The rise of biofuels in Asia continues despite significant price increases

19 November 2020 Peak Recruitment

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​As countries around the world set deadlines for removing fossil fuels from the picture, there has been a significant upswing in the demand for biofuels, such as palm oil. However, palm oil production is currently facing significant problems as it bids to replace fossil fuels.

Countries across Asia expand their production of biofuels

Although the current COVID-19 pandemic has resulted in a lack of demand from the aviation industry and falling oil prices, countries across Asia are expanding their production of fuels from sustainable sources such as palm oil and algae. Japan’s biofuel startup Chitose Bio Evolution, is planning on expanding their production of algae-based biofuels in Malaysia, whilst another Japanese company, Euglena, is also aiming to increase biofuel algae production, possibly in Indonesia.

Green Fuels, a leading distributed-scale biodiesel and advanced biofuels company, have joined forces with Aris Bioenergy, committing the two companies to a joint venture to refine biodiesel in India. It is hoped that the agreement between the companies will enhance Aris’s expertise in collecting used cooking oil in Mumbai’s urban areas. The used oil will then be transformed into biodiesel in a state-of-the-art biorefinery which will be located in an industrial zone between Mumbai and Pune.

In Thailand the picture is also looking positive for biofuels, as the country has set a target of achieving 30% of its power production from renewable sources by 2036. This forms part of Thailand’s low-carbon transition plan and renewable growth will be headed by biofuels, followed by solar power and then wind.

The palm oil price problem

Gas oil (diesel) prices have slumped dramatically over the past year, resulting in significant increases in the price of palm oil. High prices are not the only problem though, as major palm oil growers in Malaysia and Indonesia face a threat to their mandate which risks putting a stop to palm oil’s rally. Palm oil is currently around US$350 more expensive than gas oil per tonne, which is double the average over the past year.

Although such huge prices have put Indonesia’s biofuel industry on the back foot, President Joko Widodo is still committed to maintaining a mandate which requires a 30% blend of palm oil biofuel into fossil fuel. The picture is quite different outside Indonesia though, with the spread in palm oil-gasoil likely to result in some back peddling on biodiesel mandates as governments eschew funding subsidies on biofuel, there is considerable hesitancy that those high costs may well be passed onto the transport sector and consumers.

Southeast Asia’s coconut farmers feel the impact of palm oil production

It’s not only major palm oil growers who are facing problems, as coconut farmers throughout Southeast Asia are having to cope with unprecedented low prices. The most widely produced coconut by-product is coconut oil and prices are presently less than half of what they were a year ago. Many farmers in the Philippines, for example, depend on coconut farming for their livelihood and see the crop as a way to lift themselves out of poverty. The Philippines is the world’s top exporter of coconuts, followed by Indonesia. Coconut farming in the two countries accounts for almost 60% of the world’s coconut production by land area. As is the case in small-scale farming around the globe, Southeast Asia’s coconut farms are almost entirely managed by smallholders.

Palm oil has led to low prices, increased competition and lack of government assistance for Southeast Asia’s coconut farmers. Governments in Malaysia and Indonesia have heavily promoted and subsidised palm oil, a situation which is also becoming more prevalent in the Philippines. As the lower-priced palm oil floods the Southeast Asian markets, it has replaced coconut oil which had long-been the oil of choice in kitchens throughout the region.

In the not-too-distant past coconut oil was central to Indonesia, whilst the current situation in the Philippines is now proving remarkably similar. In Indonesia today, palm oil plays a key role in the nation’s economy; not only as a major export but also as a cooking oil. Furthermore, palm oil is increasingly becoming part of Indonesia’s national transport fuel provision as a result of increasing biofuel mandates.

There are concerns surrounding the sustainability of palm oil though as the majority of production is reliant on large-scale plantations. Often vast and usually monoculture, industrial-scale palm oil estates have eradicated rainforests throughout Southeast Asia. The Indonesian province of Riau, for example, was the centre of coconut production on the island in the 1970s. It is now one of the country’s top palm oil production areas. Farmers are reacting to the change by switching their crop; a situation which is also happening today in the southern Philippine island of Mindanao.

Things aren’t looking completely bleak for Southeast Asia’s coconut farmers though, as there is now a growing demand for high-value coconut products in Europe and North America. Increasing demand for products such as organic coconut water and virgin coconut oil has encouraged several small-scale ventures to nurture sustainable coconut farming. In addition, there are calls for technology to be used to support and empower coconut farmers; giving them access to processing equipment and basic refrigeration technology.

The rise in biofuels continues – despite the challenges of 2020

Although the COVID-19 pandemic has resulted in a huge downturn in demand from the aviation industry and falling oil prices, the rise in biofuels can only continue as governments across the globe seek to reduce their reliance upon fossil fuels. Another positive factor is the increased competition amongst aircraft fuel manufacturers as the search hots up for alternatives to reduce air travels’ carbon footprint. It will be interesting to see how governments in the Asia-Pacific region juggle their commitment to environmental concerns with the needs of farmers and smallholders.