Report Highlights: 

Biodiesel production almost doubled in 2013 to keep pace with expansion of distribution areas complying with the B5 mandate and also to meet demand in the export market. Nonetheless, output remains well below capacity. Production in 2014 will have to increase again to fulfill full implementation of the B5 mandate. Palm oil prices vis-à-vis petroleum prices, combined with domestic fuel subsidies, continue to hinder expansion in biodiesel production.

I. Executive Summary: 

After continuous delays in implementing the B5 mandate, the Government of Malaysia (GOM) announced in early 2014 that July 2014 would be the new target for finally implementing the mandate throughout Malaysia. However, as of June 2014, it still appears this goal will not be fulfilled as several locations still don’t have distribution capability, particularly in East Malaysia. East Malaysia palm methyl ester (PME) producers are requesting to be paid more for their PME to compensate for what they describe as greater logistical challenges; specifically, PME producers are seeking an additional $31/ton to cover greater transport and handling costs. As a result of this impasse, it is unclear when/if GOM will achieve nationwide implementation of the B5 mandate. 

Full implementation would mean about 500,000 tons of PME production needed: 350,000 tons in West Malaysia and 150,000 tons in East Malaysia. 

Exchange Rate: US$1=RM3.10 (Jun 03, 2013) 

II. Policy and Programs 

Under the National Biofuel Policy released on 21st March 2006, the GOM’s objectives are to use environmentally friendly and sustainable energy sources to reduce dependency on fossil fuels and to stabilize and boost palm oil prices. According to this plan, biofuels are to be produced for transport, industry, and export; and GOM will develop home grown biofuel technology and second generation biofuels. In 2007, Parliament passed the Biofuel Industry Act, which included provisions for the Ministry of Plantation Industries and Commodities to implement a biodiesel blend mandate. 

Initially, GOM planned for a B5 (5 percent PME blend) to be followed by a B7 and finally a B10. However, because of rising palm oil prices, GOM did not seriously attempt to implement the mandate until 2012/13. With petroleum prices around $100/ton, whenever CPO surpassed $800/ton, production of biodiesel became unattractive, and most biodiesel plants ceased production. Furthermore, while PME production capacity increased rapidly, blending and distribution infrastructure remained underdeveloped and insufficient to implement the nationwide mandate. As a result, since 2007, GOM has continued to delay enforcement of any biodiesel mandate, and has made the rollout only in stages. Early this year, GOM announced that B5 would be available throughout the country by July 2014. However, as of June 2014, distribution in East Malaysia had still not been fulfilled. The problems implementing B5 put in doubt prospects for ever having a B7, much less a B10 mandate. 

Lower sales tax and new incentives for energy efficient cars led to an increase in motor vehicles sales of 4.5 percent, with a 655,793 units in 2013 compared to 627,753 in 2012. Car sales are forecast to grow at 5 percent through 2016, before slowing to 2.5 percent from 2017 till 2020. Diesel power vehicles account for less than 20 percent of registered motor vehicles. 

In 2013, Malaysia’s aircraft movements increased about 4.6 percent. The opening of new low Cost Carrier Terminal in May 2014, which acts as regional hub for budget airlines, is expected to contribute to an expected 5.8 expansion in aircraft activity through 2025. 

III. Ethanol production 

There is no significant production of ethanol in Malaysia using biomass. Many companies are exploring the use of palm oil mill effluent (POME), fronds, empty fruit bunches (EFB), and other palm biomass as feedstock or biogas to produce ethanol, but more research is required as the process and technology is not yet commercially viable. The logistics in moving sufficient biomass from production areas to refining sites is also still a significant challenge to overcome. 

IV. Biodiesel 


Biodiesel production increased from 140,983 tons in 2012 to 330,032 tons in 2013, of which 175,032 tons was for export and 155,000 tons for domestic use. The jump in production was due to increase in demand for exports markets and expansion of B5 distribution domestically. Output is still well below industry capacity, with only 10 biodiesel plants in operation. 

With full implementation of B5 in 2014, production is forecast to grow and to continue growing through 2015 as GOM has planned to rollout B7 upon successful implementation of B5 mandate. With full implementation of B5, production may reach 500,000 tons, although higher palm oil prices would hinder this forecast. 


Depending on how thorough the B5 mandate is enforced, GOM might introduce a B7 mandate in 2015, driving consumption above 500,000 tons per annum. However, it is still very difficult to predict the pace of implementation. As a result, consumption is forecast to hover between 200,000 to 400,000 tons over the next few years. 


Exports of biodiesel jumped 6 fold in 2013 with strong demand from the European Union (EU) and China. Collectively the EU and China imported 161,864 tons or 92 percent of the exports. The increase in exports to the EU in 2013 was due to a relative decline in the competitiveness of supplies from Indonesia. Exports during the first 5 months of 2014 was 30,755 tons, which was well off the pace of the previous year. Based on this pace, total exports are forecast at 110,000 tons 2014. 


There are no significant changes in stocks. 

V. Advanced Biofuels 

Although research on 2nd generation of Biodiesel from palm biomass and biogas has been ongoing since 2002, product development has been hindered by lack of investment. In addition, the high cost of transporting the feedstock, and alternative usage of the feedstocks for other high value items, such as pharmaceutical grade sugar, has so far limited interest in the advanced biofuels. 

VI. Biomass for heat and power 

As of 2013, fifty-seven mills have biogas facilities, 16 biogas under construction, and 150 facilities were under planning. Most of electricity generated from biomass and biogas in palm mills is used to generate power for mill operations and surrounding estate houses