Money grows on trees as palm oil beats crude oil
Energetically speaking, oil palm trees yield more usable energy than any other crop. Economically speaking, they are profit machines and GDP-boosters. Socially speaking, they create wealth and jobs for smallholders in developing countries. Environmentally speaking, they are highly problematic. We must focus on all these factors, and balance them out. One factor, however stands out: according to Bloomberg, the best-performing oil investment comes from trees in Malaysia, not the deserts of Saudi Arabia. The crop is seeing 'phenomenal growth', stunning longtime commodity analysts. The reasons are obvious.
Vegetable oils from palm trees normally used in mayonnaise and chocolate bars are being converted to diesel for trucks after oil more than doubled in the past three years and governments encouraged renewable fuels. Palm oil reached a two-year high this month and rose 17 percent in the past year, outperforming the crude oil used for most diesel.
Palm oil in Kuala Lumpur may rally 20 percent in the next six months as factories making so-called biodiesel sprout from Beijing to Seattle, said Michael Coleman, who helps run a $370 million hedge fund in Singapore. At Schroders Plc in London, Christopher Wyke expects a 25 percent gain in the next year. "It's a very attractive investment", said Wyke, who helps manage $85 million of commodity investments.
In Europe, where one of every two new cars sold burns diesel, biodiesel output will double by 2008 to meet European Union targets for alternative-fuels use, the International Energy Agency in Paris forecasts. Fuel from palms, soybeans and rapeseed now supplies less than 1 percent of the world's diesel. The European Union ordered that 5.75 percent of all fuel for trucks and autos must come from renewable sources by 2010. Fuel production from vegetable oils worldwide is expected to triple by 2008, with most of the growth in Europe.
Production Surges
Supplies of diesel fuel from vegetable oils soared 80 percent in 2005, the agency said in July. That outpaced a 14 percent increase in production of ethanol, a fuel derived from corn and sugar that's used as an alternative to gasoline.
Crude oil reached a record $78.40 a barrel last month and has driven up the cost of diesel and gasoline, making biofuels more competitive. Palm oil costs $507.50 a ton in Europe, less than about $680 for a ton of crude oil-derived diesel. Governments are subsidizing biodiesel to diversify energy supply and reduce greenhouse-gas emissions. Vegetable oil-based diesel is made through a chemical process where the glycerin is separated from the fat, or vegetable oil. The process leaves behind two products - methyl esters, the chemical name for biodiesel, and glycerin, a byproduct usually sold for manufacturing in soaps and antifreeze.
Palm oil comes from bunches of plum-sized fruit on the tree, which becomes productive from about 30 months after planting. In Europe, biodiesel costs the equivalent of 72 U.S. cents to produce, according to New Energy Finance Ltd., a London-based advisory company. A liter of diesel fuel sells for 81 cents on the wholesale market.
"As long as crude oil is above $50 a barrel, there is a momentum to biofuels that is unstoppable," said Coleman, of the Cayman Islands-domiciled Merchant Commodity Fund, which has returned 42 percent in the past year. `"It doesn't matter what happens to crude." Oil has traded above $50 since May 2005.
'Critical Mass'
"The industry has got to a critical mass whereby it can weather downturns in the price of crude," said Andrew Owens, chief executive officer of Greenergy International Ltd., a biofuel supplier in London to retailers including Tesco Plc, the U.K.'s largest supermarket company. "That wasn't the case two years ago."
Palm oil isn't just for trucks and cars. A U.K. unit of RWE AG, Europe's third-largest utility, may convert a power plant to burn palm oil after it evaluates the costs and technical issues, spokesman Leon Flexman said.
Biox Group BV, a biofuel producer based in the Netherlands, will have the first of four power plants running near Vlissingen, the country's third biggest seaport, early next year. The power will be sold to a Norwegian aluminum smelter.
Malaysia, Indonesia
"Right now, palm oil is the cheapest and most efficient of vegetable oils," said Group Finance Director Edgare Kerkwijk, who moved to Singapore last year to be closer to the suppliers in Malaysia and Indonesia. "We need 100,000 tons a year. We can switch to other fuels when palm oil becomes too expensive."
Malaysia and Indonesia produce 85 percent of the world's palm oil, the most consumed vegetable oil, and the U.S., Brazil and Argentina grow 80 percent of the soybeans. In Europe, palm oil is gaining market share, though most plant fuel comes from local harvests of rapeseed, sometimes called canola.
Fuel demand is adding to already booming consumption of vegetable oil for food and chemicals. China will import 8.5 million tons of vegetable oils this year, of which 64 percent will be palm oil, Standard Chartered Bank said in a report. Food use of palm oil will rise 4.5 percent this year and industrial use 9 percent, the bank said.
Prices and trading volume have soared on the Kuala Lumpur palm oil futures market. Palm oil rose 16 percent in three months to reach 1,677 ringgit ($456) a ton on Aug. 9. The commodity closed at 1,599 ringgit a ton on Friday.
'Phenomenal' Growth
"The growth has been phenomenal in my experience, in all my 27 years of being in this market," said Kelvin Lee, a broker with Palma Commodities Sdn. Bhd. in Kuala Lumpur:
biodiesel :: biofuels :: sustainability :: rainforest :: palm oil :: crude oil ::Malaysia :: Indonesia ::
The number of outstanding contracts on the exchange, called open interest, has doubled to 65,000 in the past four months. That's 1.6 million tons, or 10 percent of Malaysia's crop.
"We'll see open interest reaching 100,000 by the end of the year," because of the European push on biofuels, Lee said.
The shares of plantation owners in Malaysia and Indonesia have surged. PT Astra Agro Lestari, the largest plantation company in Indonesia, has jumped 79 percent this year. IOI Corp., Malaysia's biggest oil palm plantation company, has gained 33 percent.
Carlyle Likes Biodiesel
Fuel from vegetable oils is a better investment than fuel from sugar or corn, said Charlie Thomas, who helps oversee $754 million in so-called green investments at Commerzbank AG's Jupiter fund unit in London.
"Biodiesel is behind the curve, so there are substantial returns to be made in this area," Thomas said. He expects annual returns of 60 percent in biodiesel investments over the next two years, compared with 30 percent at most in ethanol.
U.S. use of vegetable oils for fuel is increasing too. Nationwide, 65 plants have a total capacity to produce 395 million gallons of diesel fuel from soybean oil and other supplies, according to the National Biodiesel Board in Jefferson City, Missouri. An additional 714 million gallons of capacity is expected to be completed in the next 18 months.
Carlyle Group, which oversees more than $40 billion of private-equity funds, and Riverstone Holdings LLC, the manager of $6.5 billion, have announced plans for a controlling stake in Green Earth Fuels LLC, which will build two plants in the U.S., each capable of producing 43 million gallons a year.
Singer Willie Nelson set up Biodiesel Venture GP with Peter Bell of Distribution Drive and three partners in December 2004. Distribution Drive is a unit of Earth Biofuels Inc., whose shares have gained nine-fold in the past year. The Standard & Poor's 500 stock index rose 6.8 percent in that time, and the S&P Integrated Oil & Gas Index gained 18 percent.
Deforestation
The growing use of palm oil as fuel may threaten virgin rainforest in Southeast Asia and quicken deforestation, raising the likelihood of legal challenges from environmentalists, say some investors.
"The biggest challenge to palm oil is sustainability," said Domenic Carratu, managing director of commodities at Rabobank Groep in London. "Biodiesel aims to be environmentally friendly, but this would not be the case if the feedstock were only grown at the expense of virgin rainforest."
Vegetable oils will meet some of the world's energy demand and may help curb growth in consumption of crude oil, say energy analysts. It won't solve a lack of refining capacity.
"There's a place for biodiesel," said John Baize, president of John C. Baize and Associates, an advisory company in Falls Church, Virginia. "But it's not the solution because we don't have the feedstock" to meet demand.
Article continues
Vegetable oils from palm trees normally used in mayonnaise and chocolate bars are being converted to diesel for trucks after oil more than doubled in the past three years and governments encouraged renewable fuels. Palm oil reached a two-year high this month and rose 17 percent in the past year, outperforming the crude oil used for most diesel.
Palm oil in Kuala Lumpur may rally 20 percent in the next six months as factories making so-called biodiesel sprout from Beijing to Seattle, said Michael Coleman, who helps run a $370 million hedge fund in Singapore. At Schroders Plc in London, Christopher Wyke expects a 25 percent gain in the next year. "It's a very attractive investment", said Wyke, who helps manage $85 million of commodity investments.
In Europe, where one of every two new cars sold burns diesel, biodiesel output will double by 2008 to meet European Union targets for alternative-fuels use, the International Energy Agency in Paris forecasts. Fuel from palms, soybeans and rapeseed now supplies less than 1 percent of the world's diesel. The European Union ordered that 5.75 percent of all fuel for trucks and autos must come from renewable sources by 2010. Fuel production from vegetable oils worldwide is expected to triple by 2008, with most of the growth in Europe.
Production Surges
Supplies of diesel fuel from vegetable oils soared 80 percent in 2005, the agency said in July. That outpaced a 14 percent increase in production of ethanol, a fuel derived from corn and sugar that's used as an alternative to gasoline.
Crude oil reached a record $78.40 a barrel last month and has driven up the cost of diesel and gasoline, making biofuels more competitive. Palm oil costs $507.50 a ton in Europe, less than about $680 for a ton of crude oil-derived diesel. Governments are subsidizing biodiesel to diversify energy supply and reduce greenhouse-gas emissions. Vegetable oil-based diesel is made through a chemical process where the glycerin is separated from the fat, or vegetable oil. The process leaves behind two products - methyl esters, the chemical name for biodiesel, and glycerin, a byproduct usually sold for manufacturing in soaps and antifreeze.
Palm oil comes from bunches of plum-sized fruit on the tree, which becomes productive from about 30 months after planting. In Europe, biodiesel costs the equivalent of 72 U.S. cents to produce, according to New Energy Finance Ltd., a London-based advisory company. A liter of diesel fuel sells for 81 cents on the wholesale market.
"As long as crude oil is above $50 a barrel, there is a momentum to biofuels that is unstoppable," said Coleman, of the Cayman Islands-domiciled Merchant Commodity Fund, which has returned 42 percent in the past year. `"It doesn't matter what happens to crude." Oil has traded above $50 since May 2005.
'Critical Mass'
"The industry has got to a critical mass whereby it can weather downturns in the price of crude," said Andrew Owens, chief executive officer of Greenergy International Ltd., a biofuel supplier in London to retailers including Tesco Plc, the U.K.'s largest supermarket company. "That wasn't the case two years ago."
Palm oil isn't just for trucks and cars. A U.K. unit of RWE AG, Europe's third-largest utility, may convert a power plant to burn palm oil after it evaluates the costs and technical issues, spokesman Leon Flexman said.
Biox Group BV, a biofuel producer based in the Netherlands, will have the first of four power plants running near Vlissingen, the country's third biggest seaport, early next year. The power will be sold to a Norwegian aluminum smelter.
Malaysia, Indonesia
"Right now, palm oil is the cheapest and most efficient of vegetable oils," said Group Finance Director Edgare Kerkwijk, who moved to Singapore last year to be closer to the suppliers in Malaysia and Indonesia. "We need 100,000 tons a year. We can switch to other fuels when palm oil becomes too expensive."
Malaysia and Indonesia produce 85 percent of the world's palm oil, the most consumed vegetable oil, and the U.S., Brazil and Argentina grow 80 percent of the soybeans. In Europe, palm oil is gaining market share, though most plant fuel comes from local harvests of rapeseed, sometimes called canola.
Fuel demand is adding to already booming consumption of vegetable oil for food and chemicals. China will import 8.5 million tons of vegetable oils this year, of which 64 percent will be palm oil, Standard Chartered Bank said in a report. Food use of palm oil will rise 4.5 percent this year and industrial use 9 percent, the bank said.
Prices and trading volume have soared on the Kuala Lumpur palm oil futures market. Palm oil rose 16 percent in three months to reach 1,677 ringgit ($456) a ton on Aug. 9. The commodity closed at 1,599 ringgit a ton on Friday.
'Phenomenal' Growth
"The growth has been phenomenal in my experience, in all my 27 years of being in this market," said Kelvin Lee, a broker with Palma Commodities Sdn. Bhd. in Kuala Lumpur:
biodiesel :: biofuels :: sustainability :: rainforest :: palm oil :: crude oil ::Malaysia :: Indonesia ::
The number of outstanding contracts on the exchange, called open interest, has doubled to 65,000 in the past four months. That's 1.6 million tons, or 10 percent of Malaysia's crop.
"We'll see open interest reaching 100,000 by the end of the year," because of the European push on biofuels, Lee said.
The shares of plantation owners in Malaysia and Indonesia have surged. PT Astra Agro Lestari, the largest plantation company in Indonesia, has jumped 79 percent this year. IOI Corp., Malaysia's biggest oil palm plantation company, has gained 33 percent.
Carlyle Likes Biodiesel
Fuel from vegetable oils is a better investment than fuel from sugar or corn, said Charlie Thomas, who helps oversee $754 million in so-called green investments at Commerzbank AG's Jupiter fund unit in London.
"Biodiesel is behind the curve, so there are substantial returns to be made in this area," Thomas said. He expects annual returns of 60 percent in biodiesel investments over the next two years, compared with 30 percent at most in ethanol.
U.S. use of vegetable oils for fuel is increasing too. Nationwide, 65 plants have a total capacity to produce 395 million gallons of diesel fuel from soybean oil and other supplies, according to the National Biodiesel Board in Jefferson City, Missouri. An additional 714 million gallons of capacity is expected to be completed in the next 18 months.
Carlyle Group, which oversees more than $40 billion of private-equity funds, and Riverstone Holdings LLC, the manager of $6.5 billion, have announced plans for a controlling stake in Green Earth Fuels LLC, which will build two plants in the U.S., each capable of producing 43 million gallons a year.
Singer Willie Nelson set up Biodiesel Venture GP with Peter Bell of Distribution Drive and three partners in December 2004. Distribution Drive is a unit of Earth Biofuels Inc., whose shares have gained nine-fold in the past year. The Standard & Poor's 500 stock index rose 6.8 percent in that time, and the S&P Integrated Oil & Gas Index gained 18 percent.
Deforestation
The growing use of palm oil as fuel may threaten virgin rainforest in Southeast Asia and quicken deforestation, raising the likelihood of legal challenges from environmentalists, say some investors.
"The biggest challenge to palm oil is sustainability," said Domenic Carratu, managing director of commodities at Rabobank Groep in London. "Biodiesel aims to be environmentally friendly, but this would not be the case if the feedstock were only grown at the expense of virgin rainforest."
Vegetable oils will meet some of the world's energy demand and may help curb growth in consumption of crude oil, say energy analysts. It won't solve a lack of refining capacity.
"There's a place for biodiesel," said John Baize, president of John C. Baize and Associates, an advisory company in Falls Church, Virginia. "But it's not the solution because we don't have the feedstock" to meet demand.
Article continues
Tuesday, August 29, 2006
Chavez in Malaysia: palm oil, biofuels, geopolitics and ideology
Chavez's first stop was at Golden Jomalina Food Industries Sdn Bhd, Golden Hope's biodesel plant in Teluk Panglima Garang. While heading to the Golden Hope Academy in Pulau Carey later, Chavez and his delegation had the chance to view the palm plantations. Chavez asked many questions about costs, yields, social sustainability, technology and biodiesel. Venezuela, one of the world's largest oil producers, shares the Equator line with Malaysia, making its land also suitable for growing oil palm.
Briefing the president, Golden Hope's group chief executive Datuk Sabri Ahmad revealed some interesting facts about what such a tech and knowledge transfer would entail:
- High yielding clones: Golden Hope could bring in its in-house developed ultra-high yielding GH 500 series planting material to Venezuela. The planting material is capable of yielding 40 tonnes fresh fruit bunch per tonne with a 25 percent extraction rate, which comes down to a yield of around 10 tons of oil per hectare. It is sold at RM1.35 per seed locally and RM1.80 for overseas markets. About 30 percent of Golden Hope's total plantation had been planted with the GH 500 series.
- Smallholder involvement: a presence in Venezuela would consist of establishing "nucleas estates" where the promotion of palm oil would be done via smallholders. "Land is sensitive issue anywhere in the world. We should work with the government how to promote palm oil through their own smallholders," he added.
- Good management: Sabri told Chavez during a briefing that good management is crucial, and illustrated this by saying that Malaysia will double its palm oil production either by 2010 or 2015. This could be achieved via good planting materials, harvest culture and biotechnology applications which Malaysia was currently pursuing, he said. Sabri also told the president that six million tonnes of the total production would be set aside for biodiesel production and the remainder for food-related purposes.
- The cost to run a 10,000-hectare palm oil plantation, yielding 400,000 tons of fruit bunches and 100,000 tons of oil, would require an investment of about US$40 million for three years.
- Since Golden Hope's plantations are state-owned, the biofuels knowledge and tech transfers all happen within a formal bilateral framework
This alliance is quite interesting because of Chavez's (controversial) policies at home. As is well known, the left-leaning president has been implementing a grand series of socio-economic policies aimed at bringing social justice to the poor through fighting poverty, solving land issues for the rural population, bringing education and health-care to the poor, redistributing wealth, and managing Venezuela's oil wealth in such a way that it benefits all citizens.It will be interesting to see how Venezuela's nascent biofuels industry and the alliance with Malaysia will fit into these policies. As we have said elsewhere, oil palm can be a GDP-booster and bring wealth and jobs to the rural poor, provided the right policies are put in place. We feel that if there is one country where these major benefits of palm cultivation can be achieved, it is Venezuela.
While at it, Hugo Chavez urged Malaysia to bypass Western powers as it expands its global business links, and presented Caracas as an ideal destination to develop its palm oil and petroleum technology. Some interesting quotes:
- "The solution for our countries is not the North. The solution is between us ... We have to have our own model, not the model the countries of the North want to impose upon us,'' said Chavez, while using a laser pointer on a world map to indicate where the United States and Europe was.
- The left-leaning Chavez, a frequent critic of U.S. President George W. Bush, then implored Malaysian companies to invest in Venezuela as they were "brothers.''
- "Palm oil is very important to us. If Malaysia doesn't have the land to plant anymore, Venezuela has it,'' Chavez added.
- He also dangled a Venezuelan oil carrot before the gathering of about 150 businessmen and government officials. "Don't worry Malaysia. As a brother, we can help you explore and find oil. If you don't have oil (anymore) ... it will be provided for by Venezuela,'' he added. Venezuela, he said, had even larger proven reserves than Saudi Arabia - the reason America was out to oust him.
- "Malaysia is a country that shares many of Venezuela's positions. I think a new world geopolitical dynamic heading toward post-imperialism is in march. Imperialism must end, and it will end''.
- "My friend Fidel Castro says ... Washington is looking for you,'' added Chavez, without elaborating.
We will definitely keep tracking this development as it is another step forward towards creating an intensive form of South-South cooperation in the bioenergy sector. Meanwhile, green energy has become the battlefield of mild ideological struggles, that much is clear.More information:
- A good overview of Chavez's social policies and his 'Bolivarian Revolution', seen from the context of the recent World Social Forum that took place in Caracas, Venezuela in January 2006, can be found in the article: Wsf Caracas : Shroud for Venezuela's social movements.
- The Star: Venezuela's president urges Malaysia to bypass West - August 29, 2006
- The Star: Chavez: Malaysia backs Venezuela's UN bid - August 29, 2006.
- Bernama (Malaysian National News Agency): Golden Hope To Assist Venezuela In Palm Oil Activities - August 29, 2006
- Business Times Malaysia: Venezuela seeks palm oil cooperation with Malaysia - August 29, 2006
- Business Times Malaysia: GHope to triple oil palm landbank in Kalimantan - Aug 25, 2006
- Official homepage of the Malaysian Palm Oil Association
[Entry ends here]More in-depth info can be found on the Wikipedia page about the "Bolivarian Missions" concerning education, health, housing, food security, rural economics and land reform.
biodiesel :: biomass :: biofuels :: energy :: sustainability :: palm oil :: Malaysia ::Venezuela :: Chavez ::
Article continues
posted by Biopact team at 5:03 PM 0 comments links to this post