Investment Threats to Palm Oil Biofuel Sector

Kenneth Chua – Research Analyst Technical Insights Group

2nd International Conference on Future of Palm oil BusinessMATRADE Exhibition and Convention Centre

October 18, 2010

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Frost & Sullivan’s Industry Coverage

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4. Electronics & Security

5. Energy & Power Systems

6. Environmental & Building Technologies

7. Healthcare

8. Industrial Automation & Process Control

9. Information & Communications Technologies

10. Measurement & Instrumentation

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Contents

Threat: Environmental Concerns

11

Threat: Policies and Government-Backed Programs

Introduction and Overview

Conclusion

22

33

44

55

66

Threat: Economic Concerns

Threat: Competition with Other Biofuel

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Introduction

Palm Oil BiofuelPalm Oil Biofuel

Palm oil could play a role in the substitution of hydrocarbon fuels in the future. Such possibilities are however, met with threats from different fronts including economic, competition alternatives, environmental concerns, as well as being influenced by governmental policies.

The discussion would look into how these aspects threaten the feasibility of palm oil based biofuel.

Palm oil could play a role in the substitution of hydrocarbon fuels in the future. Such possibilities are however, met with threats from different fronts including economic, competition alternatives, environmental concerns, as well as being influenced by governmental policies.

The discussion would look into how these aspects threaten the feasibility of palm oil based biofuel.

Source: Frost & Sullivan

Economic

Aspect

Environmental

Aspect

Competing

Feedstock

Policies and

Governmental

Support

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Contents

Threat: Environmental Concerns

11

Threat: Policies and Government-Backed Programs

Introduction and Overview

Conclusion

22

33

44

55

66

Threat: Economic Concerns

Threat: Competition with Other Biofuel

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Economic ConcernsOverview

Economic Concerns

For Palm Oil Based

Biofuels

Economic Concerns

For Palm Oil Based

Biofuels

Pricing for biofuel – Feedstock influence by

food prices

Uncertainties in long term value of carbon

credit – and its volatility

Economic value of byproducts

Logistics considerations often

neglected

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2. Oil crops planted for biodiesel, competition with food crops

2. Oil crops planted for biodiesel, competition with food crops

3. Increase in food price, due to reduced supply (competition with food)

3. Increase in food price, due to reduced supply (competition with food)

Food or energy, or food, or… ?

Source: Frost & Sullivan

1. High energy price

1. High energy price

• Palm Oil: Good for feedstock suppliers, bad for biodiesel blenders/ refiners

• Palm Oil: Good for feedstock suppliers, bad for biodiesel blenders/ refiners

• Non-competing biodiesel sources: Microalgae/ Jatropha/ Waste water

• Non-competing biodiesel sources: Microalgae/ Jatropha/ Waste water

Economic ConcernsFood vs. Fuel Debate

?

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Carbon Credit and its Long Term UncertaintiesCarbon Credit and its Long Term Uncertainties

• Declining trend of carbon credit pricing

• Lack of strong indicator for long term value – with countries having “veto” rights in committing amount of carbon emission reduction

• Influx of projects aiming for CDM certification, lead by China

• Is carbon credit a hype?

• Declining trend of carbon credit pricing

• Lack of strong indicator for long term value – with countries having “veto” rights in committing amount of carbon emission reduction

• Influx of projects aiming for CDM certification, lead by China

• Is carbon credit a hype?

Economic ConcernsCarbon Credit System

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Economic Concerns Logistics

Asia Europe

US

Market destinations for palm oil biofuel

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Contents

Threat: Environmental Concerns

11

Threat: Policies and Government-Backed Programs

Introduction and Overview

Conclusion

22

33

44

55

66

Threat: Economic Concerns

Threat: Competition with Other Biofuel

11

Environmental ConcernsOverview

Environmental Concerns

For Palm Oil Based

Biofuels

Environmental Concerns

For Palm Oil Based

Biofuels

Global perception on palm oil as a source of green

energy

Long term global commitment to reduce carbon

emission uncertain

Comparisons with other forms of green energy

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A question on public perception:

Is palm oil based biofuel clean? –

Everyone believes it so it must be true

A question on public perception:

Is palm oil based biofuel clean? –

Everyone believes it so it must be true

• Palm oil has been attacked by environmental groups

• Indonesia is now ranked THIRD in the world in terms of carbon emission (!!!), in a recent report sponsored by World Bank

• Palm oil has been attacked by environmental groups

• Indonesia is now ranked THIRD in the world in terms of carbon emission (!!!), in a recent report sponsored by World Bank

Environmental ConcernsGlobal Perception

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Global Commitment Levels in Carbon Emission ReductionGlobal Commitment Levels in Carbon Emission Reduction

• Kyoto Protocol – disappointing reduction commitment from developed nations

• Incentive from carbon credits – uncertain in the near future and beyond 2020

• Carbon trading mechanism still in infancy stage

• Kyoto Protocol – disappointing reduction commitment from developed nations

• Incentive from carbon credits – uncertain in the near future and beyond 2020

• Carbon trading mechanism still in infancy stage

Environmental ConcernsGlobal Commitment Levels

This global satellite map shows carbon dioxide in the mid-troposphere, about 8 kilometers above Earth. It was created with data acquired by the Atmospheric Infrared Sounder (AIRS) instrument during July 2008.

Source: Wikimedia

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Contents

Threat: Environmental Concerns

11

Threat: Policies and Government-Backed Programs

Introduction and Overview

Conclusion

22

33

44

55

66

Threat: Economic Concerns

Threat: Competition with Other Biofuel

15

Competition With Other BiofuelOverview

Competition With Other

Biofuel

Competition With Other

Biofuel

Overall feedstock cost

Technological level – efficiency and cost

reduction

Overall reduction in carbon emission

Geographical location dependent feedstock

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Relating to feedstock ….Relating to feedstock ….

• Feedstock is heavily dependent on geographical locations

• Feasibility of feedstock in each geographical location depends on multiple factors: climate, technology levels, labor cost, etc.

• Asia Pacific heavy on palm oil, while major biodiesel consumer, Europe have high dependence on rapeseed oil

• Currently, bioethanol seems to be the most cost competitive

• Feedstock is heavily dependent on geographical locations

• Feasibility of feedstock in each geographical location depends on multiple factors: climate, technology levels, labor cost, etc.

• Asia Pacific heavy on palm oil, while major biodiesel consumer, Europe have high dependence on rapeseed oil

• Currently, bioethanol seems to be the most cost competitive

Competition With Other BiofuelFeedstock Issues

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Contents

Threat: Environmental Concerns

11

Threat: Policies and Government-Backed Programs

Introduction and Overview

Conclusion

22

33

44

55

66

Threat: Economic Concerns

Threat: Competition with Other Biofuel

18

Policies and Government-Backed ProgramsOverview

Policies and Governmental

Support

Policies and Governmental

Support

Long term commitment – Governmental support

Regulation for biodiesel blends

Incentives compared to other green energy – governmental push

Long time taken for CDM registration and validation

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Contents

Threat: Environmental Concerns

11

Threat: Policies and Government-Backed Programs

Introduction and Overview

Conclusion

22

33

44

55

66

Threat: Economic Concerns

Threat: Competition with Other Biofuel

20

Palm oil still under attack, targeted for carbon emission Palm oil still under attack, targeted for carbon emission

Conclusion

Currently, feedstock still too expensive. Consequently, governmental subsidies and/or policies required to support

oil palm for biodiesel

Currently, feedstock still too expensive. Consequently, governmental subsidies and/or policies required to support

oil palm for biodieselKey Threat 1Key Threat 1

Key Threat 2Key Threat 2

Competing with other forms of biofuel, such as the rapidly emerging microalgae and cost effective bioethanolCompeting with other forms of biofuel, such as the rapidly emerging microalgae and cost effective bioethanolKey Threat 3Key Threat 3

Need for long term (and difficult) commitment from government to support the industry’s growth Need for long term (and difficult) commitment from government to support the industry’s growth Key Threat 4Key Threat 4

CDM and carbon trading still developing, inefficiencies still present

CDM and carbon trading still developing, inefficiencies still present

Key Threat 5Key Threat 5

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Q & A

Amir AbdullahAccount ManagerTechnical InsightsAsia Pacific(+603) 6204 5888amir.abdullah@frost.com

Kenneth ChuaResearch AnalystTechnical InsightsAsia Pacific(+603) 6207 1047kenneth.chua@frost.com