Presentation to Mr.

Benny Wahyudi, Director-General of Chemical, Agriculture and Forestry-Based Industry, Ministry of Industry and Trade Indonesia on Malaysia Indonesia Collaboration
3 February 2005

Malaysian Palm Oil Board (MPOB) Ministry of Plantation Industries and Commodities Malaysia

MPOB DELEGATION
Dr Mohd Basri Wahid Deputy Director-General I (R&D) Dr Choo Yuen May Director, Engineering and Processing Division

Dr Hj Ahmad Hitam Senior Research Fellow, Biology Division

VISION OF PALM OIL

PALM OIL AS RENEWABLE SOURCE OF FOOD, NON-FOOD AND BIOFUEL

Indonesia Malaysia Collaboration

To work out a consensus scheme for palm oil supply rationalisation, i.e. price control mechanism To study the possibility of implementation of MPOB Leverage Model in Indonesia To collaborate on biofuel industrial development to help meet shortage of petroleum fuel through renewable energy sources such as palm oil

Background

Not getting optimum value for palm oil knowing that palm oil has a number of positive properties

Differential duty of palm oil & soyabean oil in India tantamount to price difference US$100 US$150 per tonne of oil between palm oil & soyabean oil

INDIAN MARKET 1ST January 2005

Product FOB Price (US$/t) Freight
(US$/t)

Duty
(%)

Landed price (US$/t)

CPO CSBO - USA CRSO - EU

380 515

35 70

65.0 50.8

684.8 882.2

728

62

50.8

1191.3

Background (cont)

Malaysia has a proposal to overcome this shortcoming by regulating supply / demand of palm oil through application of palm oil as biofuel
If Malaysia & Indonesia, the major producers of palm oil collaborate, it will lead to more equitable price for palm oil

Background (cont)

Use of RBD palm oil & RBD palm olein in petroleum diesel (B5 & B10) as biofuel

Use of B5 will result in 0.5 million tonnes of palm oil / palm olein removed from market

MPOB - Leverage Model

500,000 tonnes RBDPOo supplied for biofuel use at below market price of say, RM800 per tonne
Removal of 500,000 tonnes palm oil from stocks result in average price increase of, say RM300 per tonne Assuming 10 million tonnes export, this means an additional RM3 billion in revenue/profits

MPOB - Leverage Model (cont)

28% or RM1 billion will be paid to the Malaysian Government in the form of increased corporate taxes Malaysian Government could allocate half of this i.e. RM0.5 billion as corporate tax credit to companies supplying the belowcost palm oil for biofuel Up to RM1,000 per tonne available to compensate for price differential between the RM800 and monthly average price of RBDPOo (i.e. up to RM1,800 per tonne RBDPOo price)

MPOB - Leverage Model

RM 0.5 billion tax credit to plantation companies RM2 billion to palm oil industry RM 0.5 billion additional corporate taxes for Government

Additional RM3 billion from exports from higher prices of palm oil

Leverage Effect of MPOB - Leverage Model

RM 3 billion revenue RM 0.5 billion 50 % of stock of palm oil

500,000 t palm oil

5% of diesel use in Malaysia

RM 1 billion corporate tax

Will the MPOB - Leverage Model Work?

Qualitatively, directionally, yes. Price situation better with 500,000 tonnes removed than with 500,000 tonnes remaining in stocks
Pearson Correlation Coefficient : - 0.988 How much price increase?

Will the MPOB - Leverage Model Work? (cont)

If 28,000 tonnes removed monthly (336,000 tonnes per year) price increase is RM292.15
Even a conservative RM100 increase instead of RM300 increase workable if government gives full tax credit Complementary cess collection from industry if necessary

Rationale

By removing excess palm oil stock from the market, the palm biofuel project will be able to ward off any major fall of palm oil price in the future

The palm biofuel project is a viable long term strategy for price stabilisation
The palm biofuel project will conserve foreign exchange for the country by reducing the import of petroleum diesel

Suggested Areas of Collaboration

Palm Biofuel Project - RBDPOo / petroleum diesel blends (B2, B5 & B10) and RBDPO / petroleum diesel for local market

Implementation of MPOB Leverage Model

Palm Oil Supply Management Scheme

Proposal
If the MPOB Leverage Model is acceptable to Indonesia, we invite Indonesia for a G G meeting at the Ministerial level

Global Biodiesel Development

World Production of Biodiesel (000 Tonne)

3000 2500 2000 1500 1000 500 0 1991 1993 1995 1997 1999 2001 2003

World Europe West Asia North America Europe East

Source: Austrian Biofuels Institute

Exciting Developments In Biofuel

World biodiesel production 4x

- 1996 (591,000 tonnes) 2003 (> 2 million tonnes)

EUROPEAN UNION - 2003 (1.43 million tonnes production/capacity 2.246 million tonnes) - 2005 (3.1 million tonnes i.e. 2% of fuel consumption)

Exciting Developments In Biofuel (cont)

- 2010 (17.5 million tonnes i.e 5.75% of fuel consumption)

- 2020 - 20% of fuels will be biofuel

- Mandatory Blending of 1% from 2009, 1.75% from 2010

UNITED STATES Energy Policy Act 2003

2005
2012

3.1 billion gallons biofuel (biodiesel & ethanol)

5.0 billion gallons

Exciting Developments In Biofuel (cont)

American Jobs Creation Act 2004 (Oct 2004) - 1 Jan 2005 Includes biodiesel tax incentive (tax credit) for two years

UNITED KINGDOM - The Energy Bill 2004 contains provisions to bring in legislation for oil companies to sell given proportion of annual fossil fuel as biofuels (biodiesel, bioethanol and biogas)

Exciting Developments In Biofuel (cont)

BRAZIL - Mandated blending of ethanol in gasoline (24-26%) INDIA - Mandated 5% ethanol blended petrol in 9 states

THAILAND - Mixture of 90% diesel and 10% crop-derived oil : proposal submitted to Cabinet on 17 January 2005

Palm Biofuel Projects Malaysias Experience

MPOB Biofuel Research Programme

Energy Crisis in mid 1970s Fast Depletion of Petroleum Fossil Fuel Increasing Energy Consumption Growing Environmental Awareness

Malaysian Governments four-fuel diversification policy Search for Alternative Renewable Energy

MPOB Biofuel Research Programme

MPOB Biofuel Research Programme

Palm Diesel (Palm Oil Methyl Esters) as Diesel Substitute

Crude Palm Oil as Boiler Fuel Crude Palm Oil / Medium Fuel Oil Blends as Boiler Fuel RBD Palm Olein / Petroleum Diesel Blends as Industrial and Transport Fuels RBD Palm Oil / Petroleum Diesel Blends as Transport Fuel

Role Of Palm Oil Industry

Already leader in solid biofuel : 364 palm oil mills use palm fibre and shell successfully, self sufficient in energy Expected to lead again in liquid biofuel Potential great, currently < 1% biodiesel from palm oil

Raw Materials for Biodiesel

Rapeseed Oil (84%) (Europe)

Others (1%) Palm Oil (1%) (Malaysia)

Source: Austrian Biofuels Institute

Sunflower Oil (13%) (USA & Europe) Soyabean Oil (1%) (USA)

Oil Yield
Yield (tonne / ha / yr)

Palm Oil (Malaysia)

Rapeseed (EU) Soyabean (USA) Sunflower (Argentina)
Source: * MPOB (2004)

3.75*
1.33** 0.46** 0.66**

Highest Yield & Cheapest Oil

** Khoo (2001)

Crude Palm Oil as Biofuel

Crude Palm Oil as Biofuel

2 approaches : (A) Crude Palm Oil (CPO) (B) Crude Palm Oil (CPO) / Medium Fuel Oil (MFO) Blends Applications : Boiler fuel for power generation Boiler fuel for steam generation for industrial applications

Crude Palm Oil as Biofuel (cont)

Research Findings :

Satisfactory flame characteristics

Flue gas emission appeared normal Reduction in CO2, SO2 and NOx emission CO2 NO NOX 1.55% 22.62% 22.62% SO2 28.27% H2S 27.76%

RBD Palm Olein / Petroleum Diesel Blends as (A) Industrial Fuel (B)Transport Fuel

RBD Palm Oil / Petroleum Diesel as Transport Fuel

RBD Palm Olein / Petroleum Diesel Blends as Industrial Fuel for Power Generation

Summary of trials using RBD Palm Olein / petroleum diesel - all operating parameters within acceptable limit of engine manufacturer

- No problem in operation

RBD Palm Olein / Petroleum Diesel Blends as Industrial Fuel for Power Generation (cont)
- Significant improvement in fuel to electricity onversion efficiency at lower blending ratio (10 12%) of RBD palm olein - Optimum diesel engine performance at blending ratio 65 67% of RBD palm olein

Palm Oil and Palm Oil Products as Transport Fuels (commenced in 2002)
Processed Liquid Palm Oil / Petroleum Diesel Blends (B2, B5, B10)

RBD Palm Oil / Petroleum Diesel Blend (B5)

RBD Palm Olein (RBDPOo) / Petroleum Diesel (PD) Blends as Transport Fuel

16 MPOB vehicles have been using RBDPOo / PD blends (B2, B5 and B10) as fuel since 2002 B2 4 vehicles; B5 8 vehicles; B10 4 vehicles Total mileage covered to-date : 850,000 km No technical problems encountered so far Performance similar to that when petroleum diesel is used

Key Fuel Characteristics of RBD Palm Olein (RBDPOo) / Petroleum Diesel (PD) Blends
Property Density at 15C ASTM D4052 Sulfur Content( mg/kg) ASTM D4294 Viscosity @ 40C (cSt) ASTM D445 Pour Point (C) ASTM D97 Flash Point (C) ASTM D93 / ASTM D92 Cetane Number ASTM D613 B2 B5 B10 RBDPOo PD

0.8545
0.14 4.195 9

0.8565
0.14 4.459 9

0.8597
0.14 5.110 9

0.9199
<0.01 40.17 9

0.8530
0.15 3.975 9

75
53.6

79
53.2

78
52.3

322
50.4

76
53.4

Gross Heat of Combustion (MJ/kg) ASTM D240

45.165

44.850

44.520

39.300

45.455

B2 = 2% RBDPOo + 98% PD; B5 = 5% RBDPOo + 95% PD; B10 = 10% RBDPOo + 90% PD

RBD Palm Oil / Petroleum Diesel Blends as Transport Fuel

Trial on B5 blend involving 5 MPOB vehicles since March 2004 Total mileage covered to-date : 38,000 km No technical problems encountered so far

MPOB Pajero Participating in Field Trial

Key Fuel Characteristics of RBD Palm Oil (RBDPO) / Petroleum Diesel (PD) Blends
Property Density at 15C ASTM D4052 Sulfur Content( mg/kg) ASTM D4294 Viscosity @ 40C (cSt) ASTM D445 Pour Point (C) ASTM D97 Flash Point (C) ASTM D93 / ASTM D92 Cetane Number ASTM D613 Gross Heat of Combustion (MJ/kg) ASTM D240 B2 0.8545 0.14 B5 0.8563 0.14 RBDPO 0.9149 <0.01 PD 0.8530 0.15

4.188
9 78 54.1

4.503
9 80 52.0

40.97
21 332 NA

3.975
9 76 53.4

45.400

44.855

39.370

45.455

B2 = 2% RBDPO + 98% PD; B5 = 5% RBDPO + 95% PD; B10 = 10% RBDPO + 90% PD NA: Not available due to unstable readings from machine

Skid Tanks Storing B2, B5 and B10 of RBD Palm Olein / Petroleum Diesel Blends

Dispensing Pump

MPOB Pajero Participating in Field Trial

Palm Diesel (Palm Oil Methyl Esters) as Biodiesel (proposed for overseas market)

MPOB Palm Diesel Project

Commenced in 1981
Palm diesel : systematically and scientifically evaluated as a diesel substitute Includes laboratory determination of fuel characteristics, stationary engine testing, preliminary field trial and exhaustive field trial

3000 TPY Palm Diesel Pilot Plant at MPOB

Exhaustive Field Trials using Palm Diesel

Successfully conducted between 1986 1994 on diesel engines of different makes and models Trials involved 30 buses mounted with Mercedes Benz OM352 Engine : 100% palm diesel (10 buses) 50% : 50% blend (10 buses) 100% Petroleum Diesel as control (10 buses)

Results in terms of engine performance, fuel consumption, exhaust emission, repair and maintenance were promising

Field Trials using Various Diesel Engines

Field Trials using Mercedes Benz (OM352) Diesel Engines Mounted on Passenger Buses (each bus covered 300,000 km)

Summary of Field Trial

No modification of conventional diesel engine required Good engine performance Much cleaner exhaust gas emission (reduction of hydrocarbon, CO, CO2, SO2 content) Engine oil: still usable after recommended mileage Cetane number / Diesel Improver ( 62.4 c.f. 37.7 for petroleum diesel from Europe)

Summary of Field Trial

Enhanced safety characteristic in storage and transportation (174oC = Flash point c.f. 98oC for petroleum diesel) Normal carbon build up in engine fuel nozzle except nature of carbon different Comparable fuel consumption with petroleum diesel (e.g. 3 - 4 km per litre for bus tested)

Key Fuel Characteristics of Palm Diesel (Crude Palm Oil Methyl Esters)
Product Tests Conducted Specific Gravity ASTM D1290 Colour (visual) Sulfur Content (% wt) IP 242 Viscosity @ 40 C (cSt) ASTM D445 Pour Point (C) ASTM D97 Final Recovery (ml) Gross Heat of Combustion (kJ/kg) ASTM D2382 Flash Point (C) ASTM D 93 Conradson Carbon Residue (% wt) ASTM D198 Palm Diesel 0.8700 @ 74.5 Reddish < 0.04 4.5 15.0 98.0 40,135 Malaysian Diesel 0.8330 @ 60.0 Yellow 0.10 4.0 15.0 45,800

174
0.02

98
0.14

Production of Phytonutrients from Palm Diesel using MPOB Technologies

Crude Palm Oil ( CPO )

CPO Methyl Esters (Palm Diesel)

Distillation

Distilled Methyl Esters (Palm Diesel)

Phytonutrients Concentrate Containing Carotenes, Vitamin E, Phospholipids (Lecithin), Sterols, Coenzyme Q and Squalene Carotenes Vitamin E Sterols Squalene Coenzyme Q Phospholipids (Lecithin)

Feedstock for value-added oleochemical products

Production Of Individual Carotene, Vitamin E & Cholesterol-free Sterol

High purity (>95%) of the following produced : - individual carotene, e.g. a- and bcarotenes, lycopene and phytoene - individual vitamin E isomers, e.g. a- and g-tocopherols, a-, g- and dtocotrienols - b-sitosterol

Development of Low Pour Point Palm Diesel

Palm Diesel (Crude / Distilled Palm Oil Methyl Esters) pour point: +12C to +15C

Palm Diesel with Low Pour Point pour point: -21C to 0C

Seasonal Pour Point Requirement of Biodiesel

Season Spring Summer
Winter Spring

Pour Point (C) -10 0 -10 -20

Summer

Autumn

Autumn Winter

Fuel Properties of Normal Palm Diesel & Low Pour Point Palm Diesel vis--vis EN14214 & ASTM D6751
EN 14214 Properties Unit Min Ester Content Density at 15C Viscosity at 40 C Flash Point Sulphur Content Carbon Residue (on 10% distillation residue) Cetane Number Oxidative Stability, 110C Copper Strip Corrosion (3h at 50 C)
1Unit

ASTM D6751 Min 1.9 130 47.0 Max 6.0 0.051 0.052 -

Max 0.900 5.0 10 0.3 -

Normal & Low Pour Point Palm Diesel 98.0 99.5 0.87 0.89 4.0 5.0 170 - 200 < 0.011 0.02 0.032 53.0 59.0 >6

% mass g/cm3 cSt C mg/kg % mass hours

96.5 0.860 3.5 120 51.0 6.0

rating

1a

in % mass 2Test on 100% distillation residue

Fuel Properties of Normal Palm Diesel & Low Pour Point Palm Diesel vis--vis EN14214 & ASTM D6751
EN 14214 Properties Unit Min Sulphated Ash Content Basic Sediment and Water Acid Value Iodine Value % mass mg/kg mg KOH/g Max 0.02 500 0.5 120 Min Max 0.02 0.050 0.8 ASTM D6751

Normal & Low Pour Point Palm Diesel

< 0.01 < 500 < 0.3 51 83

Content of Linolenic Acid Methyl Esters Content of Fatty Acids with more than 3 double bonds

% (m/m)

12

0.5

% (m/m)

< 0.1

Fuel Properties of Normal Palm Diesel & Low Pour Point Palm Diesel vis--vis EN14214 & ASTM D6751

EN 14214 Properties Unit Min Methanol Content Monoglycerides Diglycerides Triglycerides Free Glycerol Total Glycerol % (m/m) % (m/m) % (m/m) % (m/m) % (m/m) % (m/m) Max 0.2 0.8 0.2 0.2 0.02 0.25

ASTM D6751 Min Max 0.02 0.24

Normal & Low Pour Point Palm Diesel

<0.2 0.4 1.2 0.1 0.5 0.2 1.1 < 0.01 < 0.01

( - ) : Not Detectable

Palm Oil as Fuel : A Summary

Palm oil, the cheapest vegetable oil, offers the potential as environmentfriendly and renewable fuel

Palm oil methyl esters (palm diesel) are ready diesel substitute

Palm Oil as Fuel : A Summary (cont)

CPO and RBD palm olein blended with medium fuel oil and petroleum diesel, respectively, have also been used as fuel for power station and steam generation plant RBD palm olein and RBD palm oil blended with petroleum diesel are found to be suitable as vehicle fuel

Impact of the Palm Biofuels Project to Malaysian Palm Oil Industry / Nation

Safety Net Alternative Renewable Energy in line with Malaysian Governments call to source for renewable 5th fuel

Diesel Substitute / Diesel Improver

Impact of the Palm Biofuels Project to Malaysian Palm Oil Industry / Nation (cont)

Environment-friendly fuel : positive impact to the environment Carbon Credit under Clean Development Mechanism (CDM)

Impact of the Palm Biofuels Project to Malaysian Palm Oil Industry / Nation (cont) Other Benefits of Palm Diesel Project :

Provides a source for recovery of phytonutrients e.g. Carotenes, Vitamin E, Sterols, Squalene, Coenzyme Q and Phospholipids Alternative process for the production of methyl esters as oleochemicals feedstocks

Technologies Available from MPOB :

RBD Palm Olein/Petroleum diesel blends Palm diesel (palm oil methyl esters) including low pour point palm diesel Palm phytonutrients (e.g. carotenes and vitamin E) from palm diesel

Conclusions

If the MPOB Leverage Model is acceptable to Indonesia, propose a G to G meeting at Ministerial Level Malaysia will be pleased to share experiences in Biofuel R & D with Indonesia including technology know-how

Malaysia also welcomes any other proposal from Indonesia to achieve optimum value for palm oil

Malaysia cordially invites your Minister to meet our Minister to discuss on Biofuel and Supply Rationalisation

Thank You