Asian utilities could turn to biofuels for power generation on a large scale if efforts to use palm oil to yield cleaner fuel could be used efficiently to ease the pain of $70 oil prices.
A fuel oil/palm oil blended cargo was believed to have been sold into Taiwan, but pervasive use of such a mix will depend on pricing, imposition of cleaner air standards and may be limited by a shift from using oil for power generation, analysts say.
China, Asia's top fuel oil buyer, could spur demand for the biofuel if it enforces minimum clean air rules within two years that would require low-sulphur fuel oil (LSFO) to replace its high-sulphur imports.
"There have been some moves in the market here where blenders are looking at making LSFO by blending crude palm oil with fuel oil, as it does make economic sense to do so now in the current pricing climate," a Singapore-based fuel oil trader said.
"It is something that's quite new and quite untested but it seems that it could work as there are no lasting negative effects on burning the fuel, save for a small loss in the energy generated," the trader said.
Asia Pacific utilities are set to burn about 978,000 barrels per day of fuel oil this year, steady to 2005 levels, but generators are limiting its use as they face soaring oil import bills.
Palm oil prices have averaged $350-$400 a tonne in the past month, cheaper than products normally used to cut sulphur in fuel oil that have averaged $450-$500 a tonne, though industry sources say palm oil could near this level next year on biofuel demand.Yet, if oil sustains its multi-year rally, the viability of using sulphur-free palm oil will last as long as the commodity keeps its wide price gap to other sulphur cutters. Sulphur is blamed for acid rain and lung problems.
Some utilities have responded cautiously as they are uncertain whether it would be as efficient as conventional sulphur cutters or if there would be potential damage to equipment.
Tenaga Nasional Bhd., Malaysia's largest utility, used palm oil-blended fuel oil about four to five years ago when the country had excess palm oil stocks and prices were at rock-bottom. Malaysia is the world's top palm oil producer.
Ahmad Hitam, a researcher with the Malaysia Palm Oil Board, said about 300,000-400,000 tonnes were blended at the time but they had stopped doing since, after palm oil prices rebounded. "It worked quite well for us. The only drawback is that it yields a marginally lower calorific value compared to conventional fuel oil, depending on the percentage of the blend."
Taiwan's China Petroleum Corp (CPC) is said to have bought an LSFO cargo blended with crude palm oil from a Singapore-based trader and is testing the product to ascertain the blend and to see if there are any negative impacts.
Singapore traders have also been seeking cheaper ways to make costly utility-grade LSFO from raw high-sulphur fuel oil. Utilities had to pay $400-$450 a tonne for low-sulphur fuel oil in the past month, versus $300-$350 a year ago.
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