Palm oil price drop means new life for biodiesel in Singapore

Natural Fuel's first-generation plant will make first commercial delivery to Asian client soon
Ronnie Lim, Business Times 2 Dec 08;

SINGAPORE'S first-generation biodiesel plants are back in business again - thanks to the slide in palm oil prices to levels two years ago.

Australia's Natural Fuel Ltd (NFL), which completed its US$130 million facility on Jurong Island in end-2007, is set to finally make its first commercial deliveries of biodiesel to an Asian customer in the coming months.

This was disclosed by Ibrahim Risjad, chairman of the Australian-listed company, at its AGM last Saturday, with his speech copied to the Singapore Exchange (SGX) here yesterday.

'There has been positive development in our marketplace and the basic assumptions of our business model have now returned to levels that will enable Natural Fuel to commence economic biodiesel production,' he told the annual general meeting.

'I look forward to our executive management team delivering, within these coming months, NFL's first commercial batch of biodiesel from our Singapore subsidiary to our first customer in the Asian region,' he said.

This is a happy turnaround. Since its start-up early this year, the Singapore facility has reportedly been running at just 10 per cent of its capacity, as surging palm oil prices had resulted in negative margins. This had also caused NFL to shut down its 120,000 tonne Darwin plant in end-2007, just a year after start-up.

Touted to become the world's biggest biodiesel facility, the Jurong Island plant has so far seen just 400,000 tonnes of the project's first-phase 600,000 tonne facility completed. BT understands that the remainder 200,000 tonne capacity will be ready by the first quarter of 2009.

NFL's earlier plan was for three phases of equal size, which would bring its total capacity to 1.8 million tonnes by 2012.

But the earlier spike in palm oil prices to around US$1,000 a tonne - well above the US$600 a tonne diesel it was supposed to replace - put paid to the project's economics.

'But the project is now back in business, as palm oil prices have dipped back to US$400 a tonne, which was the level seen two years ago,' a source said.

'Furthermore, Indonesian legislation that diesel there should have 2.5 per cent biodiesel blended in, has also helped,' the source added.

The entry of Indonesia's Risjadson Group, which executed a US$40 million funding agreement with NFL, and which is now a shareholder, will also help - given its strong network in feedstock supplies as well as Indonesian market knowledge, Mr Risjad indicated.

No details were forthcoming on the quantity or customer for the Singapore facility's first commercial shipment of biodiesel, although the indications are that it will amount to at least 15,000 tonnes worth a month.

Given the earlier spike in palm oil prices, NFL had also arranged late last year to buy an alternative feedstock - jatropha from Madagascar - with the first shipments due here in early 2009.

NFL sources said that over the longer term, the Singapore facility is still committed to using the jatropha given the debate over 'food versus fuels' and Western countries' preference that biofuels should ideally be made from non-edible crops or materials.

Mr Risjad also indicated that NFL would require additional funding in the coming financial year for 'the full commissioning of the Singapore plant and working capital to support operation and production', with this taking the form of equity, debt or a combination of both.