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March 15, 2016

Volume 7 Issue 4

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Biodiesel Gaining Ground in Malaysia, Indonesia

Biodiesel continues to gain ground in Indonesia and Malaysia. Indonesia raised its requirement for biodiesel content in diesel from 10 percent to 20 percent in January, while a proposal to mandate 10 percent biodiesel is pending in Malaysia.

Malaysia’s Plantation Industries and Commodities Minister Datuk Amar Douglas Uggah Embas said recently a proposal will be submitted to the cabinet to mandate the implementation of B10 this year. B10 is diesel with 10 percent by volume made from plant oils or animal fats and the remaining 90 percent from petroleum. Malaysia currently requires the utilization of B7, or 7 percent biodiesel from palm methyl ester.

Uggah said the Ministry of Plantation Industries and Commodities (MPIC) was consulting with various stakeholders to ensure the acceptance of the policy.

“Some testing needs to be done, and final discussion will be carried out to make sure the implementation will be as smooth as possible,” he said, according to national news agency Bernama.

“It’s feasible [for Malaysia to implement B10] in the sense that Indonesia has implemented B10 [although that rule has not been] accepted by all automakers yet, and I believe discussion is still ongoing on some of the issues that the automakers are concerned about,” Ivy Ng, regional head of plantations and deputy head of Malaysia research at CIMB Investment Bank, told Lube Report Asia.

Automakers in various parts of the world have warned that biodiesel risks damaging engines because, unlike petroleum diesel, biodiesel that migrates to engine oil sumps does not burn off but collects and dilutes the lubricant.

In July, MPIC stated that it had been conducting B10 field trials on 25 vehicles of various makes without signs of negative effects on engines or components. Uggah believes Malaysia is ready to require B10 nationwide and that doing so will support its palm industry. Ng noted that Malaysia has capacity to produce 2.6 million metric tons per year of biodiesel, but that consumption is currently 575,000 t/y.

“We want to be practical,” Uggah said. “For us, we feel that B10 is sufficient at the moment in view of our stock and the cost involved.”

However, with the recent slump in oil prices, biodiesel is a more costly source of energy. “Economically it is more expensive to consume biodiesel, but the rationale is to move into renewable energy [and] to provide a floor price for crude palm oil,” said Ng. 

Photo: Shariff Che'Lah / Fotolia

Players in palm oil industry in Indonesia and Malaysia support efforts to increase the biodiesel content that the countries require in diesel.

“With palm oil’s use in the biofuel space, much of price movement would likely be influenced by how crude oil prices may trend,” OCBC, a major regional bank, advised in its January Commodities Research report. “According to our estimate, palm oil as a biofuel is only viable when crude oil prices print above U.S. $50 per barrel, which suggests that palm biofuel is grossly expensive compared to crude oil at this juncture.”

Meanwhile, Indonesia raised its biodiesel requirement from B15 to B20 in January. Last month, Minister of Energy and Mineral Resources Sudirman Said launched a road show, visiting fuel stations and terminals to educate consumers about B20.

“The consumption of B20 does not [cause] a significant effect. It means that we do not need to modify the machine massively,” Director General of New and Renewable Energy and Energy Conservation Rida Mulyana said. On its website, the Ministry of Energy and Mineral Resources (MEMR) said adoption of B20 gives the country more energy security, helps its balance of trade and reduces carbon dioxide emissions by 9 million to 18 million t/y.

Rida said the main barrier to B20 consumption is the reluctance of consumers, due to concerns that it risks damaging equipment. The roadshow was accompanied by 14 vehicles of various brands including passenger cars and heavy-duty trucks.

State-owned energy company Pertamina started marketing its B20 in January. MEMR has been conducting test drives for its B20 program with various stakeholders like the Association of Indonesian Automotive Industries since 2013.

“The result of the study and the test drives prove that biodiesel utilization could be implemented … without any significant problems,” said Rida.

Like Malaysia, Indonesia’s implementation of B20 “will help to support CPO price by diverting some of the supplies to biodiesel usage,” said Ng.

For this year, “palm oil demand should still be buoyed by government policies which encourages palm oil blend diesel in Malaysia and Indonesia,” OCBC’s report stated.

Indonesia’s mandate that B20 be utilized for motor vehicles was part of the National Energy Policy adopted last year. Ramp up of biodiesel levels has been slower in Malaysia, where implementation of B10 was delayed last year. Ng said the countries have different internal dynamics that are affecting their respective policies. “It boils down to implementation and risks-reward to the country,” she said. “Also in Indonesia, the plantation industry is more active in supporting the implementation of the biodiesel policy.”