Palm Biodiesel Outlook in 2019 - pocmalaysia.com 1_2 UR Unnithan_.pdf · 2 U.R.Unnithan, POC 2019...

PRIVATE & CONFIDENTIAL

POC 2019 4-6 Mar 2019, Kuala Lumpur

Palm Biodiesel Outlook in 2019

U.R. Unnithan, SUMWIN Group

U.R.Unnithan, POC 2019

Presentation Outline 1. Global Energy Outlook 2. Renewables in the energy mix 3. Global Biodiesel scenario 4. Palm Biodiesel update -Indonesia 5. Palm Biodiesel update- Malaysia 6. Economics for Biodiesel mandates in Indonesia and

Malaysia 7. Challenges facing the Palm Biodiesel industry 8. HV0- the new Frontier for Palm Biodiesel 9. Conclusion and Palm Oil Price Outlook

1 U.R.Unnithan, POC 2019

GLOBAL ENERGY OUTLOOK


Global Energy outlook

• World GDP more than doubles by 2040. • India, China & other Asia will account for 2/3rd of

increase in energy demand. • 3/4th of the world energy demand increase will be in

power sector. • Global Energy Mix- Heating & Cooling-48%,

Transport-32%, Electricity- 20% • Share of Co2 Emissions- Power 40%, Industry-25%,

Transport-25% & Buildings- 10%

3


Energy Consumption in Transport

2019 BP Energy Outlook 3


Energy Consumption in Transport by Mode

2019 BP Energy Outlook


RENEWABLES IN THE ENERGY MIX


Renewables in the Global Energy Mix

• Renewables set to grow faster than any fuel in history.

• 1/5th of the world’s electrical power will come from

renewables by 2020. • Transport sector accounts for 32% of Global Energy • Renewables share of Transport is very low(3.1%) with

90% provided by liquid biofuels. 7


The Energy Transition

Source 2019 BP Energy Outlook


Co2 Emissions & Transition Scenarios

Source 2019 BP Energy Outlook


Renewables in Transport

SOURCE: OECD/IEA 2018/RENEWABLES 2018 10 U.R.Unnithan, POC 2019

Asia and Latin America dominate biofuel production growth

GLOBAL BIODIESEL SCENARIO


Biofuel production by Region



Global biodiesel production and crude glycerol price from 2003 to 2020

Source:Food and Agriculture Organization of the United Nations (OECD), OECD-FAO Agricultural Outlook; OECD: Paris, 2015. 15 U.R.Unnithan, POC 2019

Global biodiesel production by feedstock.

Source: The Crop Site

Vegetable Oils continue to dominate as

main feedstock for Biodiesel


Record Biodiesel Output Likely in 2019

Source : Oil World


Biodiesel blending mandates

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Argentina 7% 8% 10% 10% 12% Australia(NSW) 2%

Brazil 5% 6-7% 10% Canada 2%

China 2

Colombia 8% 10% 20% EU 10% Indonesia 5% 8% 8% 10% 15% 20% 25% 30% Malaysia 5% 7% 10%

Peru 5% 5% Philippines 2% South Africa 5%

Thailand 5% 7% 10% US 2.67 3.34 4.28 5.45 5.78 6.35 6.68 7.02 7.02 n/a

• Note: Mandates are a percentage of diesel consumption by volume aside from the US which is in billion litres and the EU which is by energy. The target in China is in million tonnes.


BIODIESEL

Global Production

Quantity, Million MT 2018

Share of Global Biodiesel

Production, % 2018

Global Production Quantity, Million

MT 2017

Share of Global

Biodiesel Production, %

2017

PME 14.80 37.23 10.75 30.55%

SME 10.4 26.16 9.29 26.4%

RME 7.5 18.87 7.33 20.83%

TME 2.0 5.03 2.44 6.93%

Used Oils 4.0 10.06 N/A N/A

Other Oils 1.05 2.65 5.38 15.28

ALL BIODIESEL 39.75 100.00

35.19

100.00

Biodiesel production by Feedstock 2018 vs 2017


PALM BIODIESEL UPDATE-INDONESIA


Indonesian Government Policies on Biodiesel Program & NDC

Renewable Energy 2025 2050 23% 31%

Bioenergy 10% 14%

B5 2006

B10 B15

B20 2016

B30 2020

Biodiesel Mandatory Program

Indonesia, Nationally Determined Contributions UNFCCC 2020 2030 26% 29%

GO

VERN

MEN

T POLIC

IES & R

EGU

LATION

S

22 Source : APROBI




Indonesia biodiesel production and consumption set to rise sharply in 2019


CPO use for Indonesian biodiesel


Biodiesel adoption plan in Indonesia



PALM BIODIESEL UPDATE- MALAYSIA


THE MALAYSIAN BIODIESEL MANDATE


Source: MPIC & MPOB

Malaysian Biodiesel Statistics

Years

Biodiesel [PME] Production

Quantity (MT)

Biodiesel [PME] Export Quantity

(MT)

Biodiesel Blended locally (MT)

2008 171,555 102,108

2009 222,217 227,457

2010 117,173 89,609

2011 173,220 49,999 20,343

2012 249,213 28,983 113,276

2013 472,129 175,032 185,039

2014 600,524 87,856 295,451

2015 763,532 178,942 382,000

2016 500, 857 83,581 350,000

2017 720,410 235,291 358,586

2018 1,089,964 515,467 429,213


Source MOPB 33 U.R.Unnithan, POC 2019

• Energy security – reducing dependency on foreign imported fuel

• GHG reduction – helping to meet the national target. GHG reduction is also a KPI for industries in improving its image in export markets

• No subsidies required (if B10 is built into formula pricing) • The cost effectiveness of biodiesel would be even better as

Malaysia moves to more stringent Euro 5 standard for diesel with 10 ppm sulfur. Here, palm biodiesel will further improve lubricity at lower sulfur levels (hence saving on an additional lubricity additive which would raise the price of ULSD)

• Create additional demand for CPO and its likely positive price impact

Benefits of B10


ECONOMICS FOR BIODIESEL IN MALAYSIA AND INDONESIA


Indonesia’s Biodiesel Support Fund

1. Biofuels Business Entities supply biodiesel to Pertamina / PT ANEKA KIMIA RAYA (AKR). 2. Pertamina / AKR will pay for the Biodiesel based on the Diesel Fuel Market Price Index

assigned by the Director General of Oil and Gas, Ministry of Energy and Mineral Resources.

3. Ministry of Energy and Mineral Resources cq DG EBTKE verify the delivery of Biodiesel from Biofuels Business Entities to Pertamina / AKR

4. IECF will disburse the Biodiesel financing funds based on the verification results. 5. Biodiesel Support Funds = The difference between the Market Price Index of Biodiesel

and Diesel Fuel Market Price Index determined by the Ministry of Energy and Mineral Resources.

Source: IECF, 2015

March 2016


Indonesian Biodiesel volume vs CPO Price

Source: LMC 37 U.R.Unnithan, POC 2019

Effect of Leverage

Source: LMC


POGO SPREAD

• POGO Spread: Palm Oil – Gas Oil Spread, gasoil futures traded on the Intercontinental Exchange, or ICE, against crude palm oil futures listed on Bursa Malaysia, or BMD, in US$

• The more –ve POGO is exports become competitive


POGO SPREAD in 2018 Month ICE GO USD/MT CPO USD/MT POGO USD/MT

Dec 2018 545 430 -115

Nov 2018 630 437 -193

Oct 2018 722 501 -221

Sep 2018 692 526 -166

Aug 2018 657 533 -121

July 2018 667 539 -128

June 2018 658 583 -75

May 2018 677 611 -66

April 2018 635 623 -12

March 2018 596 627 +31

This explains the surge in Biodiesel exports from Malaysia in 2018


PALM BIODIESEL INDUSTRY- CHALLENGES


Challenges Facing the Palm Biodiesel Industry.

1. EU ban on Palm Oil for Biodiesel- new ILUC standards.

2. Demand for a new common Sustainability Standard in EU.

3. American RFS2 approval still a dream. 4.Opposition from Automakers for higher Blend

ratios 5.Lack of awareness among consumers 6. Low Crude Oil prices 43 U.R.Unnithan, POC 2019

GHG Emission Saving Threshold in REDII Plant operation start date

Transport Biofuels

Before Oct 2015 50%

After Oct 2015 60%

After Jan 2021 65%

Source: IEA Bioenergy Dec 2018


New ILUC Standards in the RED II

Non-Eligible Land Categories for production of Biofuel feedstocks

1. High Biodiversity Land ( as of Jan 2008) 2. High Carbon stock land that changed use after 2008 from

wetlands, continuously forested land or other forested areas with trees higher than 5m & canopy cover between 10 & 30%

3. Land that was Peat in Jan 2008

45

Source: IEA Bioenergy Dec 2018


EU Biodiesel Production by Feedstock


HVO- THE NEXT FRONTIER FOR PALM BIODIESEL


HVO PROJECTED CAPACITY, Million MT

Source: Greenea Consulting 50 U.R.Unnithan, POC 2019

Global Capacity in 2017- 4.75 M MT, expected to grow to 6.8 M MT in 4 years

HVO Plants in the EU

Location Company Capacity, MT Feedstock Porvoo, Finland Neste 525,000 Animal Fat, Crude Tall

Oil(CTO), Veg Oils

Lapeenrata, Finland UPM 120,000 CTO

Rotterdam, Netherlands Neste 800,000 Animal Fat, Veg Oils

Pitea, Sweden SunPine 50,000 CTO

Port Marghera, Itlay ENI 300,000 Veg Oils, UCO

Gothernburg, Sweden Preem 100,000 CTO

Total 1,895,000


Source: STRATAS ADVISORS

Planned HVO Plants in the EU Location Company Capacity, MT Feedstock La Mede, France TOTAL 500,000 CPO, UCO, Animal Fat(

Uncertain due to feed constraints)

Gela, Italy ENI 600,000 CPO, UCO( Q2 2019)

Porto Marghera, Italy ENI 240,000 CPO, UC0( In 2021)

Kotka, Finland UPM 500,000 CTO( Final decision pending)

Gothernburg, Sweden St1 100,000 CTO( Online in 2021)

Lysekil & Gothenberg, Sweden

Preem 1,200,000 Not disclosed( intention to increase to 1.3 M MT by 2023

Plock Poland Litvinov, Czech Republic

PKN Orlen Not Disclosed

Not disclosed( Capacity to be Determined

Total 3,140,000

40 U.R.Unnithan, POC 2019 Source: STRATAS ADVISORS

Strategic Considerations in Building HVO Plants

• Much higher CAPEX than conventional Biodiesel Plants • No Glycerine Credit unlike in FAME • Requires very high capacity & capacity utilization to justify ROI • Feedstock availability and its sustainability would be a key

consideration • Energy security, Forex, Price Support etc- key Government

considerations • HVO is a far superior quality Biodiesel than FAME from a CFPP,

Nox Emission, Cetane Number & Blending wall consideration. • Indonesia/Malaysia could find a strategic advantage in this

new domain due to control of the cheapest feedstock.


ENI’s Ecofining Technology


Superior Drop in Fuel


Conclusions & Price Outlook 1. The push for increasing share of renewables is gaining momentum worlwide. 2. Biodiesel is now an integral and important part of the Palm Oil price

mechanism. 3. Indonesia and Malaysia to plan to steadily increase Palm Biodiesel mandates. 4. 2019 will see increased mandates both in Indonesia and Malaysia providing

further support to CPO price. 5. A potential drop in Indonesian Exports due to EU action by end 2019 could

help Malaysian PME Exports 6. HVO as the next frontier for Palm Biodiesel will need careful evaluation of

strategic considerations 7. Protectionist policies from EU & US will restrict exports of PME in the long

run. 8. Low Crude Oil Prices around US$55/barrel and record stocks and ample

production of Oil seeds and Palm Oil will restrict much higher prices in 2019. 9. For 2018, I had forecasted CPO Price at RM 2450/MT with a downside of RM

2300, the average for 2018 was RM2235/MT. For 2019 , I see Palm Oil price averaging RM 2300-2400/MT.


Suite No. 3, Business Wing,X-Sentral within Bio-XCell Biotechnology Park No.2, Jalan Bioteknologi 1, Kawasan Perindustrian SiLC

79200 Iskandar Puteri, Johor, Malaysia

SUMWIN SOLUTIONS MALAYSIA SDN BHD

www.sumwinglobal.com Office: +607 300 5132/33 Fax:- +607 300 5130

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