Palm Oil Biodiesel Market Opportunity

The U.S. Senate recently approved the biodiesel blenders' tax credit as part of the Jobs stimulus bill, which is critical legislation for an emerging industry. The American Workers, State and Business Relief Act, included H.R. 4213, which would retroactively extend a former $1 per gallon biodiesel production tax credit that expired at the end of 2009. However, the tax credit still requires merging with a prior related House bill before any final approval. Biodiesel production has fallen considerably since this tax credit expired and new investments have been put on hold. In general, the renewable energy industry as a whole is well below expectations for 2010, which anticipated a carbon cap-and-trade system and national renewable energy portfolio standard 6 months ago to be approved by now. The National Biodiesel Board is aggressively advocating the tax credit and has stated that its 23,000 biodiesel green jobs in the U.S. will be impacted if it is not extended by at least another year.

Palm oil can be processed and refined into biofuel for internal combustion engines. Biodiesel has been promoted as a renewable energy source to reduce net emissions of carbon dioxide into the atmosphere. Therefore, biodiesel has the potential to significantly reduce a collective carbon emissions footprint and is considered a key component for diversification of energy supplies to assist national energy security plans by virtue of a decreased reliance on foreign oil. Palm is also used to manufacture biodiesel, as either an additive with petrodiesel, or processed through a chemical process called transesterification to create a palm oil methyl ester blend, which meets the international specifications, where glycerin is a main byproduct.

The Malaysian government is advocating for the production of biofuel feedstock and the construction of biodiesel plants that use palm oil, and the country initiated the conversion from diesel to biofuels for its transportation fleet about five years ago. It approved legislation calling for all diesel sold in Malaysia to contain 5% palm oil by 2007. Malaysia is emerging as one of the leading biofuel producers, with 91 palm oil-based biofuel plants approved for permits and several already in operation.

However, Malaysia cannot rush into the implementation of their program until petroleum companies in the country have the appropriate blending equipment to produce biodiesel. It is anticipated that it will take more than 12 months for plants to install the necessary facilities to produce biodiesel on a large scale. If oil prices surge past $90 a barrel and other countries approve biodiesel tax credits, as the U.S. is deliberating, then crude-grade palm oil will benefit and capture significantly more market share, especially if its recent price at $785 per tonne remains intact.

"Photo credit- www.flickr.com: Representative palm oil tree."