Issue 3 - American Palm Oil Council

Bullish on CPO
We remain bullish on CPO prices for four
reasons: rising crude oil prices have spurred
the use of CPO as a bio-fuel; the substitution
effect; Malaysia’s bio-fuel policy; and biodiesel
exports to the rest of Asia Pacific.
Crude oil prices have hit historical highs
of over US$70 per barrel. The economics
make sense to utilise palm oil whenever
possible, for example in stationary engines
such as power generators and power
plants. In short, if crude oil prices remain
high, then governments will expedite
renewable energy plans to diversify their
fuel sources.
In addition to the potential of bio-diesel
in the EU, there is growing demand for
bio-energy (bio-fuel for power plants),
which is relatively unknown within the
investment community. As underlined in
the Commission’s Green Paper on
Security of Energy Supply, the EU’s
objective is to reach a share of 12%
(including wind, solar, hydro, biomass
and bio-diesel) for the contribution of
renewable energy sources to the EU’s
gross inland consumption by 2010.
To reach this target, major legislative
proposals have been adopted. The
‘Directive on Renewable Energies’
adopted in 2001 provides for an overall
EU indicative target of 22% by 2010,
from the current level of
about 14%, for the share of renewable
energy sources of the EU’s electricity
consumption. The directives allow
member-countries to decide how to
achieve the indicative national targets.
The main drivers include the move to
reduce carbon dioxide emissions, enhance
sustainability, reduce the EU’s
dependence on imported energy sources
and increase diversification of fuel
supplies.
This suggests that the potential market for
biomass (including vegetable oils) is 130
million tonnes per annum. Subsidies will
help in making palm-based fuel for bioenergy
commercially viable. The subsidies
differ for every EU country and can be as
high as 200% of electricity prices and
fixed for as long as 10-20 years.
As palm-based bio-diesel is not significant
at the moment, we believe that the sharp
19% jump in CPO exports to the EU in
2005 was actually channelled into the
bio-energy sector. Some 600,000-
750,000 tonnes of CPO were used in the
renewable energy sector in 2005. Industry
experts believe that this figure will grow to
1 million tonnes in 2007.
GLOBAL OILS & FATS BUSINESS MAGAZINE •VOL.3 ISSUE 3, 2006 7