05 Sep 2007 | No comment | investment | Comments feed

Palm biodiesel investment still viable?

The Star Online published a great article about the viability of palm biodiesel investments. Go over there to read the full story. Alternatively, you can scan the main points in this post.

• Governments acknowledge the threats of global warming. This leads to the need to secure renewable energy source.
• Bioethanol and biodiesel are the two most common biofuels used worldwide
• Surge in biodiesel demand caused by rising crude oil prices and Kyoto Protocol to reduce greenhouse gas emissions.
• early last year, biodiesel suppliers has net margins of at least RM500 per tonne.
• Malaysian government issued over 90 biodiesel licenses ( total 5 million tonnes per annum capacity), but currently only 6 biodiesel plants are operating with capacities of 350,000 tonnes per annum.
• But over the year, palm oil prices skyrocketed by around RM1,000 per tonne, which tighten the margin.
• The viability of palm biodiesel investment depends on 3 key factors: 1. Sustained high fossil fuel prices, 2. Willingness of developed countries to continue tax subsidy programmes, and 3. Cheap raw materials.
• From a biodiesel supplier’s perspective, the
  risk-return profile of biodiesel investment is unfavourable and full of
  uncertainties as the company has to contend with the vagaries in palm
  oil and fossil oil prices, and potential policy changes on tax
  subsidies by importing countries, as well as challenges posed by the
  non-governmental organisation on environmental issues.
• Based on our estimates, palm oil prices need to fall to RM2,000 per tonne to make palm biodiesel investments viable again. This is not likely to happen because of the anticipated tightness in global vegetable oil supply.

• in longer term, Indonesia is aggressively expanding oil palm plantation, which will solve the short supply issue.

Another factor to consider is the condemnation by some conservationist from the West who see rainforest being given over to palms in Malaysia and Indonesia. Wonder why is it so hazy these days?

Technorati Tags: palm oil, biodiesel investment

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