plan for the developing world
This year's G8 Summit, focusing on energy among other issues, has invited key leaders from some of the most important developing countries as observers, including China's President Hu Jintau, Indian PM Manmohan Singh, Brazilian President Lula da Silva, and Thabo Mkebi, South African president. The heads of the UN's energy agencies (IEA and IAEA) will attend the summit as well.
The idea comes from President Lula and President Chirac, who recently signed a bioenergy cooperation agreement which focuses on helping the poor South to become a biofuels production zone (earlier post). Chancellor Merkel whose country hosted a Brazil-Germany Bioenergy Summit last week, favors the idea as well.
And PM Tony Blair, whose G8 Summit last year focused on Africa's development but which failed to live up to its promises according to critics, is now joining the push for this new deal.
In principle, we are cautious about anything that is announced at G8 Summits, especially when they deal with development issues. Because in the past, those promises and plans often have proved to be nothing more than marketing stunts (see the Gleneagles Summit about Africa). But the fact that such a plan is announced at least indicates that the option of helping the South become a bioenergy production zone, is being taken seriously by "world leaders". Moreover, the presence at the Summit of the five observers from the developing world makes the idea more credible.
Details will no doubt be coming in when the G8 Summit starts, and we will be closely monitoring these developments. Check back soon for more news from the G8 Summit.
- Discuss global problems and the biofuels plan at the Civil G8 website.
[Entry ends here.]Article continues
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