Biodiesel is one of the viable substitute for diesel, but implementation comes at a price. Alternative fuel or green fuel has been a hot discussion topic for some time, especially for fleet owners, small businesses and owners alike. It is a viable solution which is proving to be cost effective due to long term savings, plus it is much greener than the regular diesel. It is widely used in countries like Norway, Sweden and Germany, where diesel has been replaced with alternatives such as biodiesel, electricity, ethanol, hydrogen, natural gas and propane.

In Southeast Asia, the growth in terms of production for biodiesel has been increasing exponentially. In developing countries such as Malaysia and Indonesia, biodiesel is seen as a viable replacement for diesel in the not too distant future. However, sentiments have been mixed of late as the price of crude palm oil (CPO) has seen a weakening trend going into 2018.

Regional market In March this year, the Malaysian Biodiesel Association reported that Malaysia was expected to produce 900 000 tonnes of biodiesel in 2017, up about 80 percent from half a million tonnes last year, while Indonesia’s production is projected to rise to 3.5 million tonnes this year from three million tonnes in 2016.

According to industry expert U.R. Unnithan who is the president of the Malaysian Biodiesel Association: “Where the current oil prices were at, biodiesel plants were unable to make profits.

“Today, the utilisation capacity is under 25 percent, which means at present levels, companies can only cover their variable costs but not fixed costs. But if they ramp up capacity to nearly 100 percent, then they should see some profits,” he said, adding that the biodiesel industry has survived because of the local mandate.”

On one hand, commenting on Indonesia’s B20 biodiesel mandate, Unnithan said Indonesia had taken a smart move by going ahead with the implementation, provided it can get its subsidy model to work. “I think it’s a smart move because suddenly, an additional three million tonnes of demand a year has surfaced. The Indonesian biodiesel market is probably as big as China’s now and for them, it is worthwhile because oil prices now are hovering about US$50 per barrel,” he said.

Malaysia, on the other hand, should implement its B10 programme this year now that CPO prices had adjusted to a new level.

“CPO prices in the region of about RM2 500 to RM2 600 per tonne are sustainable in the long term for both food and fuel. At that level, one can see a steady increase in biodiesel because the additional demand can be taken up when there is additional supply,” noted Unnithan.

Although, accurate in his assessment given that CPO price at that time was RM2 851 per tonne, analysts now have mixed views as it is projected that the CPO prices to be around the RM2 500-per-tonne for the whole of this year—indicating that prices could drop to RM2 300 to RM2 400 in the coming months on rising production but should remain at that level.

Exports registered a 17.3 percent growth, the highest gain in nine months, indicating that major CPO consuming countries such as India and Pakistan buying more.

On the other hand, some analysts have downplayed the CPO price outlook, indicating a further drop to RM2 250 per tonne at year-end. This coming from an RM2 650 forecast in May. Whatever the case is, right now, several plantation companies have either downgraded or kept a neutral rating on plantation stocks due to the weakening trend of CPO prices going into 2018.

Rest of the world Diesel has been a longstanding choice of fuel for commercial vehicles due to its exceptional fuel economy but it has come under the spotlight recently as a cause for poor air quality in the United Kingdom. This has seen some areas propose bans or additional fees to vehicles that run on this fuel type.

A recent study by Pendragon Vehicle Management (PVM) proved that diesel is the only realistic choice for fleet owners with high-mileage. The study analysed 270-strong fleet of diesel vehicles in the construction industry against electric vehicles and plug-in hybrid electric vehicles. PVM found that it would cost 8.5 percent more per annum to run a plug-in hybrid electric vehicle fleet than a diesel one. UK has higher monthly rental costs for energy consumption thus counteracting with the move to switch fleets to green fuel.

“Aged and poorly maintained diesel vehicles are very harmful to the environment. However, for those who change their vehicles typically every four years, the new Diesel technology and emission standards are class-leading with the economic and environmental argument compelling,” said Neal Francis, divisional managing director for PVM.