Revising biodiesel blend to B15 good for producers but not manufacturers

Biodiesel producers say raising the palm oil content will enable them to increase production of the blended fuel, but manufacturers do not see a big impact on their costs.

Malaysian Biodiesel Association (MBA) president Tee Lip Teng said the move would raise demand for biodiesel and, by extension, help to take up unused biodiesel production capacity in the country.

He stressed that this could also help Malaysia to weather global fuel supply shocks.

“We expect higher biodiesel blends of B12 and/or B15 to result in additional local demand of up to 334,000 metric tonnes per annum. This will lead to an increase in the utilisation rates of existing plants,” he told FMT, citing data from the Malaysian Palm Oil Board.

Malaysia began commercial production of biodiesel in the early 2000s to capture a share of the expanding global market, but exports dropped with increasingly tighter guidelines in Europe and the United States.

Last year, Malaysia produced just under a million tonnes of biodiesel under the prevailing blending mandate, accounting for less than half of the industry’s total annual production capacity of 2.4 million tonnes.

Of that, 95% was consumed locally while only 57,000 tonnes was exported.

Tee said voluntary uptake outside the mandate remains limited. “Any uptake outside the mandate is largely driven by ESG (environment, social and governance) commitments or short-term price advantage,” he said.

“In this regard, the industry hopes that the government will give due consideration to the MBA’s request for a 10% sales tax exemption for biodiesel consumed outside the national biodiesel programme. This will encourage wider voluntary uptake of biodiesel beyond mandated blending requirements,” he said.

Malaysia currently enforces a B10 mandate for the transport sector, while higher blends of up to B20 are used in places such as Labuan, Langkawi and Sarawak, except Bintulu town.

The “B” number is the percentage of palm oil in the biodiesel mix. For example, B10 means 10% palm oil and 90% petroleum diesel or petrodiesel, while B15 means 15% palm oil.

The government has said it will raise the biodiesel blend from B10 to B15, starting with an interim B12 level.

The plan is largely driven by heightened global fuel supply risks. Nearly half of Malaysia’s crude oil imports pass through the Strait of Hormuz, a key shipping route now affected by the Middle East conflict.

At home, fuel subsidies are also expected to reach about RM7 billion per month, up from RM4 billion previously.

Federation of Malaysian Manufacturers (FMM) president Jacob Lee said the inclusion of biodiesel in the fuel mix has only a marginal impact on overall industrial fuel costs.

He said global oil prices still play the biggest role in determining diesel costs, especially since manufacturers do not receive fuel subsidies.

“Subsidised diesel has historically been targeted at specific segments, particularly logistics and transport operators using vehicles in categories singled out as eligible,” he told FMT.

“As such, manufacturers have consistently operated under market-based fuel pricing conditions, making supply reliability and predictability key concerns.”

Consumers have also been cautioned against assuming that biodiesel will be cheaper than petrodiesel.

Tee pointed out that the cost of producing biodiesel also hinges on changes in the price of palm oil, and at times it may be even more costly to use biodiesel than petrodiesel.

However, he said, raising palm oil content in biodiesel would help to stretch existing diesel supplies and reduce Malaysia’s exposure to global disruptions.

“For every metric tonne of palm oil used (in the blending process), one metric tonne of petrodiesel is saved,” he said, adding that Malaysia’s position as a major palm oil producer ensures a steady domestic supply.