Crude oil prices plummeted in Southeast Asia's ambitious biofuels development plan

Foreign media January 20 news: The world's top palm oil producers Indonesia and Malaysia may have to control the palm oil-biodiesel consumption plan, because the price of crude oil plummeted, making palm oil prices twice as expensive as fossil fuel substitutes.

Indonesia is expected to increase the biofuel blending rate in gasoline by a quarter to 20%, while Malaysia has planned to increase the biofuel blending rate from 7% in 2015 to 10%.

As global palm oil production hit an all-time high and demand is sluggish, palm oil stocks in Malaysia and Indonesia have increased to millions of tons, so both countries want to reduce palm oil stocks while reducing greenhouse gas emissions.

But industry officials and analysts question the biodiesel program in both countries. Crude oil prices have fallen to their lowest level in 12 years, while palm oil prices have risen 34% in the first quarter of 2015.

Indonesian government officials said they insisted on the blending plan, while the Malaysian Plantation Department declined to comment.

MR Chandran, senior palm oil analyst at a consulting firm in Kuala Lumpur, said he believes Malaysia and Indonesia will have to re-examine biofuel blending policies as both countries are also oil and gas producers and exporters. In the case of falling crude oil prices, it is not economical to implement a biofuel blending policy. At present, gasoline is only half the price of palm oil.

The slowdown in biofuel consumption in Southeast Asia may put downward pressure on Malaysian palm oil futures and will also constrain countries' efforts to reduce carbon dioxide emissions. A landmark global agreement was signed at the Climate Conference in Paris in December 2015. Malaysia's CPO futures in 2015 is one of the best performing commodities.

Analysts said that the spread between palm oil and crude oil has widened, resulting in a surge in subsidies from Indonesian and Malaysian governments to blenders. The subsidy policy aims to encourage biofuel consumption. Palm oil was quoted at $550 per tonne last week, while gasoline was priced at $283 per tonne. Based on the spread between the two, Indonesia needs to provide more than $900 million in subsidies to achieve new targets, and Malaysia needs to provide $260 million in subsidies. Indonesian government officials said that most of the subsidies will be financed by a palm oil export fee of $50 per ton, but some industry sources say this is not realistic. Fadhil Hasan, CEO of the Indonesian Palm Oil Association, said that these funds are not enough to subsidize the target amount. Subsidies are a big problem for both Malaysia and Indonesia, as the outlook for economic development is weak and the currency is facing downward pressure.

Analysts expect Indonesia to achieve at least 10% of its biofuel blending target in 2016, while Malaysia's blending rate may be lower than 7% in 2015. But the Indonesian government said it would achieve a 20% biofuel blending target. According to Rida Mulyana, head of the Renewable Energy Office of the Indonesian Ministry of Energy, the most important thing is that the government will implement a 20% biofuel blending target. The new biofuel blend target aims to consume up to 3.4 million tons of palm oil stocks in Indonesia. Malaysia's palm oil stocks are also up to one million tons. Biofuel capacity utilization rates in both countries are very low. Malaysia's palm oil-biodiesel capacity has reached 2.5 million tons and Indonesia has reached 4 to 5 million tons.

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