The Economics of the Malaysian Palm Oil
Industry and Its Biodiesel Potential
Kenneth R. Szulczyk, Ph.D.
Convention Center, UUM
December 4, 2012
Contents
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Introduction
Palm oil trees
Plantation land use
Palm oil uses and products
Oil palm plantation waste products
Substituting biodiesel for diesel fuel
Palm oil biodiesel production and use
Tallow and yellow grease as cheap oil sources
Conclusion
Introduction
• Government uses the palm oil industry for
economic growth and development
• Federal Land Development Authority (FELDA)
– Helped 90,000 settlers with their families to own a
palm oil plantation
– Creates jobs in rural communities
– FELDA
• Provides technical assistance
• Owns facilities to process and sell the settlers’ crops
• Offers loans for home construction
Introduction
• Palm oil industry
– Malaysia possesses the manufacturing to create
high-valued products
– Important source for foreign-currency earnings
– Subsequently, most products are exported
• $80.4 billion ringgits of exports in 2011
• Roughly 13.7% of Malaysia’s GDP
Introduction
• Malaysia passed the Malaysian Biofuel
Industry Act in 2007
– The distributors for diesel must add a minimum of
5% biodiesel by volume (or B5)
– Malaysia is a developing country
– Kyoto Protocol - Malaysia is not required to lower
its greenhouse-gas emissions to its 1990 level
• Note – the agreement only slows down greenhouse-gas
emissions and does not reverse it
Palm Oil Trees
• The two largest producers of palm oil are
Indonesia and Malaysia
• The British brought the palm oil trees to
Malaysia in the 1870s
– Used in gardens and landscaping
– The palm oil tree originates from West Africa
• The life of a palm oil tree exceeds 200 years
– Economic life ranges between 20 and 25 years
Palm Oil Trees
• Each palm oil fruit has
two sources of oil
• Palm oil – from the
mesocarp, or pulp
that surrounds the
kernel
• Palm kernel oil – the
oil from the kernel
Palm Oil Trees
• Both oils have different characteristics
– Different uses
– Palm kernel oil is more saturated than palm oil
– Saturated means the oil is a solid at room
temperature
• Palm oil trees yield the greatest oil yields per
hectare of land
Palm Oil Trees
World’s Oil
Production in 2010
Production
(tonnes/year)
Area Harvested
Yield
(hectares/year) (tonnes/hectare/year)
Coconut (copra) oil
3,987,563
11,376,698
0.3505
Maize oil
2,321,544
161,765,388
0.0144
Palm kernel oil
5,688,559
15,410,262
0.3691
Palm oil
43,573,470
15,410,262
2.8276
Rapeseed oil
22,774,074
31,640,756
0.7198
Safflower oil
131,959
772,705
0.1708
Soybean oil
39,840,137
102,556,310
0.3885
Sunflower oil
12,698,807
23,113,785
0.5494
Palm Oil Trees
• Byproducts
– Once the oil is extracted from the seeds, the seeds
contain high levels of protein
– Seed meal or cake is used in animal feeds
• Corn (or maize)
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–
–
–
The most widely grown
Yields the lowest oil
Producers use corn to extract the starch
Starch is used:
• Ethanol for gasoline in the United States
• High-fructose corn syrup – an artificial substitute for cane
sugar in the U.S.
Plantation Land Use
• Malaysia grows cocoa, rubber, and coconut
trees
– Plantation owners are planting more palm oil and
decreasing cocoa, rubber, and coconuts
– Economic exposure
• Usually countries diversify their industries to help
protect themselves from rapid changes in the market
• Malaysia is expanding one industry at the expense of
others
• International commodity prices can be extremely
volatile
Plantation Land Use
The total area planted in Malaysia in hectares
Plantation Land Use
The international price in U.S. $s per tonne
Plantation Land Use
• Greenhouse gases – trap the sun’s energy as
heat, causing the earth to become warmer
• Global Warming Potential (GWP)
1. Carbon dioxide is defined as 1 GWP
2. Methane has 16 GWP
• One tonne of methane traps 16 times the heat of one-tonne
of carbon dioxide
3. Nitrous oxide has 298 GWP
• One tonne of nitrous oxide traps 298 times the heat of onetonne of carbon dioxide
4. Water vapor has no GWP; sensitive to temperature
Plantation Land Use
• Plantation owners raise buffaloes, cattle, and
sheep on land
• Animals:
– Reduce weeding and herbicide use
– Enteric fermentation – animals produce methane
gases as their digestive system converts grass into
food
– Manure – used as a fertilizer
• Boosts tree yields
• Emits nitrous oxide and methane gas
Plantation Land Use
• Concerns
– Pristine rainforests are converted into tree
plantations
– Loss of biodiversity and wildlife habitats
– Rainforests store larges amounts of carbon in the
soil
• Bacteria and roots of palm oil trees releases the carbon
into the atmosphere as carbon dioxide
• U.S. Environmental Protection Agency ruled against
importing palm oil biodiesel as a renewable fuel
• However, carbon emissions are highly variable
Palm Oil Uses and Products
• Malaysia refines the palm oil into a variety of
products
1. Palm oil
2. Palm olein – a liquid oil at room temperature
• Used to fry foods
• Oil is thermally stable, no bad odors, and little
oxidation
3. Palm stearin – more solid at room temperature
4. Palm oil acid distillates – leftover from refining
• Used in animal feeds, Vitamin E, and oleochemicals
Palm Oil Uses and Products
Oil Product
Palm oil
Cooking oils
Fried foods
Non-fried foods
Other
Palm stearin
Palm olein
Palm fatty acid distillate
Products
Margarine, reduced fat spread, shortening, and
vanaspati
Doughnuts, French fries, potato chips, and nuts
Baked goods, non-dairy creamers for coffee, tea, and
cocoa mixes, condensed milk, dry and canned soup
mixes, ice cream, instant noodles, mayonnaise, and
salad dressings
Soap noodles
Shortening, margarines, vanaspati, and pastry and
bakery products
Margarine and cooking oil
Animal feed, soap, oleochemicals, and Vitamin E
Palm Oil Uses and Products
• Producers use a press to extract palm kernel
oil from the kernel
• Products
1.
2.
3.
4.
Palm kernel oil
Palm kernel olein
Palm kernel stearin
Palm kernel cake – remains of kernel
• Used in animal feeds
• Industry presses the cake into expeller pellets
Palm Oil Uses and Products
Oil Product
Palm kernel oil
Palm kernel stearin
Palm kernel olein
Palm kernel cake
Products
Cocoa butter substitute, confectionery
products,
detergents,
ice
cream,
margarine, oleochemicals, and soap
noodles
Cocoa butter substitute, confectionery
products, nondairy coffee creamers, filled
milk, and non-hydrogenated trans-fat free
margarine
Ice cream and soap noodles
Cattle, catfish, poultry, and swine feeds
Palm Oil Uses and Products
• Many products are listed multiple times in the
table
• Soap noodles – raw material to make soap
– Composed of 80% palm oil and 20% palm kernel
oil
• Margarine – could be made from a variety of
oils
– Different oils yield different characteristics
– Palm kernel stearin could make trans-fat free
margarine
Palm Oil Uses and Products
• Palm kernel stearin
– The most expensive oil from the oil palm
– Producers use the stearin to replace cocoa butter in
chocolates
• Cocoa butter is more expensive than the stearin
• Malaysia exports chocolate products
• Industry could reduce chocolate prices, making Malaysia’s
chocolate exports more competitive
• Palm kernel stearin is solid at room temperature
– Food producers hydrogenate vegetable oils
– Hydrogenated oils are trans fats, and could lead to
health problems
– Palm kernel stearin is natural
Palm Oil Uses and Products
The international price in U.S. $s per tonne
Palm Oil Uses and Products
• Characteristics
– Palm kernel oil is usually more expensive than
palm oil
– Palm oil stearin is the cheapest oil
– Expeller pellets has the lowest price
– Some claim the palm oil industry is recession
proof
• Prominent dip in prices after the 2007 Great Recession
struck the world
Oil Palm Plantation Waste Products
• Palm oil mills use water in processing
• They discharge an effluent or sludge,
containing organic material
• Cannot be discharged into rivers and
lakes
• Bacteria breaks down the material,
consuming the oxygen in the water
– Lack of oxygen kills the water life and fish
Oil Palm Plantation Waste Products
• Palm oil mills could collect the sludge into ponds
and let earthworms break down the sludge into
vermicompost
– Then the mill uses the rich organic material to fertilize
the trees or sell to consumers
– The bacteria creates methane gas, or biogas
– Ponds should have a covered roof to collect the biogas
– If the mill releases the methane gas into the
atmosphere, it lessens the efficiency for biodiesel to
recycle greenhouse gases
– The U.S. Environmental Protection Agency cited this in
their decision
Oil Palm Plantation Waste Products
• Palm oil mills collect empty fruit bunches, fiber,
and shells
– The mill could theoretically:
• Burn the wastes to produce steam and bioelectricity
– 10 mills out of 360 do this
– If all wastes were burned, then Malaysia could generate approx.
11.8 megawatts of electricity
– This is a small fraction of electricity usage
• Convert the wastes into sugars
– Use bacteria to convert sugars into butanol
– Use lignocellulosic fermentation to convert sugars into ethanol
• Butanol and ethanol could be mixed with gasoline
Substituting Biodiesel for Diesel Fuel
• Palm oil, especially palm stearin would be the cheapest to
use in biodiesel
• Palm oil cannot be used in diesel engines directly
• The oil is too viscous
– Fouls the fuel injectors
– Leads to carbon buildup in engine
• The mill converts the palm oil into methyl-esters, or
biodiesel
– Creates glycerol as a byproduct
– Glycerol is used in cosmetics, cough syrups, foods, haircare
products, mouthwashes, paints, pharmaceutical products,
shaving creams, skincare products, soap, toothpaste, and
water-based lubricants
Substituting Biodiesel for Diesel Fuel
Substituting Biodiesel for Diesel Fuel
• The use of fossil fuels releases stored carbon
from the ground into the atmosphere
• Biodiesel recycles carbon dioxide
– Palm oil trees convert carbon dioxide into oils
– A refinery converts oils into biodiesel
– Then vehicles with diesel fuel engines burn the
biodiesel, converting it to carbon dioxide
– Thus, wide-scale use of biodiesel could lower
greenhouse-gas emissions
Substituting Biodiesel for Diesel Fuel
Palm Oil Biodiesel Production and Use
• Malaysia
– The public consumed 5.8 billion liters of diesel in
transportation in 2009
– The refineries produced 10.6 billion liters of diesel
• Roughly half is exported
– If all palm oil was converted into biodiesel, then
palm biodiesel would supply 19.7 billion liters
• Malaysia could offset its entire diesel fuel with
biodiesel
• Malaysia would have plenty of biodiesel leftover for
export or consumption
Palm Oil Biodiesel Production and Use
• Problems
– Malaysia has no substitute for gasoline
• Malaysia would still refine petroleum into gasoline and diesel
• Ethanol or butanol from waste products would not be enough
– Petroleum exports are a source of foreign-currency
earnings
– Price of palm oil is too great
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Malaysian government subsidizes its transportation fuels
Government would pay greater subsidy, if petroleum price rises
Gasoline is pegged at $0.855 per liter
Diesel is pegged at $0.845 per liter
Palm oil biodiesel sold for $1.49 per liter in January 2011
Palm Oil Biodiesel Production and Use
• Malaysia has the capacity to produce 3.8 billion liters of
biodiesel
– However, Malaysia produces little biodiesel
• Malaysia wanted to sell biodiesel to Europe and United
States
– The U.S. EPA ruled the palm biodiesel only lowers greenhouse
gas emissions by 17%, and not at least 20%, which is required
for renewable fuel import
• U.S. refineries would not get credit for the national Renewable Fuel
Standards if they use palm biodiesel
• Palm biodiesel’s price would need to be lower than diesel fuel for
producers to use it in the U.S.
– The European Union imposed tariffs on the imports of
Malaysian palm biodiesel
• Possibly protecting its rapeseed biodiesel industry
– Could be a form of trade discrimination?
Cheap Sources for Biodiesel
• Potential cheap sources for
biodiesel
– Yellow grease – old cooking oil from
restaurants and food producers
– Brown grease – cooking oil trapped
in a facility’s wastewater
– Tallow – fat leftover from the cattle,
poultry, and swine processing
Cheap Sources for Biodiesel
• Malaysia produced 50,000 tonnes of cooking oil
and tallow in 2005
• The industry could produce theoretically 43.9
million liters of biodiesel
• Problem
– Yellow grease and tallow are not free
• Yellow grease costs $590 per tonne in 2010 in the U.S.
• Biodiesel would costs $0.67 per liter
– Industries use yellow grease to make animal feeds,
clothes, cosmetics, detergents, lubricants, paints,
plastics, pet food, rubber, and soap
– Tallow is used in animal feeds and soap
Conclusion
• Palm oil industry is important industry for Malaysia
– Creates jobs in rural communities
– Recycles greenhouse gases
– Malaysia produces enough palm oil to offset its diesel
consumption entirely
– If yellow grease price is comparable to the U.S., then
yellow grease cooking oil could be feasible
• Problems
– U.S. and European Union prevent the importing of palm
oil biodiesel
– Palm biodiesel is too expensive to use as a transportation
fuel, unless the Malaysian government wants to subsidize
it heavily