Published March 3, 2009

Biofuel plans shelved on falling crude prices

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(KUALA LUMPUR) Hopes of a biofuel bonanza for Southeast Asia, raised when sky-high oil prices made the search for alternative fuels a priority, have been shelved as global fortunes and crude prices nose-dive.

Back when movie stars won plaudits for driving hybrid cars, and grains and oils were going cheap, regional governments grew excited over producing biofuel to lower energy costs and soak up agricultural stockpiles. Malaysia and Indonesia, which produce most of the world's palm oil, heavily promoted their version of biofuel - a mixture of diesel with 5 per cent processed palm oil.

But the excitement evaporated as crude oil, which peaked at US$147 in July 2008, fell to current levels below US$37. That triggered a massive drop in palm oil prices from US$1,245 per tonne a year ago to US$405 per tonne last December. Although palm oil prices have now recovered slightly to US$526 per tonne, supply has been disrupted as many firms shut down production or refuse to sign long-term supply contracts because of the volatile outlook. The Malaysian government says it will now review 91 biofuel plant licences issued during the sector's heyday, as the majority are not operating.

Back in 2006, Malaysia was aiming to be the global leader in biodiesel production, and launched the Asian region's first commercial biodiesel plant. It was propelled by strong demand for biodiesel from Europe and as far afield as Colombia, India, South Korea and Turkey, but these days it has fallen back on domestic demand, mostly from the government sector. -- AFP