Malaysia B10 implementation to boost biodiesel consumption

SINGAPORE (ICIS)–Malaysia’s consumption of biodiesel will get a boost as its government’s mandatory nationwide implementation of the B10 biodiesel blending programme is due to kick in this weekend, market sources said.

At a palm plantation in Malaysia. (Source: Environmental Images/Universal Images Group/REX/Shutterstock)

A B10 blending mandate means diesel fuel sold at the pumps must contain 10% biodiesel and 90% regular diesel. It is higher than the current mandate for a 7% biodiesel blend for petrol, which has been in place in Malaysia since 2014.

In the week ended 16 November, the government informed industry players it would start a phased introduction of the B10 biodiesel programme on 1 December, with full nationwide mandatory requirement in the transportation industry to kick in from 1 February 2019.

“If Malaysia achieves B10, that will increase biodiesel production – depending on diesel consumption next year I would imagine it will be an additional 150,000 tonnes or so pushing total biodiesel production for transport fuel above half a million tonnes,” said Julian Mcgill, industry consultant and head of southeast Asia at LMC International in an emailed reply to ICIS queries.

The Malaysian government is even more upbeat.

In a media statement published on 26 November and following a media conference, Malaysia’s minister of primary industries Teresa Kok said the B10 programme would result in annual biodiesel consumption increasing more than twofold, from 350,000 tonnes currently to 761,000 tonnes per year.

The government will also implement a mandatory B7 blending requirement for use in industrial vehicles and machinery from 1 July 2019, the sources added.

In Malaysia, the main feedstock for biodiesel is crude palm oil (CPO).

“The increased domestic consumption of CPO will thus help to reduce the current high stock and help to increase CPO prices due to higher demand, while subsequently will benefit smallholders through increased price of fresh fruit bunches,” according to the ministry statement.

The B10 programme would also help the country save Malaysian ringgit (M$) 1.64bn by reducing the amount of diesel it imports annually, it said.

The plan to increase the biodiesel blend rate has been talked about over the last three years or so but has been repeatedly delayed, partly due to the high prices of CPO then.

In terms of supply, Malaysian biodiesel producers are not expected to face any significant issue increasing output to meet the increased demand of B10 as the industry has already been faced with excess capacity for some time now.

“That won’t require any additional capacity as there is already significant overcapacity in the industry,” Mcgill said.

There are around 17 biodiesel refineries in the country with a total estimated installed capacity of around 2.1m tonnes/year. It is unclear how much of that is currently being utilized but there is a general expectation that a B10 programme would push utilisation rates higher.

But some market players were cautious about how successful the plan would be once it is fully in play.

“Execution [of the B10 mandate] is not easy,” said one market source. “Who will be monitoring [compliance]?”

Due to the inconsistent and competitive nature of palm methyl ester (PME) exports from southeast Asia, biodiesel producers rely heavily on domestic mandates to support the industry.

Elsewhere in the region, Indonesia introduced a mandatory nationwide B20 blending programme in September, while Thailand is also aiming to roll out its B10 programme by early 2019.

Malaysia and Indonesia are the two biggest palm oil producers in the world.

Export demand for southeast Asian PME over the last few months have slowed as the winter months in some of its key export markets such as Europe and China approached.

Focus article by Izham Ahmad