Malaysia Increases Biodiesel Mandate Amid Middle East Crisis

On April 14, 2023, the Malaysian government announced an increase in its biodiesel mandate from a 10% blend, known as B10, to a 15% blend. This decision, articulated by Economy Minister Akmal Nasir, aims to address fuel supply constraints exacerbated by the ongoing conflict in the Middle East. The government plans to initiate this increase with a 12% blend, utilizing existing biodiesel blending plants without incurring additional production costs. Currently, Malaysia, the world's second-largest palm oil producer, mandates a B10 blend for the transportation sector, while a 20% blend is in effect in specific regions, including Labuan, Langkawi, and parts of Sarawak.

The Straits TimesMalaysia to boost biodiesel use to cope with Middle East conflict falloutMalaysia tests 100% palm oil biodiesel as cheaper alternative to diesel

The government's move comes amid rising economic pressures, with Akmal highlighting significant risks to Malaysia's labor market in the second quarter of 2023. He projected an 8% increase in domestic animal feed prices and a 15% to 20% surge in fertilizer costs, which could lead to higher consumer prices. The aviation and tourism sectors have already faced challenges due to the conflict, with projections indicating only 1.5 million inbound air passengers from the Middle East by 2026. To mitigate these impacts, the finance ministry announced a budget of RM7 billion (approximately S$2.26 billion) for subsidies in April, aimed at maintaining low retail pump prices and providing cash incentives for rice paddy farmers and diesel purchases for agricultural use.

Malaysia to boost biodiesel use to cope with Middle East conflict falloutThe Straits TimesMalaysia tests 100% palm oil biodiesel as cheaper alternative to diesel

In addition to the increased biodiesel mandate, Malaysia is piloting a fully palm oil-based biodiesel, referred to as B100, as a potential lower-cost alternative to conventional diesel. The Federal Land Development Authority (Felda) is testing this fuel, which could be priced below RM5 per liter at the factory level, compared to current diesel prices nearing RM7 per liter. Industry officials, including Malaysian Palm Oil Board Director General Datuk Ahmad Parveez Ghulam Kadir, assert that utilizing locally produced palm oil can enhance energy security and support smallholder incomes. However, the initiative remains limited in scope, and large-scale adoption could impact cooking oil prices if palm oil supply tightens.

Malaysia tests 100% palm oil biodiesel as cheaper alternative to dieselMalaysia to boost biodiesel use to cope with Middle East conflict falloutThe Straits Times

While the government’s biodiesel initiatives aim to bolster energy security, experts caution about potential repercussions. Harald Sippel of ESG Malaysia noted that while the B100 initiative could reduce the government's fuel subsidy burden, it might also lead to increased prices for cooking oil if palm oil supply becomes constrained. Critics argue that the focus on biodiesel may not fully address the underlying issues of rising global energy costs and their impact on the Malaysian economy.

Malaysia tests 100% palm oil biodiesel as cheaper alternative to diesel

• “The government believes that the use of biodiesel will further extend the availability of the country’s diesel supply,” — Akmal Nasir, Economy Minister

The Straits Times

• “Felda Chairman Ahmad Shabery Cheek said the B100 plan remains at the policy stage and will initially be implemented within the Felda system.” — Ahmad Shabery Cheek, Felda Chairman

Malaysia tests 100% palm oil biodiesel as cheaper alternative to diesel

As Malaysia navigates these economic challenges, the government's biodiesel initiatives reflect a strategic response to the pressures of global fuel supply disruptions.

Malaysia to boost biodiesel use to cope with Middle East conflict fallout