Palm oil biodiesel: A source of renewable fuel

The demand of increasing price in fossil fuel has prompted the global oil industry to look at the alternative sources of fuel from renewable energy source which is biodiesel. Biodiesel is considered as better option because of its environmental friendly characteristics while giving almost the same functional properties like fossil fuels.

This paper will focus on the biodiesel produced in Malaysia. Since Malaysia is one of the leading palm oil producers in the world with palm oil was chosen as the raw stock for the palm oil biodiesel production. There are many advantages and disadvantages in palm oil biodiesel industry in Malaysia from the economy, social and environmental aspect. The aim of this paper is to analyze the past, current and future of palm oil biodiesel industry in Malaysia.

This paper will include the technology aspect used in the palm oil biodiesel production and characteristics of pure palm oil biodiesel to meet the international market standard. Malaysia faces tough competition from other biodiesel producers like Indonesia and Brazil. The scope of this study covers the worldwide biodiesel development in brief in continuation with the challenges faced by Malaysia in becoming the top biodiesel exporter in the world with the advantages & disadvantage of using palm oil as the feedstock. .

Keywords: Alternative, renewable energy, palm oil biodiesel, technology, exporter

List of Abbreviations

ASTM American Society for Testing and Materials

CPO Crude Palm Oil

DBKL Dewan Bandaraya Kuala Lumpur

DNA Deoxyribonucleic acid

EU European Union

IFC International Finance Corporation

ISO International Standards Organization

MPOB Malaysian Palm Oil Board

MPOC Malaysian Palm Oil Council

MYR Malaysia Ringgits

NGO Non Government Organization

OSHA Occupational Safety and Health Administration

POIC Palm Oil Industrial Cluster

POME Palm Oil Methyl Ester

PRIME Rebuilding and Improving Malaysia’s Export of Palm Oil

RSPO Roundtable on Sustainable Palm Oil

UK United Kingdom

UNFCC United Natons Framework Convention on Climate Change

US United States

USA United States of America

List of Symbols

CO2 Carbon dioxide

ml milliliter

NOx Nitrogen Oxide

INTRODUCTION

All energy used by humans originates from one of the following sources: radiant energy emitted by the sun (solar energy); geothermal energy from the interior of the earth; tidal energy originating from the gravitational pull of the moon; and nuclear energy.

By far the largest source is solar energy, thousands of times larger than all the others and inexhaustible for as long the sun shines (approximately 4.5 billion years). Present energy system, especially based on the use of fossil fuels (not renewable), cannot handle the problem of guaranteeing energy security and that increasing the share of renewable energies is one of the best ways to addressing them.

Increasingly, renewable energy in the form of biodiesel is getting attention from the world countries due to the environment friendly characteristics, while still be able to be used in diesel engine without any major modifications. Biodiesel also has its advantage of abundance of raw stock which confirms continuous raw material supply.

Biodiesel is an environmentally-friendly, renewable energy source that could also produce cost savings for taxpayers and private businesses which is produced from farmers that grow various fuel crops. Given high gasoline prices and the negative environmental effects of burning fossil fuels, there is intense research on the alternative energy sources, including biofuel.

Brazil and the US have been leading the way with ethanol production derived from sugar cane and corn. Recently, there has been increased interest in another biofuel (biodiesel) particularly in Europe (the leading producer). Biodiesel, a non-petroleum-based diesel fuel, can be produced from the transesterification of vegetable oils or animal fats. In the US, most biodiesel is made from rapeseed (canola) or soybeans.

Other producers have different biodiesel feedstock such as palm oil and jatropha that have great potential as renewable fuels. Malaysia is a leading palm oil producer, therefore Malaysia in the past have focused on palm oil as raw stock used for biodiesel production. This paper takes an in depth look at the palm oil used for the production of biodiesel.

2.1 SCOPE OF THE PAPER

Biodiesel production is facing several issues and challenges like tough global competition, feedstock issue, food versus fuel war, sustainability, and limited land for use & deforestation.

The scope of this paper is to collect and analyze the data of palm oil biodiesel in Malaysia to determine their performance and their position in the world biodiesel industry, the advantage & disadvantage of using palm oil as the main feedstock for production, political & economic barriers which needs to be overcome, competition between the major producers & technological aspects. This study covers the biodiesel technology that is currently being used in Malaysia to produce pure biodiesel that meets international criteria, suggestions for improvements in implementing better method and technologies to be used in Indonesia and Malaysia. Overall, this paper analyzes the past, current and future trend of the palm oil biodiesel industry in Malaysia among world biodiesel industry.

2.2 BACKGROUND

2.2.1 Raw Stock for Biodiesel

There are several sources used as feedstock for biodiesel production such as rapeseed and soybean oil. However, compared with other vegetable oil, palm oil has far better advantage and potential as feedstock for biodiesel production. Palm oil is a perennial crop, unlike soybean and rapeseed. Perennial crop means the production of oil is continuous and uninterrupted, though annual production has its seasonal peak and down cycle [6]. In terms of oil production per hectare of plantation, palm oil is the most produced oil seed. The yield of palm oil from palm is a factor of ten higher than oil yields from soybeans, sunflower or rapeseeds [17]. Palm oil production has higher production yield compared to soybean, sunflower seed and rapeseed as shown in Figure 1. Palm oil imports from Malaysia into EU are equivalent to having 4.9 million hectares of soybeans or 1.7 million hectares of rapeseed [17].

2.2.2 Palm Oil as Raw Stock

Palm oil is the most prospective biodiesel feedstock compared to other oilseeds. As discussed earlier, palm oil has higher production yield, low fertilizer, water and pesticide needed for the plantation. Palm oil production takes less sunlight in terms of energy balance to produce a unit of oil as it produces more oil per hectare. However, in terms of the basis of palm oil yield per man in a day, it is not as competitive as other oilseeds because of the difficulty of labor plantation management and harvesting of the fruit. Comparatively in Indonesia, it is less an issue because the extensive labor market readily available in Indonesia compared to Malaysia.

Crude Palm Oil and Refined Palm Oil are the most traded vegetable oil in the world today [14]. Palm oils have been established as a dietary nutrient for nearly five thousand years. Palm oils are harvested from the mesocarp of the Elaeis Guineensis fruit, through a refining process that includes; cooking, mashing and pressing. In this process, the seeds are separated and after cracking and removing the shell, the kernel can be processed to yield palm kernel oil and palm kernel cake. Crude palm oil also referred as CPO comes from the mesocarp which is the fleshy portion of the fruit wall. Mesocarp is processed into CPO through refining and kernel processing in steps shown in Figure 2. CPO depends on the variety of the palm tree and the age of the palm. The CPO to bunch ratio is approximately 25 to 28 percentages.

2.2.3 Palm Oil Biodiesel

The palm oil harvested and produced from palm trees is referred to as CPO. The crude palm oil is the transported to palm oil refinery to be refined. The factory output is the Refined Palm Oil which is suitable to be used as biodiesel fuel or blended with petroleum diesel. Palm oil converted into methyl ester which then can be used as fuel is called the bio diesel. Blending certain percentage of petroleum diesel with palm diesel is called Envo Diesel. Methyl ester from palm oil has low engine emissions, high oxidation stability apart from the high nitrogen oxide emission which is higher [2].

Refined palm oil; after crude palm oil is refined is referred as Refined Palm Oil and can be used for number of applications including as a substitute for petroleum diesel which is known as Palm Oil Biodiesel. Palm oil is processed into CPO, then into refined oil before being processed into palm oil biodiesel as shown in Figure 3.

Palm Oil biodiesel can be blended with petroleum diesel. This type of diesel is known as Envo Diesel. This paper will discuss in detail the Palm Oil Biodiesel.

3. Analysis

3.1 Perspective on Indonesian versus Malaysian Palm Oil

A significant change took place in palm oil industry in the year 2006 when Indonesia surpassed Malaysia in production of the palm oil as shown in Figure 4. Malaysia is currently world’s second largest producer of palm oil [6]. Looking at the Indonesia’s palm oil production rate compared to Malaysia in Table 1, there are high chances of Indonesia surpassing Malaysia and continue to be leading producer for the foreseeable future.

In Malaysia, palm oil exports amount to 16.5 million tonnes, representing an increase of near 11 percent in year 2007. The total palm oil planted area in the country increased by 4.3 percent to 4.48 million hectares in 2008 [16]. The expansion in planted area in the country occurred mainly in Sabah and Sarawak with a combined growth of 7 percent compared to 2 percent in Peninsular Malaysia. Sabah remained as the largest palm oil planted state, accounting for 1.33 million hectares of 30 percent of the total planted area in the country.

3.2 Palm Oil Biodiesel vs. Other Feedstock

In the year 2008, the government of Malaysia was looking at the possibility of using jatropha oil the raw material for the production of biodiesel in the future. However, this was still at the research and development stage and it has not reached the commercialization stage [2].

The government looked at other potential feedstock for biodiesel production due to the competition on the use of the palm oil either as food sources as fuel. Around the world biodiesel producers are now focusing on using non food based raw materials for the biofuel production. Currently, all the biodiesel projects in Malaysia are based on the use of palm oil as the raw material.

During the surface of the reports indicating that EU might ban biofuel derived from crops grown on some sensitive ecosystems, Malaysian palm oil industry feared the worst. Malaysia; as the second largest palm oil producer in the world after Indonesia is the potentially largest palm oil biodiesel producer. Countries like Brazil and the US; biodiesel producer from ethanol are eyeing the EU market giving heavy competition to palm oil biodiesel producers. Biodiesel market are having large market competition after the 27 nation bloc suggested for biofuel to be used at least 10 percentage in transportation by year 2020 [17].

Jatropha is a promising second generation biodiesel feedstock. The government publicity on Jatropha as next potential biodiesel feedstock at the Sabah Development Corridor launch in the year 2008 gave competition to existing palm oil biodiesel. However, the use of Jatropha as biodiesel feedstock requires more research to develop its properties to acceptable level for mass commercial usage [2]. And currently, the research is still ongoing.

3.3 Palm Oil and Malaysia

The palm oil industry is an important pillar of Malaysia economy. The palm oil sector have contributed significantly towards providing a continuous flow of foreign investments and earnings through the export of palm oil and its value added products to the global market. In the year 2008, palm oil industry contributed MYR 65.2 billion or equivalent USD 18.1 billion in the export earnings which proves to be a significant contribution from the palm oil industry to the economy [16]. The contribution of Malaysian palm oil to the world’s oils and fats market was very significant in the year 2008, where the palm oil production of 17.73 million tonnes was 11.1 percent of the global production of 160 million tonnes of oils and fats. The sustainable production of palm oil in Malaysia is overseen by the Malaysian Palm Oil Association. Malaysia palm oil production is estimated 18.3 million tonnes in 2009 compared to 17.73 million tonnes in year 2008 [17].

The global demand for palm oil has increased significantly over the last two decades, first for the use in food industry, consumer products and the most recent application for biodiesel. The growing market in India and China; which is the top two important nations, increases the demand for edible vegetable oil [14]. Another major factor in growth of palm oil production is its role in sustainable energy campaign around the world [14]. European countries have promoted the use of palm oil by investing hundreds of millions dollars into the national subsidies towards biodiesel. European countries are major importer of palm oil; subsidization of biodiesels by the European governments has accelerated the demand for the palm oil in Europe and as a consequence, this has increased the conversion of large areas of rainforest in South East Asia. Palm oil plantations are often built after clearing large area of forest land and draining peat swamps.

As of the year 2009, the Malaysia palm oil had 26 percent share in the export of oils and fats. The palm oil also comprised 46 percent share of global palm oil and is being consumed in more than 150 countries worldwide [16]. All these were achieved by using 4.5 million hectares of land which is far more less than 1.9 percent of total area in the world utilized for oilseeds. The total area in the world used for oilseeds is 233 million hectares. Malaysia is currently focusing on increasing the productivity by increasing the oil yields from the current average of four tonnes per hectare to eight tonnes per hectare by using genome sequencing. Genome sequencing is a laboratory process that determines the complete DNA sequence of an organism [16]. Using this technique, scientific process and procedures can be done to the palm oil plant to produce more outputs. Using this technique, Malaysia is hoping to continue as the major supplier to global palm oil needs without the necessity to open new areas for plantation.

The EU need a company to be legally certified to produce palm oil that can be used as an alternative fuel in a sustainable manner before the commodity can be shipped and used in the 27 member bloc countries. Restrictive policies implemented by EU created differences in the marketing of vegetables and grains ‘oil that caused the decrease of the palm oil prices compared to soybean and rapeseed oil. Indonesia and Malaysia, the world’s two biggest producers of palm oil teamed up in November 2008 to reduce the output of the edible oil after he prices slumped. The two countries agreed to replant old plantation, cutting yearly production of approximately 800000 tonnes.

In the year of 2009, during the global economic slowdown, Malaysia palm oil industry was facing issue of oversupply. To reduce the oversupply of palm oil and at the same time to support the palm oil prices, Malaysia launched the Palm Oil Replanting Incentive Scheme worth of MYR 200 million to reduce the nation’s high palm oil stock to ensure the stability of palm oil prices. The objective of this scheme is to chop 200000 hectare of palm oil trees aged 25 years and above, which will reduce the palm oil supply by 700000 tonnes per year in the short term. The government had approved 63000 hectare under this scheme which was closed in June 2009 [16].

Strategies like replanting palm oil tree schemes and impose of the mandate for the palm oil biodiesel use reduces the CPO inventory and helped to sustain its price at MYR 1400 per tonne in the year 2009 [14]. It is important to reduce the oversupply and maintain the CPO price above RM 1400 tonne as the producers will not be profitable in the trade below this price. In March 2008, the CPO prices soared up till MYR 4180 but the price plummeted to low MYR 1403 per tonne in November 2008 [16]. The inventory for palm oil rose to significantly high amount of 2.3 million in November 2008 but reduced to slightly more than 1.8 million tonnes in January 2009 as shown in the Figure 5. Palm oil is the major oil produced in the world; this indirectly helps to lower price of palm oil biodiesel but not significantly.

The CPO price range between MYR 1400 and MYR 1900 per tonne in year 2009 was sufficient to sustain the export earnings. However, the earnings from palm oil exports in the year 2009 dropped compared to MYR 65.8 billion in the year 2008 because of the lower prices as well as lower exports.

Late in the year 2008, MPOC launched PRIME program. This program is one of the MPOC’s palm oil export promotion strategies to encourage exporters to explore new markets and introduce new products in order to develop new areas of business [22].

3.4 Biodiesel Production Technology

Before analyzing the infrastructure and technology required in converting Palm oil into biodiesel, the production process must be understood first. There are three general ways to convert vegetable oils and fats into biodiesel; base catalyzed transesterification of the oil, direct acid catalyzed transesterification of the oil or conversion of the oil to its fatty acid then to biodiesel [12]. Biodiesel producers opt for the option 1 which is the base catalyzed reaction because it is a low temperature and pressure. This method also yields high conversion ration of almost 98 percentages with minimal side effects and reaction time. Another advantage of this method is that it is a direct conversion to biodiesel with no intermediate compounds required and no exotic materials of construction are needed [18]. The chemical reaction for base catalyzed palm oil biodiesel production is shown in the chemical equation shown in Figure 6.

Chemical Equation above shows transformation of palm oil into biodiesel which also gives another output; glycerin. The conclusion from the above chemical equation is that when one hundred pounds of fat or palm oil reacted with 10 pounds of short chain alcohol in the presence of a catalyst that has already been mixed with methanol, 10 pounds of glycerin and 100 pounds of biodiesel produced as output. The short alcohol chain is represented by ROH which means methanol or in some cases, ethanol that is used to quicken the conversion process. The catalysts usually are mixed with the methanol. R’, R” and R”’ represents the fatty acid chains of the palmitic oil or fat [12].

The catalyst mixed with alcohol. The catalyst usually dissolved in the alcohol using a standard mixing machine.

The mix is then put into a closed reaction vessel and the palm oil or fat is added. A closed system is done in the process to prevent the loss of alcohol to the atmosphere.

The mix is kept at the temperature above the boiling point of alcohol at about 70 degree Celsius so that the reaction takes place. The reaction time varies from 1 to 8 hours and excess alcohol usually used to ensure complete conversion of palm oil into methyl esters.

Once the reaction have completed, there will be two outputs which are glycerin and biodiesel.

Glycerin and biodiesel output will not be in their purest form. Each has significant amount of excess methanol that was used earlier in the reaction. This is where the neutralization step takes place. The glycerin has more density compared to biodiesel and the two outputs can be separated using gravity by drawing off the bottom of the settling vessel.

After the glycerin and biodiesel have been separated, the excess alcohol in each of them will be removed and the mix will be neutralized. The alcohol will be recovered in methanol recovery step using distillation equipment and it will be re-used.

After separation from the glycerin, the biodiesel is purified by washing gently with warm water to remove the residual catalyst or soaps, dried and sent to storage. This step may be skipped when the output of the production process is a clear amber yellow liquid with viscosity similar to petrodiesel. Colorless biodiesel is obtained in an additional step of distillation to remove small amount of color bodies.

For usage as an automotive fuel, the end product of biodiesel must be analyzed using international standard analytical equipment to ensure it meets specifications. For global biodiesel marketing, it is important for a biodiesel manufacturer to register the biodiesel product with the United Stated Environmental Protection Agency under 40 CFR Part 79 [18].

3.5 Pure palm oil biodiesel characteristics

Biodiesel is a biodegradable and non toxic fuel; free from sulfur. It is produced by transesterification reaction of vegetable oil with low molecular weight alcohol, such as ethanol or methanol. In the industry, biodiesel is produced using homogeneous reaction [10].

Important characteristic of oil to be used as fuel is the solubility of the oil in petroleum. Another way is to emulsify the oil or fat with the ethanol. Most of the vegetable oils are a mixture of different esters such as oleic acid (main portion from olive oil), ricinoeleic (main portion from castor oil) , linoleic acid )main portion from linseed oil), palmitic acid (main portion from the palm oil kernel) and many other oils. Palm crude oil is refined to make a useable automotive fuel that is useable in unmodified diesel engines.

As discussed in earlier topics, biodiesel is a clean burning alternative to petroleum based fuel made from renewable energy source which is biodegradable and non-toxic. In recent times, biodiesel issues have drawn lot of interest as increase of depletion of petroleum source in near future is predicted. Biodiesel market is booming in Europe as fuel or fuel additive for most of the diesel internal combustion engines and turbine in Europe as fuel or fuel additive for most diesel internal combustion engines and turbine engines, and it is also available in the US and Asia, as well as in Canada, where it is in its early stages of development.

Biodiesel is derived mainly from the byproducts of soybean and other oils, such virgin and recycled vegetable oils derived from crops such as canola, corn and sunflowers and animal fats or spent cooking greases, although it may be obtained from ethanol. Soy-based fuel is the most common used biodiesel in its pure form or mixed with a petroleum-based diesel as an additive to improve the otherwise low lubricity of pure ultra low sulfur petrodiesel fuel.

Research was done in Bangkok where palm biodiesel was used for a motorcycle, the emission and engine performance was tested. Research found there was no significant difference in emissions between the biodegradable and the fossil fuel. Comparison of the engine performance and fuel consumption for both lubricants showed no significant difference either [8]. However, since palm biodiesel is a renewable source, it is a lower carbon source and that it offers superior tribological properties (wear scar, viscosity index, etc.) [8]. This is a promising alternative to fossil fuels.

This fuel is also important from the economic point of view, considered as one of the possible candidates to replace petrodiesel as the world’s primary transport energy source thanks to its renewable condition and the fact that it can be transported and sold using today’s infrastructure instead of old fossil fuels ducts. In fact, it is available to consumers in a growing number of fuel stations, but still makes up a small percentage of fuel sold.

Biodiesel has been classified as a non-flammable liquid by the OSHA, although as with most fuels, it may burn if heated to a high enough temperature, but significantly reduced in toxic and other emissions when burned as a fuel. [20]

4. DISCUSSION

4.1. Past and Current Market trend of Palm oil Biodiesel

The production of palm oil biodiesel in Malaysia is overwhelming. There are initial researches conducted for the production of biodiesel from waste materials including palm oil. However, this is still in early stage of research and development and so far; the researches shows that the production of biodiesel from waste materials is still very high and not viable for commercial use.

Till the year 2008, Malaysia had about 91 percent of palm oil biodiesel projects approved with a total production capacity of 10.2 million tonnes a year [16]. Total of 12 biodiesel plants have been fully completed and are in operation with production capacity of one million tonnes a year [16]. Another two biodiesel plants have been also completed but the operations have not started. These two plants have production capacity of 160000 tonnes a year. According to MPOB, the existing biodiesel plants produces approximately 196363 tonnes for the period of August 2006 till March 2008 while 154791 tonnes were valued at MYR 411 million for the export to US, Europe, Singapore and Australia.

Recently, the production cost at biodiesel plants have increased with the rising price of crude palm oil. The average cost of CPO in the year 2006 was MYR 1502.50 per tonne. This price has increased significantly within two years; in the year 2007, the price was MYR 2516.50 per tonne while in the early of 2008, the price was MYR 3433.50 per tonne. This has caused the cost to exceed the profit margin.

In March 2008, production cost for palm oil biodiesel was MYR 4330 per tonne; whereas the market price for the palm oil biodiesel was MYR 3632 per tonne. The CPO prices are increasing rapidly as shown in Figure 8.

The rising cost of biodiesel have prompted several palm oil biodiesel producers to temporarily stop producing biodiesel as the high producton cost has left an negative impat on their profit margin and the development and growth of the biodiesel industry.

Till to date, the Malaysian government has given more than 90 biodiesel licences to various organization and companies which has production capacity of 10 million tonnes per year. However, it is reported in the Reuters’ survey that on seven biodiesel plants are currently running and most of them are operating well below the capacity. The survey also showed that there were 14 projects with their combined biodiesel production capacity of more than two million tonnes were shelved or delayed.

The main reason for the delay is the high CPO prices, which encourages the palm oil industry to produce palm oil for more profitable business or industries instead of the biodiesel which has higher production cost compared to profit. The high cost of investment to setup the biodiesel facilities does not encourage the palm oil industry. It is said that for the priceof biodiesel at MYR 4000 per tonne, even conglomerates in Malaysia such as Sime Darby is not keen to plunge into the biodiesel industry currently [16]. Currently, the company is focusing on the palm oil downstream activities such as bulking and refinery process to be exported [16].

A report by Frost and Sullivan regarding biodiesel showed that the demand for biodiesel has increased in the Asia region over the past few years. For Malaysia, the demand for palm oil biodiesel would increase from current 110000 tonnes to 563000 tonnes in the year 2013. Asia region has a booming market for biodiesel as there are several strong drivers of growth; increased supply and increased demand. Many countries in the Asia region developed domestic markets and at the same time,producers like Malaysia and Indonesia targeted export markets. In several countries in the Asia region, the government introduced mandates for biofuels to develop the domestic market.

On March 22, 2006, Malaysia Prime Minister Datuk Seri Abdullah Ahmad Badawi launched biodiesel called Envo Diesel. This type of biodiesel blends 5 percent of proccessed palm oil with 95 percent petrodiesel. In EU, there are B5 type of biodiesel that blends 5 percent methyl ester with 95 percent petrodesel. The manufacturers for diesel engine prefer the use of palm oil methyl ester blends as diesel engines are designed to handle 5 percent methyl ester meeting the EN14214 biodiesel standard [16].

In the year 2009, the Malaysian government reassured that there are no plans to remove the current biodiesel mandate of five percent despite high CPO cost. The government encourages the use of biodiesel in the country, although it is not have been mandatory use [5]. Malaysian government are encouraging the use of palm oil biodiesel as they are obliging to Kyoto Protocol. The use of palm oil biodiesel have not been made mandatory due to the fact that at the present,the raw material price is very high .

Kyoto Protocol is a protocol of the UNFCC , an international environmental organization. This organization is trying to achieve the stabilisation of the greenhouse gas concentrations in the atmosphere at a level that would prevent the degradation caused by human that would disturb the ecosystem and the climate system. In October 2008, Malaysia put into practice the mandate of five percent biodiesel will be used in vehicles starting with the government vehicles in the year 2009 and planning to implement extensively to industrial and transportation sector in the year 2010.

By early 2010, Malaysia is expected to consume 500000 tonnes of palm oil which is 3 percent of national CPO production. This will happen when Malaysia fully implements the blended biodiesel programme where B5 diesel will be made available througout the country through 36 depots [5]. The use of blended biodiesel has started with government agencies and will be extended to industrial and transportation industry in the future. The Malaysian government is working with nation’s biggest petroleum company; Petronas to enable some retail station to supply B5 to the agencies. I February 2009, Malaysia started the biodiesel programme with Kuala Lumpur City Council and the Armed Forces in the country [5].

The biodiesel producers and the petroleum companies are currently discussing the important aspects and critical issues to the implementation such as logistics and finance. As of the year 2009, the main challenges facing the biodiesel industry in Malaysia are the exports of subsidised US biodiesel to EU that is distrubing the prices and trade, the EU energy directive and overall global economic slowdown.

The global economic crisis have caused a sharp drop in the CPO prices, together with global financial crisis had led the develoment of the biodiesel industry to slow down or to be exact halt new investments. The Malaysian biodiesel industry has the production capacity of 1.67 million and feedstock available to satisfy the demand in the domestic and world market.

Malaysia and Indonesia has expressed concern over a plan by the EU countries to impose taxes on US biodiesel which potentially might slowdown the outlook for alternative fuels made from vegetable oils and grains. Almost half of Europe’s biodiesel is produced and consumed in Germany. The EU need a company to be legally certified to produce palm oil that can be used as an alternative fuel in a sustainable manner before the commodity can be shipped and used in the 27 member bloc countries. In the year 2009, palm oil had 50 percent less value compared to year 2008 due to global recession reduced the consumption despite large output and inventory while falling CPO prices caused decreasing demand for biodesels.

4.1.1 Biodiesel Projects in Malaysia

In year 2005, Malaysian government introduced biodiesel for transportation use as part of sustainable energy development through diversification of energy sources [4]. Biodiesel is receiving lack of interest from transportation and automobile industry due to unclear policy and directive from the government. Instable palm oil price also hinders the development of biodiesel industry. However, increasing fossil fuel price has revived the interest on biodiesel [4]. Thus, Malaysia government has set their focus to top the biodiesel market by becoming leading palm oil biodiesel producer.

A step that Malaysian government has taken to lift its status in the global palm oil industry and indirectly the palm oil biodiesel industry is by establishing POIC in the year 2005 [16] which is located at eastern Sabah; a place called Lahad Datu. This is the first dedicated industrial cluster for palm oil in Malaysia. It is a dream project that is expected to uplift Malaysia’s global status in palm oil industry. This cluster is located strategically at the palm oil belt of Sabah; a state in Malaysia. The location is close to the major palm oil plantations in neighboring Indonesia’s Kalimantan Provinces. It is a potential international focal point for vegetable oil based industries. The initial 1150 acres of the first phase of the project of the 5000 acre cluster have received good responses from biodiesel investors. Foreign and Malaysian investors are planning biodiesel plants with combined capacity of 1 million tonnes per year. Some of these plants have started production in the year 2007.

The national biofuel policy in Malaysia is based on palm oil. The fluctuating palm oil prices have slowed the implementation of palm biodiesel. During 2006 and 2007, 92 biodiesel projects in Malaysia were approved but only 14 functional biodiesel plants have been built, which eight being operational in 2008 [7] . Other plants have been canceled or have suspended operation due to high palm oil prices; this includes four plants which have shut down [7]. The failure to fully implement Envo Diesel program further dampens development of the biodiesel industry. This reflects the overestimation of projects’ output [7]. The project focus should be on fundamental technology and practicalities, rather than on unrealistic assumptions [7]. From an economic viewpoint, the decision to concentrate on one feedstock shows a lack of foresight [7].

Malaysia and other palm oil biodiesel producers in Southeast Asia are focused on export rather than utilization in their own countries and less concern about environment. All these countries are paying high subsidies for the petroleum transport fuel which is imported. In order to commercialize their own biodiesel, they are required to pay higher subsidies as the biodiesel prices are comparatively higher than the petroleum fuel. Malaysian government have stopped the Envo Diesel project (the combination of 5 % methyl ester with 95 % diesel for mass commercial usage) as it has failed to market it at 2008 as planned in “The National Biofuel Policy” launched in year 2006 [2].

4.1.2 Palm Oil Biodiesel and International Standard

In order to achieve a successful biodiesel production operation in terms of producing compatible automotive fuel in unmodified diesel engines, it is important to have complete reaction of the mixture, removal of glycerin, removal of catalyst, removal of alcohol and absolute absence of free fatty acids. Before being used as an automotive fuel, the biodiesel must comply with the international standard, ASTM D 6751 [5]. This standard sets the parameters that the pure biodiesel must meet before being used commercially in an automotive.

The importance of meeting the global standard of biodiesel is strengthened by the fact that US; one of major biodiesel importers and user has formed National Biodiesel Accreditation Commission to have an accreditation program for companies selling biodiesel and biodiesel blends. It is a form of approval for biodiesel marketers which provides the users; the public with an assurances and confidence that biodiesel purchased from a certified biodiesel marketer whom provides a pure biodiesel that meets the ASTM specifications. This accreditation program is being carried out step by step and when the program have been fully implemented, biodiesel marketer all over the world will be recommended to become certified and all biodiesel consumers make their purchases from certified marketers.

4.1.3 Biodiesel Development worldwide

The increase of palm oil prices has dampened the fledging biodiesel industry in Malaysia. The government has put on hold the proposed mandatory blend of five percent of palm olein in diesel. However, foreign companies are still investing in this sector considering its long term prospects. The domestic consumption of palm oil biodiesel in Malaysia is considerably low, so most of all the production will be exported to main importers; EU and the US. Current situation for palm oil as the main raw stock for biodiesel production is not looking so promising with escalating palm oil prices. Alternative raw material; Jatropha is likely to take over the place of palm oil in the case of continuous palm oil price increase.

The rocketing of CPO prices and subsidized retail petroleum diesel in the domestic Malaysia market, some local and foreign investors have temporarily stopped with their biodiesel plant constructions plans [5]. A couple of Malaysian plants are also suspending production to avoid incurring losses. Also, the Malaysian government also postponed the proposed mandatory blend of 5 percent of palm olein in domestic market which was proposed in National Biofuel Policy in 2005.

Foreign countries like EU and US are still welcoming the petroleum products and other biofuel products, but recent concerns expressed by EU over negative impacts on palm oil cultivation on environment and land use may lead to banning of palm oil biodiesel [5]. This raised fears among palm oil biodiesel producers that the product will be banned from entering into EU market which will cause great loss to the producers considering the fact that EU is one of the major biodiesel importers.

However, the debates over the positive and negative impacts of the palm oil biodiesel industries are ongoing everywhere. Biodiesels are often linked with the increase of food prices. In the year 2008, Dr Patrick Dixon, a leading business consultant also known as futurist said that the World Bank has reported about 15 percentage of food price hike is related to energy and fertilizer price increase while about 75 percent is linked to demand from biodiesel industry .

In the year 2009, the World Bank has agreed to suspend the IFC funding of the palm oil sector pending the development of safeguards to ensure that the lending does not cause social or environmental harm, according to a letter by World Bank President Robert Zoellick to NGOs. An internal audit conducted by environmental group have found the IFC funding of the Wilmar Group, a plantation developer, violated the procedures causing concerns on environmental and social standards. The group has condemned World Bank support for the industrial palm oil which has drawn large scale deforestation in Indonesia, which causes greenhouse gas emissions, endangering rare and charismatic species of wildlife, including the orang utan, and displacing forest communities. In a letter to Marcus Colchester, Director of the Peoples Program, Zoellick said the IFC has suspended all new investments in palm oil projects and ordered a review of existing projects until a new strategy is set to ensure the lending is used for good cause effects [19].

Germany has reduced their subsidies on biofuel. This results in many fuel stations in Germany and the palm industries in Malaysia suspended operation in the year 2008. But, in January 2009, palm diesel production has accelerated in Malaysia along with Indonesia as the palm oil price gone down 75% with respect to January 2008 [2]. Indonesian government launched their national policy on biofuel in the year 2006 by setting a goal of replacing 10% transport fuel by year 2010. National oil company PERTAMINA started selling B5 biodiesel blends commercially but suffered serious financial losses due to high feedstock price of biofuel. To compensate losses the blend ration is lowered to 1% now. This phenomena have plunged the Indonesian government to subside the target to 2.5% diesel excision by biodiesel and 3% gasoline by ethanol in 2010 [2].

Compared to other countries, Thailand did quite well in achieving their target to replace 10% diesel by biodiesel by year 2012. About 800 gas stations were selling B5 blends by year 2007. Indonesia and Thailand makes a stable progress in biodiesel industry as they have multiple feedstocks like sugarcane, cassava as feedstock for biodiesel. In the other hand, Malaysia is focused on palm diesel, causing it to be dependent on petroleum and palm oil price. Also, palm diesel is facing heavy competition from food industry for palm oil to be used as vegetable [2].

4.1.4 Global Competition for palm oil production

Malaysia is one of the leading producers of palm oil biodiesel with extensive reserve of raw palm. On analyzing the track records of biodiesel production by Malaysia one can comment that Malaysia is having a competitive edge over the other palm oil based bio diesel producers. But Malaysia is not the only producers of biodiesel countries like Indonesia, Columbia , Benin , Kenya and Ghana has began to explore the resources available in their country in order to sustain the production of palm oil based biodiesel production .

Indonesian producers have increased the production of palm oil to supply to the global demand spurred by biodiesel, as supported by the government to become one of the top producers of palm oil. Statistics indicate that the production increased by approximately 400 percentage between the year 1994 to year 2004. In the year 2007, it has been a golden landmark to Indonesia as they outplayed all the other producers of palm oil including Malaysia and became the top producer of palm oil.

Colombia has grown to be a largest palm oil producer for US with 35 percentage of its product is exported as biofuel. In year 2006, it was reported that cultivation of oil palm was expanding with a few million hectares of area. In addition to Columbia areas which are suitable for cultivation of palm to grow with plantations, the government has identified the opportunity for making use of the wet lands of western Africa and south Benin. The Benin government has identified the economic benefit of producing palm oil based biodiesel in spite of the fact that it will be competing against the domestic food production.

Ghana has a wide variety of palm based species which are marketed only to the local and neighboring counties but because of the low financial position and economic backwardness, Ghana is not able to effectively become a top producer in the export of palm oil. Based on statistics, it is very clear that the immediate competitor to Malaysia in palm oil production is going to be Indonesia as it also has extensive amount of palm cultivation area. The other producers are still exploring all the possible options to increase the production of palm oil and there is a strong possibility that the other producers can develop the production drastically. Hence, it is important for Malaysian government to sustain the palm oil based biodiesel development.

4.2 Challenges and Steps taken by Malaysian Government to sustain palm oil biodiesel development

Malaysia being a top producer of palm oil based biodiesel has a significant advantage in biodiesel production. In order to sustain and remain in the same position among the global competition there are several hindrance factors which need to be addressed at the right timing. The major factors are:

4.2.1 Cost Standard of Palm Oil Biodiesel

Biodiesel production was earlier based on petroleum and later it has been identified as an opportunity to produce the same from palm oil. Hence; in order to promote the palm oil based biodiesel, it is a necessity to keep the cost of biodiesel from palm oil to be as low as possible on comparison with the petroleum based fuel. On comparing the Commodity market prices of fossil fuels and vegetable oils it is very evident that the commodity price is not in favor of later one. Since the base oil is the main ingredient which is required for the production of biodiesel, it is not going to be easy to produce palm oil based biodiesel in a market with expensive pricing to replace the petroleum based fuel.

Major cost of production in biodiesel market involves approximately about 80 percent of raw material cost and the remaining 20 percent for the other manufacturing and production costs. Due to this reason of oil prices it is the profitability in the palm oil based fuel market is estimated to be very low.

As of 24 Mar 2009, palm-based biodiesel was sold at about RM2.80 per liter compared with about RM1.70/litre for diesel. In order to ensure that Malaysia sustain the alternative source of palm based biodiesel it is important that the government attracts the oil companies and other private companies to produce and market the palm based biodiesel. For this Malaysian government has already implemented a solution in 2009, in order to stabilize the local palm oil industry by allocating MPOB Palm oil stabilization fund to support the biodiesel prices. Even though the CPO prices hits the profit in this sector to a greater extent Malaysia and Indonesia has made a joint collaboration of allocating 40 percentage of the total palm oil production in order to combine with the existing petroleum diesel in order to further promote the palm oil biodiesel.

4.2.2 Export barrier

In first half of year 2009 alone, Malaysia exports almost 150000 tonnes of palm oil biodiesel to other countries as shown in the Figure 9. Malaysia exports palm oil biodiesel to several countries like EU, US, Singapore, Taiwan and other countries as shown in the Figure 10. EU is considered to be one of the largest consumers of biodiesel as shown in the Table 2 [21]. EU has increasing demand for biodiesel; therefore it is important for Malaysia to capture the EU market to become top palm oil biodiesel exporter.

A renewable energy directive has been targeted by Europe foreseeing the achievement in the year 2020. The targets which are foreseen are given below.

20 percentage of energy consumed across the EU should be from renewable energy source.

15 percentage of energy across UK should be from renewable source.

10 percentage of energy used in transport should be from renewable source.

Minimum reduction in greenhouse gas emission from road transport should be reduced to 6 percent.

As per the new directive set by EU , it is expected to maintain a certain set of standards for the minimization of carbon emission which is expected to go out of the limit which is prescribed because of the highly biodiversified land of Malaysia . In addition to this, indirect land use change because of planting the crops should also be taken in to account which can increase the emission which can cross the required threshold. There is a degree of risk thus there is a possibility of Malaysian based palm oil biodiesel companied can get disqualified for the Exports. Even though Malaysia is not directly involved in exporting biodiesel to Europe but still they have to position themselves in future in international market standard in order to promote and liberate the free trading of palm oil biodiesel subject to ISO.

4.3 Advantages of Palm oil Biodiesel for Malaysia

Palm oil biodiesel have brought lot of advantages to Malaysia from social, technology, environmental and economy aspect. Palm oil biodiesel is apt as the replacement for petrodiesel as it does not require any engine modifications and reduces greenhouse has emission [6]. The combustion of palm based biodiesel does not increase the level of CO2 in the atmosphere. CO2 is one such green house gas which is responsible for increasing the global warming [14]. Hence, comparatively the world will have more benefits in the using the palm oil biodiesel instead of fossil fuels as engine fuel. Also engine emissions are significantly low in POME expect NOx emission [14]. Palm oil has more oxidation stability than Jatropha and other biodiesel feedstock. The palm biodiesel would increase NOx emission, however this can be reduced by 80%- 90% with installation of catalytic converters in biodiesel powered vehicles [9].

Palm oil biodiesel also has the advantage of being a sustainable renewable energy, as the main raw stock; palm oil is a renewable resource on comparison with fossil fuels which will deplete in near future as fossil fuels are non renewable resource. Palm oil can be sustained by re planting the palm seeds to restore the palm plantation.

Another advantage that palm oil biodiesel industry has brought upon Malaysia is the technology development. Palm oil biodiesel industry in Malaysia has achieved a ground breaking technological innovation by developing winter grade biodiesel which is suitable for operations in countries where the pour point is low. The production cost for palm oil biodiesel is lower compared to fossil fuels giving the cost advantage for the palm oil biodiesel.

Palm oil biofuel are biodegradable meaning they are safe to handle. Any spill over will be easier and cheaper to clean up which is not the case with fossil fuels. In the economy aspect, palm biodiesel provides major revenue in the form of exports contributing to the growth domestic product of Malaysia. The infrastructure for palm oil biodiesel is already setup in order to produce about 60000 tonnes of normal palm oil and 30000 tonnes of winter grade palm oil. Research and development centers are established in the form of MPOB and MPOC which is frequently reviewing the new product developments [22].

This is an important and crucial solution for environmental problems as it is more suitable for the current world energy scenario. Palm oil biodiesel brings energy security, environmental stability and also rural development for the country by reducing the dependency on petrodiesel, shifting to agricultural industry [2]. In social aspect, palm biodiesel brings advantages as the industry provides job opportunity and social developments to rural area residents as they become important part of the palm biodiesel industry. The development in the industry indirectly helps to increase the living standard of the villagers in Malaysia whom mostly are palm tree estate workers.

4.4 Disadvantages of Palm Oil Biodiesel for Malaysia

As discussed earlier topic, palm biodiesel brings many advantages to Malaysia. However, not all is good in the palm biodiesel industry in Malaysia. There are few disadvantages in the palm biodiesel industry such as the negative effect on the environment. One main negative impact of palm oil biodiesel industry is deforestation. Deforestation of forest land for the use of palm oil plantation is causing negative impact to the environmental balance for Malaysia in the ecosystem [11]. Surge in palm biodiesel industry have made the effort for conservation of the rainforests in Southeast Asia bleak. Also, the plantation of palm oil has begun to spread nationwide due to development of palm oil biodiesel. This is causing endangerment to exotic animals like orang utan extinction as the animal species has begun to reduce with the increased land usage for palm plantation [11]. It is estimated that palm oil plantations support around 15 % of the species found in the undisturbed forest and usually far fewer species than disturbed forests or alternative crops [1]. There is an environmental imbalance exist when the residual carbon stocks are disturbed during a palm plantation is planted. A long carbon payback time, might be centuries; is initiated by replacing carbon rich land like forests and peat lands with biodiesel plantation. Even though plantations are planted in grasslands, it will take years for the carbon released through clearance to be compensated by the carbon saving from the palm oil biodiesel [1]. Also, reduction of CO2 emissions by palm biodiesel may well be varied with actual implementation [15]. So, the claim of environmentally friendly palm biodiesel is not valid if palm biodiesel is not used with correct practice [15].

Almost 40% percent of palm oil produced in Malaysia was reserved for biodiesel. This was causing competition between food industry and fuel industry for palm oil as their raw stock. Palm oil reservation for biodiesel cause heavy increase in the demand for vegetable oil for the remaining sixty percent. There is a possibility that the vegetable oil prices can beat the palm oil prices in the near future. There is a huge challenge Malaysia facing in keeping sufficient palm oil as raw stock for biodiesel and edible oil simultaneously to ensure food and energy security. High and fluctuating CPO prices causes’ low profit or negative profit margins for palm oil biodiesel producers as the production cost is relatively high. In recent development, EU policy on the environmental pollution control measures may disqualify many of the Malaysian biodiesel producing companies. In the other hand, there are tough competition exist in the industry as Malaysia is not the only major producer, where Indonesia is equally producing biodiesel with increased land usage. In the year 2006, Indonesia topped the production thus moving Malaysia to the second largest producer. This may happen again if Malaysia biodiesel producers fail to secure the business from EU importers.

5. CONCLUSION AND SUGGESTIONS

5.1 Future of Biodiesel

Biodiesel fuel is increasingly being recognized as a rising tide that lifts many ships. Since the developed countries started realizing the depletion of fossil fuels which is estimated to dry up in 50 years time, the race for sustainable biodiesel production has begun. The advantages which are given by biodiesel apart from sustainable production; they reduce the carbon emissions to a greater extent, as it adds green jobs to the economy, reduces dependence on foreign oil and increases feed supplies, while lowering their costs. Biodiesel has substantial carbon benefits and the best ratio of energy input to energy output of any liquid fuel. Biodiesel is already one of the most environmentally friendly fuels available, and as the industries are growing even further, biodiesel continually increasing those environmental benefits. Biodiesel also has a 78 percent life cycle CO2 reduction, according to the U.S. Departments of Agriculture and Energy. The use of biodiesel also substantially reduces unburned hydrocarbons, carbon monoxide, and particulate matter.

Crude palm oil as a feedstock for the future of biodiesel industry is subject to disadvantages for Malaysia as the CPO prices are grown to be too high thus escalating the other oil prices in the commodity market, low profit margin since 90% of the production cost has to be allocated for the palm oil feedstock and the priority given by the Malaysian government to devote 40% of the total palm oil production for biodiesel production. The disadvantages with current palm oil biodiesel has made the Malaysian government to reassess the feedstock for production of biodiesel with a registered blend, research has already begun for the alternative feedstock. The safe replacement and cheaper feedstock after palm oil is called “Jatropha Curcus Linn”, which has already been used by the Japanese at the time of World War II in order to serve as ignition fuel for the aircrafts which were operating at that point of time.

The main reason for using Jatropha seeds instead of other linseed oil, groundnut oil and soy oil is because of the environmental property which does not affect the nature. Jatropha is a non edible oil and easily grown in non cropped marginal lands and wastelands is highly regarded as the second generation biodiesel [3]. Already developed countries use jatropha to mix with the petrol in order to arrive at a stan

Order Now