March 2, 2009

Biofuel Prospects Low As Crude Oil Prices Plummet

When the price of oil skyrocketed, the prospect of developing biofuel as an alternative raised the excitement of ambitious members of Southeast Asia to jump onboard.

Since then, the price of crude oil has seen a sharp drop due to the lack of global demand. In July 2008, the price of crude oil peaked at $147 and now lies below $37.

Malaysia and Indonesia produce most of the world's palm oil, which is a mixture of diesel and five percent processed palm oil.

But when the price of oil dropped, so did the price of palm oil "“ from $1,245 per ton last year to $405 per ton in December.

Now Malaysia, which had hopes in 2006 of becoming the global leader in biodiesel production, has announced plans to review 91 biofuel plant licenses due to the fact that many are no longer operational.

"You see, we have been hit by the double whammy of low palm oil prices and low crude oil prices," deputy plantations and commodities minister Kohilan Pillay told AFP.

"The situation now is very low palm oil prices that have caused uncertainty in supply, and at the same time low crude oil prices that have reduced biofuel demand, and that is bad news," he said.

Since its start in 2006, Malaysia was a supplier to regions of Europe and as far as Colombia, India and Turkey, according to AFP. But since then it has been forced to rely on domestic demand, primarily from the government.

"With such low prices in palm and crude oil, local producers have effectively shut down most of their biofuel production as the only demand going forward at the moment is coming from the domestic market," said Khoo Hock Aun, managing director of regional biotech company Cosmo Biofuels.

"We are now trying to use up our biofuels stocks while trying to stimulate biofuel usage through a law passed last year that has made its use compulsory for all government diesel vehicles since February this year," Pillay said.

The Indonesian government recently proposed a 70.6 million dollar plan to support biofuel development, but low prices have it worried.

"What matters now is the uncompetitive biofuel price, which has affected production," Evita Legowo, the energy and mineral resources ministry's top official on oil and gas, told AFP.

"We've tried to raise subsidies for biofuel development. It's difficult," she said of plans to maintain a stable supply to the domestic market.

"We aim for a five percent biofuel use in our energy mix in 2025," Legowo added.


Image Caption: Oil palm plantation. Courtesy Marco Schmidt - Wikipedia