Global Biodiesel Outlook 2016 U.R. Unnithan, Carotino Sdn. Bhd.

Transcription

1 Global Biodiesel Outlook 2016 U.R. Unnithan, Carotino Sdn. Bhd. Palm and Lauric Oils Price Outlook Conference & Exhibition 2016 Mar 7-9, Shangrila Hotel, Kuala Lumpur

2 Presentation Outline 1. Global Energy Scenario 2. Global Warming and Climate Change 3. Renewables in the Energy Mix 4. Macro Crude Oil and Biodiesel Scenario 5. Global Biodiesel Scenario 6. Key Drivers for Biodiesel Mandates 7. Biodiesel in Malaysia and Indonesia 8. Economics for Biodiesel in MY/INA 9. Indonesian Biodiesel Mandate a Game Changer 10. Technical Issues in Moving from B7 to B Summary March

3 Global Energy Scenario

4 Global Primary Energy Demand by Type in the INDC (Intended Nationally Determined Contributions) Scenario Source: Energy and Climate Change, IEA, 2015 March

5 World Primary Energy Demand by Fuel and Scenario (Mtoe) Source: Richard Vietor, Harvard Business School, 2016 March

6 Global Warming and Climate Change

7 CO 2 and Climate Change Emissions are still rising, especially in developing countries Concentrations are still rising, towards 450ppm CO 2 Temperatures are also rising Next two decades are crucial.. March

8 World Atmospheric Concentrations of CO 2 and Average Global Temperature Change Source: Richard Vietor, Harvard Business School, 2016 March

9 2015 Was Our Planet s Hottest Year on Record Source: NCEI / NESDIS / NOAA March

10 Energy-related CO 2 Emissions in Selected Regions (2014) Notes: The implicit CO 2 subsidy is calculated as the ratio of the economic value of those subsidies to the CO 2 emissions released from subsidized energy consumption. ETS = emission trading scheme. Source: Richard Vietor, Harvard Business School, 2016 March

11 World Meteorological Association (11/10/2015) Reports 400ppm First Quarter 2015 Source: Richard Vietor, Harvard Business School, 2016 March

12 Renewables in the Mix

13 Share of Global Renewables Consumption by Sector and Region in the New Policies Scenario Source: Richard Vietor, Harvard Business School, 2016 March

14 World Electricity Generation by Source in the New Policies Scenario Source: Richard Vietor, Harvard Business School, 2016 March

15 Macro Crude Oil & Biodiesel Scenario

16 Oil and Liquids Demand by Region and Scenario (mb/d) Source: Richard Vietor, Harvard Business School, 2016 March

17 Shale Oil Production by Country in the New Policies Scenario (mbpd) Source: Richard Vietor, Harvard Business School, 2016 March

18 Year-on-year Increase in U.S. Crude Production (thousand b/d) Source: EIA March

19 U.S. Oil Production and Imports Source: EIA, Short Term Energy Outlook March

20 U.S. Crude Oil Prices, ($ per barrel) Source: Richard Vietor, Harvard Business School, 2016 March

21 Global Crude Oil Market Global crude oil production = mbpd = million MT/day = billion MT/year (Source : IEA, Q4 2015, density 0.86 kg/l) Estimated diesel/gasoil production = mbpd = 3.4 million MT/day = 1.1 billion MT/year (density kg/l) Region mbpd Market Share Major Players Middle East % Saudi Arabia 11%, UAE 3%, Iran 3%, Iraq 4%, Kuwait 3% Americas % USA 20%, Latin America 7% Eurasia % Russia 15% Africa % Nigeria 2%, Angola 2%, Algeria 1% Asia & Oceania % China 5%, India 1%, Indonesia 1%, MY 0.7% Source: IEA, 2015 March

22 Position of Palm Oil in Global Vegetable Oils Market Global Oils & Fats Exports (2015) = 79 million MT PALM OIL Production = million MT (34.84% of total oils & fats) Exports = million MT (60.66% of oils & fats exports) SOYOIL + RAPESEED OIL + SUNFLOWER OIL Production = million MT (64.96% of total oils & fats) Exports = million MT (38.17% of oils & fats exports) Source: Oil World, F March

23 Usage of Biodiesel by Feedstock F Source: Oil World March

24 Global Production of Biodiesel F Source: Oil World, 2016 March

25 Global Consumption of Oils and Fats for Food and Biofuel Source: Oil World March

26 Global Biodiesel Scenario

27 Global Biodiesel Production 2015 vs 2014 BIODIESEL Global Production Quantity Share of Global Oils & Fats Production PME 9.7 million MT 5% SME 8.3 million MT 4% RME 6.5 million MT 3% TME 2.3 million MT 1% ALL BIODIESEL 31 million MT 15% Share of Individual Oils & Fats Production 15% of PO Prod. 17% of SBO Prod. 23% of RSO Prod. 8% of Animal Fats Prod. BIODIESEL Global Production Quantity Share of Global Oils & Fats Production PME 8.8 million MT 4% SME 7.8 million MT 4% RME 6.7 million MT 3% TME 2.1 million MT 1% ALL BIODIESEL 28.8 million MT 14% Share of Individual Oils & Fats Production 14% of PO Prod. 15% of SBO Prod. 27% of RSO Prod. 5% of Animal Fats Prod. March

28 Global Biodiesel Mandates EUROPE NO. COUNTRY %, 2015 NO. COUNTRY %, Germany 3.5% GHG reduction 2. France 7.7% energy 3. Italy (by 2016) 5.5% energy 4. Spain (by 2016) 5% energy 5. Poland 7.1% energy 6. Netherlands 6.25% energy 7. UK 4.75% vol. 8. Czech Republic 6% energy 9. Ireland 6% vol. 10. Finland (by 2016) 10% energy 11. Slovakia (by 2016) 7.6% vol. 12. Norway 5.5% vol. 13. Slovenia (by 2016) 5.16% energy 14. Croatia (by 2016) 4.71% energy 15. Hungary 4.9% energy 16. Bulgaria 6% vol. 17. Portugal 7.1% energy 18. Belgium 6% vol. 19. Luxemburg 4.75% energy 20. Austria 5.75% energy 21. Romania 6% vol. 22. Latvia 5% vol. 23. Lithuania 7% vol. 24. Malta (by 2016) 6.5% energy March

29 Global Biodiesel Mandates AMERICAS NO. COUNTRY %Vol., USA 2.1 bln gallons 2. Brazil Argentina Colombia 10.0 ASIA NO. COUNTRY %Vol., China Disc. blending 2. Indonesia Malaysia Philippines South Korea Thailand 3.5 China and India have committed to Greenhouse Gas reduction at COP21 Climate Change Summit in Paris. India has announced EURO 6 Diesel by India is planning for B20 by Not much biodiesel is currently being used in China and India as there is no parity with Gas Oil (Diesel). March

30 2015 U.S. Biodiesel Marketplace Minnesota implemented B10 in 2015; moving on to implement B20 in 2018 Source: US NBB March

31 Volume (MT) Thousands Biodiesel Statistics in Indonesia 4,500 4,000 3,500 3,961 3,000 2,500 2,000 1,500 1, ,812 1, ,221 1,552 2,805 1,757 1,048 1,048 1,845 1,629 1, Production Export Domestic *Estimated

32 Volume (MT) Thousands Biodiesel Statistics in Malaysia Production Export 32

33 Global CNO/PKO Production (2015) CNO NO. Country Million MT 1. Philippines Indonesia India Rest of the World 0.3 TOTAL 3.0 PKO NO. Country Million MT 1. Indonesia Malaysia Rest of the World 0.5 TOTAL 6.4 CNO & CME Production in Philippines up to 2025 YEAR CNO (million MT) CME (million MT) CME as % of CNO Prod. 2015E % 2020F % 2025F % March

34 Key Drivers for Biodiesel Mandates

35 Key Drivers for Biodiesel Mandates 1. Energy Security 2. Climate Change 3. Price Support for Vegetable Oils 4. Economic Development March

36 Malaysia s Climate Change Commitment YAB PM Dato Sri Mohd Najib Tun Abdul Razak committed a 45% GHG reduction by 2030 at COP21, Paris 2015 in relation to GHG emissions in Malaysian GHG emission in 2005 was 155 million MT CO 2 equivalent (MtCO 2 e) 45% GHG reduction target = 70 mmtco 2 e At B20, GHG reduction potential = 6 mmtco 2 e (8.6% of Malaysian target) Potential of GHG reduction from Methane capture in Palm Oil Mills = 16.3 mmtco 2 e (23.3% of Malaysian GHG reduction target) The cost of CO 2 mitigation is estimated at US$50/ MTCO 2 e in the USA (Mckinsey Report 2007). This would translate to ~ USD 1.1 Billion (MYR 4.6 Billion) for a total reduction of 22.3 mmtco 2 e The Palm Oil industry itself therefore could contribute as much as 32% of the GHG reduction target of Malaysia. March

37 Impact of Palm Oil Stock Difference on CPO Price YOY Change in Palm Oil Stock & CPO Price YEAR Opening Stock (MT) Opening Price (RM/MT) Closing Stock (MT) Closing Price (RM/MT) Stock Difference (MT) Price Difference (RM/MT) ,506,586 1,923 1,682,267 2, ,681 1, ,682,267 3,216 1,994,710 1, ,443 (1,663) ,994,710 1,839 2,239,257 2, , ,239,257 2,515 1,616,237 3,620 (623,020) 1, ,616,237 3,769 2,058,400 3, ,163 (711) ,058,400 3,183 2,627,419 2, ,019 (1,131) ,627,419 2,221 1,987,111 2,575 (640,308) ,987,111 2,529 2,013,326 2,144 26,215 (385) ,015,789 2,294 2,633,940 2, ,151 (139) Source: MPOB March

38 YOY CPO Price Difference (RM/MT) Impact of Palm Oil Stock Difference on CPO Price: Price Forecast Model 2,000 1,500 Projected price increase = RM1560/MT for B7 to B20 1, Projected price increase = RM390/MT for B7 to B10 0-1,500-1, , ,000 y = x ,500 YOY Palm Oil Stock Difference (Thousands MT) March

39 Forecast of GDP Contribution to Malaysia from Biodiesel Strategy Every RM100/MT increase in CPO price would contribute RM2 billion to GDP. By moving to B10, the strategy is to reduce palm oil stock by 0.3 million MT YOY, this could increase CPO price by at least RM390/MT. By moving from B7 to B20, the strategy is to reduce palm oil stock by 1.3 million MT YOY, this could increase CPO price by RM1,560/MT. The forecasted GDP impact of B10 would be RM7.8 billion and B20 would be RM31.2 billion only on account of CPO Price rise alone. This would translate in to an additional Tax Revenue of RM 1.95 billion at B10 & RM 7.8 billion at B20. March

40 Biodiesel in Malaysia and Indonesia

41 Implementation of Biodiesel Programme B5/B7 Programme B7 was implemented nation-wide concurrently with East Malaysia in Dec 2014 Regions States % Implementation Date Central Putrajaya, KL, Selangor, Melaka & Negeri Sembilan B5 June Nov 2011 Southern Johor B5 July 2013 Eastern Pahang, Kelantan & Terengganu B5 Feb 2014 Northern Penang, Kedah, Perak & Perlis B5 March 2014 East Malaysia Sarawak, Sabah & Labuan B7 Dec 2014 March

42 Malaysian Biodiesel Association (MBA) Years Biodiesel [PME] Production Quantity (MT) Total investments in the Malaysian biodiesel industry estimated about RM 2.2 billion Total installed capacity is 2.6 million tonnes (based on MBA members capacity) Export of Biodiesel from Malaysia since 2011 Biodiesel [PME] Export Quantity (MT) , , , , ,173 89, ,220 49, ,213 28, , , ,524 87, E 754, ,942 Source: Malaysian Palm Oil Board March

43 Malaysian Biodiesel Implementation B10 Programme Government is considering biodiesel blending at 10% PME or B10. Provisional Malaysian Standard for B10 has been developed and approved. A B10 Sub Working Group (SWG) led by MPOB with participation from various stakeholders has been established. The SWG is undertaking some studies to facilitate the implementation of B10 and enable the provisional Malaysian Standard to be accepted as a full standard. At present, industry has been encouraged to use B10 on a voluntary basis through an incentive scheme offered to them since Mercedes Benz Malaysia has come up with a statement that their cars don t have a problem with B10. Trials with B10 in highlands currently underway. Results expected by March March

44 Benefits of B10 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 March

45 Economics for Biodiesel in Malaysia and Indonesia

46 Renewables Power Subsidies by Source in the Top-15 Countries, 2013 Billion Dollars Source: Richard Vietor, Harvard Business School, 2016 March

47 MOPS GO 500ppm (USD/Bbl) Brent Crude Oil vs MOPS Gasoil 500ppm Brent Crude Oil (USD/Bbl) March

48 Economics for Biodiesel Mandate in Malaysia Brent Crude (USD/Bbl) MOPS GO 500ppm (USD/MT) MOPS GO 500 ppm (MYR/L) APM Formula Malaysian Retail EURO2 Diesel (MYR/L) Additional Cost (MYR/L) for B7 B10 B20 APM Formula Malaysian Retail EURO5 Diesel (MYR/L) (0.02) (0.03) (0.05) (0.04) (0.06) (0.11) 3.30 CPO = RM2450/MT PME = RM2.65/L Exchange Rate 4.20 Retail price of Diesel will increase by MYR0.28/L for every USD10/bbl increase in Crude Oil price. Until Nov 2014, subsidized diesel retail price in Malaysia was already at MYR2.1/L March

49 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. 6. As of December 2015, IECF disbursed 460 billion Rupiah. Source: IECF, 2015 March

50 Feasibility of Indonesian Biodiesel Implementation Assumptions Palm Oil fund from CPO export levy 15 mmt x USD50/MT USD750 m/yr Allocation for Biodiesel subsidy 100% of Total CPO Export Levy Calculations MOPS Gas Oil 0.25% (as of 2 nd Mar 2016) USD41.87/bbl USD311.93/MT INA local CPO price (as of 2 nd Mar 2016) USD605 USD50 USD555/MT PME price in INA USD555 + USD125 USD680MT D Local PME and MOPS Gas Oil 0.25% USD680 USD USD368.07/MT Maximum PME consumption possible USD750 m / USD368.07/MT 2.04 mmt/yr (2.37 mkl/yr) This is way below the targeted 7.64mKL in In order for INA to reach its target of 7.64mKL, D between Local PME and MOPS Gas Oil 2.5% should be less than USD114/MT. March

51 Indonesian Biodiesel Mandate a Game Changer

52 Indonesian s Biodiesel Production Trend & Forecast Indonesia s Biodiesel Implementation Program BIODIESEL (Minimum) SECTOR April 2015 Jan 2016 Jan 2020 Jan 2025 Transportation Public Service Obligation (PSO) Transportation Non PSO 15% 20% 30% 30% 15% 20% 30% 30% Industry 15% 20% 30% 30% Electricity 20% 30% 30% 30% It s a very ambitious target. Success depends on subsidy from palm oil fund. Source: IECF, APROBI, Energy & Mineral Resources Minister Regulation No. 12, 2015 March

53 Indonesian s Biodiesel Roadmap By 2020, 26% of Indonesia s CPO is targeted for use in Biodiesel Source: IECF, 2015 March

54 Technical Issues in Moving from B7 to B20

55 Summary of Field Trials by MPOB on Mercedes Engine Busses No modification of diesel engine required. Good performance of engine: easy starting, no knocking, smooth running. Cleaner exhaust gas emission: Reduction of hydrocarbon (30%), CO(20%), (74%)CO2, (99%)SO2 content. More environment friendly. Engine oil: still usable after recommended mileage. Cetane number / Diesel Improver (62.4 compared to 37.7 for petroleum diesel from Europe). Lower Ignition delay. March

56 Key Technical Considerations for B 10 in MY/INA No. Technical Issue Solution Remarks 1. Oxidation B100 to meet OS = 8 hours 2. Precipitation 3. Solvent Effect Field trial at Cameron Highlands underway Educate consumers that there is no problem in moving from B7 to B10 and B20 Already built into MS2008:2014 Final results awaited No customer complaints thus far March

57 Data From B20 Field Trials in Indonesia Source: EBTKE / GAIKINDO, 2015 March

58 Comparison of Components after Field Trial B0 B20 Source: IECF, 2015 March

59 Summary

60 Summary There is a glut in the crude oil market leading to low prices. Global warming is for real and COP21 has lead to major initiatives to arrest temperature rise and GHG emissions. Biodiesel mandates continue to be driven by individual countries based on drivers such as energy security, climate change, price support for vegetable oils and economic development. Biodiesel export market looks very bleak as there is no parity with gas oil for discretionary blending. Indonesia s ambitious biodiesel program would determine direction for CPO price. Malaysia likely to increase from B7 to B10 by Q New technical data from field trials in Malaysia and Indonesia will help to establish biodiesel blending threshold for PME. March

61 THANK YOU