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Bio-diesel Boom may cause long term Problems

By Benjamin Low

Of DOW JONES NEWSWIRES

KUALA LUMPUR (Dow Jones)--Growing global interest in biodiesel may be a boon for palm oil, but it also raises questions about the social implications of burning what is an essential, and the world''s most affordable edible oil, a Malaysian industry official has said.

In the long-run, the biodiesel industry may, therefore, not be quite as large as many are expecting it to be, said P.N. Agarwal, group managing director of Premium Nutrients Bhd, a palm oil refiner and specialty fats maker.

"I feel biodiesel is not very sustainable in the long-term. It''s going to create a competition for palm oil between (users in) the edible and non-edible sectors at some point," Agarwal said in a recent interview.

"It could reach a stage where governments may have to stop all the biodiesel projects because we need to feed the people," he added.

A surge in oil prices to record highs has sparked intense worldwide interest in alternative fuels such as ethanol and biodiesel.

Like rivals soyoil and rapeseed oil, palm oil has also been found to be a suitable diesel substitute.

As a result, corporate investments in the biodiesel sector in Malaysia, the world''s biggest palm oil producer, has surged in recent years.

This year alone, the Malaysian government has already approved close to two dozen biodiesel projects.

While the emergence of a new market for palm oil is positive for the commodity, the industry may need to tone down its enthusiasm and consider the costs, Agarwal said.

As it is, the existing annual vegetable oil output of around 140 million metric tons is barely enough to meet food requirements, he said.

If the biodiesel sector is allowed to expand without limits, a day may come when palm oil prices may rise beyond the reach of consumers who need it for food, Agarwal said.

"Vegetable oil is an essential commodity. If the price of oil goes skyrocketing, poor people may not be able to afford it," he said. "So, amid all this euphoria about biodiesel, people need to look at it and see how we can protect the edible oils sector and ensure that people are not being (burdened) by very, very high prices."

Agarwal said it wouldn''t make sense for governments to promote biodiesel by offering incentives and subsidies, if such a move were to result in edible oil prices soaring.

Then, governments would also have to subsidize the production of cooking oil to keep it at affordable levels for consumers.

"Ultimately, it will force governments all over the world to take a rational policy decision. And when a compromise is required, the edible sector will always win," Agarwal said.

This however, is easier said than done, as producing and consuming countries often have different priorities and large producers such as Malaysia may find it more profitable to subsidize the small domestic consumption than let go off the benefits of increased demand for one of its key export items.

Moreover, large consuming countries such as India and China don''t have much of a moral high ground to argue this case as they were happy beneficiaries when palm oil prices remained low for several years, forcing producers to start thinking about biofuels even before global petroleum prices rose.

Trans-Fat Fears Boost Palm Oil Sales

Meanwhile, the use of palm oil for consumption as cooking oil is expected to continue rising this year and in the coming years, Agarwal said.

Emerging economies like China and India still have plenty of room to catch up with their more developed counterparts in per capita edible oil consumption.

Similarly, in Eastern European countries, the per capita consumption levels are only about half of the 30 kilograms a year in western European countries.

Palm oil demand in that region is expected to register the fastest growth in the near future as they reap the benefits of high prices for major commodities such as crude oil and gold.

Palm oil sales are also on the rise as the commodity is benefiting from a global shift away from partially hydrogenated soyoil.

The hydrogenation of soyoil, a process of adding hydrogen to make the oil more solid and stable, creates trans-fats, which have recently been found to be a bad for the heart.

Palm oil is naturally semi-solid and requires no hydrogenation.

"People are looking more and more for trans-fat free oils and this is having a good impact on our company," Agarwal said.

"This (demand) is coming from the more developed countries for now, but we can see that other countries are also starting to look at it and awareness is starting to be there," he added.

Export Duties Hurting Industry

Meanwhile, Agarwal said he was concerned about the lack of a policy response in Malaysia to the increasing competition from Indonesia.

Malaysia has long been the top CPO producer, but many analysts are predicting Indonesia may take that position as early as this year.

Malaysia is fast losing its competitiveness because it is still maintaining high duties on CPO exports compared to Indonesia, which has virtually no restrictions, Agarwal said.

Export duties on CPO are calculated on a graduated basis depending on the selling price of the commodity, with the highest rate set at 30%.

"Side-by-side, you have two countries producing the same amount of CPO, but one has no duties and the other has. So, one country is knowingly diverting all its buyers to its neighbor," he said.

The government''s past rationale for imposing duties on CPO exports to promote domestic refining may no longer be relevant today, Agarwal said.

"The trend now is that the consuming markers themselves want to import CPO because they want to develop their own value-added industry. This is happening in India, Pakistan, China and Europe," he said.

The Malaysian government has relaxed its restrictions by awarding quotas to some large plantation companies to export a limited amount of CPO.

However, that isn''t enough as smaller producers still have little access to overseas markets, he said.

Furthermore, since room for direct CPO exports are limited, many plantation companies have resorted to setting up their own refineries and selling refined oils at lower prices.

This has hurt independent refiners, Agarwal said, citing the closure of some refineries in recent years and the sale of major refiner the Pan-Century group as examples.

Germany- Impressive Striking Start

After watching more than 4 world cups, I have not seen Germany looking so sharp (even though the world has been criticising their defence lapses). Looks like they are going to top this group. and likely to be in the finals. If the finals is Germany-Brazil again, I am sure it will be very different from 2002.

Let's see.

Opps. I know I am suppose to update on Oil and Gas but its the world cup and it happens once in 4 years.

btw, wessage, the 6th lease marketed by Oilpods is sold out. We will have to wait for the next launch. If you want to be updated, pls email me.

p.s. if only i gotten 5 more units at Wessage.

WORLD CUP! WORLD CUP! WORLD CUP!

The world cup fever is heating up! Will world cup be hotter than oil? Will oil and gas investments take a breather. Well, latest news from Iran has push oil prices past US$73 again. And it looks like both World Cup and Oil investments will be as hot as each other.

While you are enjoying the world cup, I am still make some passive money coming up from the ground. Wanna know how? check out this blog and its various posting.

The secret lies within this blog.

p.s. my bet is on Netherland to win the World Cup! I wanted to take France but I think they will tire out mid way due to age of team. Brazil looks like a good bet but back-to-back wins are hard to come by. Argentina- too young and inexperience. England, possible but unlikely since Roodney is half fit at most. Robo Crouch. Doubt it. Germany is the next big contender. Lets see.

Era ends: Oil, gas are finite resources

EXPLOSIVE demand is keeping oil prices high!

Wednesday, May 31, 2006
- By Wendell G. Peart, Pine Grove

When the president in his State of the Union Address said the nation must end its addiction to foreign oil, underscored an end of an era. Namely cheap oil. In this regard, the Fox News on April 22 was full of news of gas being at $5 a gallon this summer.The United States is now 65 percent dependent on foreign oil and each year we become more dependent. Scarcer oil will mean higher energy prices and therefore higher costs for everything. An energy famine will likely occur which means severe economic contraction, lower employment and output.What has happened to bring this about? Simply stated, it is a matter of supply and demand. The world demand for oil has increased.

China, for instance, is now the second largest consumer of oil in the world. Not far behind is India, now the sixth largest in oil consumption. A few years ago, the United States did not have to consider the soaring demand of oil that is driven by the explosive growth in Asia.China's thirst for oil in 1993 was 2.9 million barrels a day and by 2003 was almost 6 million barrels a day or doubled in 10 years. The United States by contrast was 17.2 million barrels a day in 1993 and grew only 15 percent to 20.1 million barrels a day. On the other hand, the world oil consumption in 1993 was 66.7 million barrels a day and grew 15 percent to 78.1 million barrels a day. India's consumption of oil in 1993 was 1.2 million barrels a day and grew to 2.4 million barrels a day or increased by about 50 percent in 10 years. Clearly China and India's demands for oil are threatening our own needs for oil.

Declining Production!

A crisis in oil consumption is rapidly developing.According to the experts, the oil supply in the world is peaking or has peaked and will soon, if not now, be in decline. The demand by the world for oil - of which the United States bums up to 25 percent of oil sold - is rising so fast by around 2 million barrels per day. Even Saudi Arabia's vast resources are unable to satisfy the unquenchable thirst for more and more oil. It is so bad that the Saudis, who control more than a quarter of the world's known oil, are calling on the consuming nations for relief from the world's relentless orgy for more oil.

The world is now discovering that the lion's share of world oil production, namely Saudi Arabia's Ghawar, Mexico's Cantarell, Kuwait's Burgan and China's Daqing giant oil fields are all declining in production. Collectively these four giants in the past have supplied about 12 percent of the crude oil produced in the world. Sadly Ghawar's production peaked in 1988. It doesn't take a rocket scientist to figure out if the Ghawar field is in trouble, the rest of the world's oil consumers are also in trouble.Mexico's Cantarell field, the world's second largest giant oil field, is declining in production and has been since 2003. Its production decline is estimated to be 14 percent a year in 2006, to the point that in the year 2008 the drop will be as much as a million barrels a day. The loss of a million barrels a day of production capacity will be very difficult to overcome from other Mexican fields or from production from other countries.

Say what you will.

Oil and gas are finite resources. The more that is found means there is less to be found. Adding to the darkening outlook for the world oil supply, the number of countries past peak is rapidly rising; this would include Columbia, Venezuela, the United States, Egypt, Indonesia and Great Britain.We in the West have ignored those who have called alarm to the current peak in oil production and looming decline. We will now pay a fearful price. The outlook is grim.At the local level, planning that places houses near essential services such as grocery stores, drug stores, service stations, recreational centers, professional services, sewer services, not to mention police, fire and hospital facilities, would reduce travel distances and thus save on motor fuel.Such forward planning would be yet another tool to lessen this nation's addiction to foreign oil.