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
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 B20 11. Summary March 2016 2
Global Energy Scenario
Global Primary Energy Demand by Type in the INDC (Intended Nationally Determined Contributions) Scenario Source: Energy and Climate Change, IEA, 2015 March 2016 4
World Primary Energy Demand by Fuel and Scenario (Mtoe) 2444 4665 3135 6335 Source: Richard Vietor, Harvard Business School, 2016 March 2016 5
Global Warming and Climate Change
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 2016 7
World Atmospheric Concentrations of CO 2 and Average Global Temperature Change Source: Richard Vietor, Harvard Business School, 2016 March 2016 8
2015 Was Our Planet s Hottest Year on Record Source: NCEI / NESDIS / NOAA March 2016 9
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 2016 10
World Meteorological Association (11/10/2015) Reports 400ppm First Quarter 2015 Source: Richard Vietor, Harvard Business School, 2016 March 2016 11
Renewables in the Mix
Share of Global Renewables Consumption by Sector and Region in the New Policies Scenario Source: Richard Vietor, Harvard Business School, 2016 March 2016 13
World Electricity Generation by Source in the New Policies Scenario Source: Richard Vietor, Harvard Business School, 2016 March 2016 14
Macro Crude Oil & Biodiesel Scenario
Oil and Liquids Demand by Region and Scenario (mb/d) Source: Richard Vietor, Harvard Business School, 2016 March 2016 16
Shale Oil Production by Country in the New Policies Scenario (mbpd) Source: Richard Vietor, Harvard Business School, 2016 March 2016 17
Year-on-year Increase in U.S. Crude Production (thousand b/d) Source: EIA March 2016 18
U.S. Oil Production and Imports Source: EIA, Short Term Energy Outlook March 2016 19
U.S. Crude Oil Prices, 2005-2015 ($ per barrel) Source: Richard Vietor, Harvard Business School, 2016 March 2016 20
Global Crude Oil Market Global crude oil production = 97.07 mbpd = 13.24 million MT/day = 4.3826 billion MT/year (Source : IEA, Q4 2015, density 0.86 kg/l) Estimated diesel/gasoil production = 25.69 mbpd = 3.4 million MT/day = 1.1 billion MT/year (density 0.832 kg/l) Region mbpd Market Share Major Players Middle East 25.07 26% Saudi Arabia 11%, UAE 3%, Iran 3%, Iraq 4%, Kuwait 3% Americas 26.62 27% USA 20%, Latin America 7% Eurasia 17.60 18% Russia 15% Africa 7.38 8% Nigeria 2%, Angola 2%, Algeria 1% Asia & Oceania 8.20 9% China 5%, India 1%, Indonesia 1%, MY 0.7% Source: IEA, 2015 March 2016 21
Position of Palm Oil in Global Vegetable Oils Market Global Oils & Fats Exports (2015) = 79 million MT PALM OIL Production = 62.22 million MT (34.84% of total oils & fats) Exports = 47.74 million MT (60.66% of oils & fats exports) SOYOIL + RAPESEED OIL + SUNFLOWER OIL Production = 116.03 million MT (64.96% of total oils & fats) Exports = 25.35 million MT (38.17% of oils & fats exports) Source: Oil World, 2015-2016F March 2016 22
Usage of Biodiesel by Feedstock F Source: Oil World March 2016 23
Global Production of Biodiesel F Source: Oil World, 2016 March 2016 24
Global Consumption of Oils and Fats for Food and Biofuel Source: Oil World March 2016 25
Global Biodiesel Scenario
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 2016 27
Global Biodiesel Mandates EUROPE NO. COUNTRY %, 2015 NO. COUNTRY %, 2015 1. 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 2016 28
Global Biodiesel Mandates AMERICAS NO. COUNTRY %Vol., 2015 1. USA 2.1 bln gallons 2. Brazil 7.0 3. Argentina 10.0 4. Colombia 10.0 ASIA NO. COUNTRY %Vol., 2015 1. China Disc. blending 2. Indonesia 15.0 3. Malaysia 7.0 4. Philippines 5.0 5. South Korea 2.0 6. 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 2020. India is planning for B20 by 2017. Not much biodiesel is currently being used in China and India as there is no parity with Gas Oil (Diesel). March 2016 29
2015 U.S. Biodiesel Marketplace Minnesota implemented B10 in 2015; moving on to implement B20 in 2018 Source: US NBB March 2016 30
Volume (MT) Thousands Biodiesel Statistics in Indonesia 4,500 4,000 3,500 3,961 3,000 2,500 2,000 1,500 1,000 500-190 243 70 119 20 223 1,812 1,453 359 2,221 1,552 2,805 1,757 1,048 1,048 1,845 1,629 1,585 2009 2010 2011 2012 2013 2014 2015 Production Export Domestic 500 947 *Estimated 2015 31
Volume (MT) Thousands Biodiesel Statistics in Malaysia 800 754 700 600 601 500 400 300 200 100 0 472 249 222 227 172 182 173 175 179 117 90 87 50 29 2008 2009 2010 2011 2012 2013 2014 2015 Production Export 32
Global CNO/PKO Production (2015) CNO NO. Country Million MT 1. Philippines 1.3 2. Indonesia 1.0 3. India 0.4 4. Rest of the World 0.3 TOTAL 3.0 PKO NO. Country Million MT 1. Indonesia 3.6 2. Malaysia 2.3 3. 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 1.3 0.19 15% 2020F 2.6 0.68 26% 2025F 3.3 1.50 45% March 2016 33
Key Drivers for Biodiesel Mandates
Key Drivers for Biodiesel Mandates 1. Energy Security 2. Climate Change 3. Price Support for Vegetable Oils 4. Economic Development March 2016 35
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 2005. 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 2016 36
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) 2007 1,506,586 1,923 1,682,267 2,926 175,681 1,003 2008 1,682,267 3,216 1,994,710 1,553 312,443 (1,663) 2009 1,994,710 1,839 2,239,257 2,456 244,547 617 2010 2,239,257 2,515 1,616,237 3,620 (623,020) 1,105 2011 1,616,237 3,769 2,058,400 3,058 442,163 (711) 2012 2,058,400 3,183 2,627,419 2,052 569,019 (1,131) 2013 2,627,419 2,221 1,987,111 2,575 (640,308) 354 2014 1,987,111 2,529 2,013,326 2,144 26,215 (385) 2015 2,015,789 2,294 2,633,940 2,155 618,151 (139) Source: MPOB March 2016 37
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 1,000 500 Projected price increase = RM390/MT for B7 to B10 0-1,500-1,000-500 0 500 1,000-500 -1,000 y = -1.1682x + 40.473-1,500 YOY Palm Oil Stock Difference (Thousands MT) March 2016 38
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 2016 39
Biodiesel in Malaysia and Indonesia
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 2016 41
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) 2008 171,555 102,108 2009 222,217 227,497 2010 117,173 89,609 2011 173,220 49,999 2012 249,213 28,983 2013 472,129 175,032 2014 600,524 87,856 2015E 754,000 178,942 Source: Malaysian Palm Oil Board March 2016 42
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 2013. 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 2016. March 2016 43
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 2016 44
Economics for Biodiesel in Malaysia and Indonesia
Renewables Power Subsidies by Source in the Top-15 Countries, 2013 Billion Dollars Source: Richard Vietor, Harvard Business School, 2016 March 2016 46
MOPS GO 500ppm (USD/Bbl) Brent Crude Oil vs MOPS Gasoil 500ppm 140 120 100 80 60 40 20 0 0 20 40 60 80 100 120 140 160 Brent Crude Oil (USD/Bbl) March 2016 47
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) 25.00 244.29 0.85 1.08 0.11 0.16 0.31 1.18 30.00 284.70 0.99 1.22 0.10 0.14 0.29 1.32 35.00 325.10 1.14 1.36 0.09 0.13 0.26 1.46 40.00 365.51 1.28 1.51 0.08 0.11 0.23 1.61 50.00 446.33 1.56 1.79 0.06 0.09 0.17 1.89 60.00 527.15 1.84 2.07 0.04 0.06 0.12 2.17 70.00 607.97 2.12 2.35 0.02 0.03 0.06 2.45 80.00 688.78 2.41 2.63 0.00 0.00 0.00 2.73 90.00 769.60 2.69 2.92 (0.02) (0.03) (0.05) 3.02 100.00 850.42 2.97 3.20 (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 2016 48
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 2016 49
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 USD311.93 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 2016. 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 2016 50
Indonesian Biodiesel Mandate a Game Changer
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 2016 52
Indonesian s Biodiesel Roadmap By 2020, 26% of Indonesia s CPO is targeted for use in Biodiesel Source: IECF, 2015 March 2016 53
Technical Issues in Moving from B7 to B20
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 2016 55
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 2016 56
Data From B20 Field Trials in Indonesia Source: EBTKE / GAIKINDO, 2015 March 2016 57
Comparison of Components after Field Trial B0 B20 Source: IECF, 2015 March 2016 58
Summary
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 Q2 2016. New technical data from field trials in Malaysia and Indonesia will help to establish biodiesel blending threshold for PME. March 2016 60
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