Impacts of Biodiesel Development on the Palm Oil Industry

This paper examines the impacts of biodiesel growth on the palm oil industry. The implications of biodiesel growth are discussed within the context of the overall oil seeds industry. Insufficient supply of the most major oil seed used for biodiesel-rapeseed has given rise to a raw material supply gap. In this context, the complementary role of palm oil is expected to become more significant. Major producers of palm oil are keen to use biodiesel as a stock management mechanism for palm oil which is currently perceived to be undervalued in terms of pricing. Ongoing work to increase yield through sustainable plantation practices and improvement ofplanting materials is being intensified in anticipation ofstrong palm oil demand. Other measures to meet rising energy demands include increasing oil palm hectarage in a responsible way and producing cellulosic ethanol from palm biomass. A system dynamics model for examining the inter-linkages between palm oil, petroleum and biodiesel is presented. The model shows that when crude oil price is around USD38/ bbl or less, palm biodiesel is not profitable even for a very low CPO price of USD200/ tonne. At a crude oil price of USD70/bbl, palm biodiesel is profitable for CPO at around USD450/tonne or less. The dynamics of the system is also explored to see how biodiesel and CPO prices respond dynamically to changes in the oil price and CPO production rates.