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Vegoil Producers Eye Energy Uses as Crude Prices Rise
Naveen Thukral, REUTERS (21 Jan 2005)

BOMBAY, INDIA: Use of edible oil as a fuel could increase in coming years as major vegetable oil producers from Malaysia to Brazil seek to cash in on high energy prices, industry executives said on Thursday.

With crude prices near $47 a barrel, energy-hungry countries may find that burning edible oil or blending it with diesel provides an economically viable alternative, they said.

"High energy prices have created a whole new market for vegetable oil industry," Dorab Mistry, director of Godrej International Ltd told Reuters.

Edible oil producers, suffering from a global glut, are eager to find other uses for their products, and some say the energy sector looks promising.

But the executives were not able to provide details of the size of the current energy-related demand for vegetable oils or what the potential might be for that market.

Still, there are signs that interest is growing. Rapeseed oil is being substituted for fuel in Europe, Brazil has plans to use soybean oil and Malaysia is eyeing big energy consumers to boost exports of palm oil, the executives said.

"Today in Europe more rapeseed oil is used for bio-diesel than as edible oil," Mistry said. He gave no figures.

"Earlier this support from energy markets was not there, but last year because of a huge upsurge in energy prices, it got a support and today it is virtually a life-saver to the vegetable oil producers," London-based Mistry said.

At the same time, as global edible oil output increases, pressure is growing to find consumers. Global supplies could rise significantly this year with record soybean output in the leading producer the United States, while bumper soy crops are forecast in Argentina and Brazil. Meanwhile, Malaysia and Indonesia expect good palm oil production.

"If the energy market breaks and crude oil prices go down below about $40 a barrel, vegetable oil prices will also slide. But above $45-$46, it makes sense to burn vegetable oil," Mistry said.

Ethanol, an alcohol-based alternative fuel produced from biological feedstock such as sugarcane and corn, is already used in many countries, including the US and Brazil.

Brazil, the world's second largest producer of soybeans, has passed a bill making it compulsory to blend 2 percent bio-diesel, made from castor oil and soyoil, into diesel.

"It will become a compulsory two percent next year and then five percent in 2008," said Carlo Lovatelli, president of Brazil's Vegetable Oils Industry Association.

He said the industry in Brazil was preparing for the production of bio-diesel by setting up new plants, since 5 percent of bio-diesel will need 2.2 million tonnes of edible oil.

Malaysia is promoting the use of palm as a fuel, with high-energy consuming countries such as Japan and South Korea showing keen interest because of high crude prices.

"It will increase consumption of palm oil and act as a safety net for the farmers," Haron Siraj, chief executive officer of Malaysian Palm Oil Promotion Council, said.

"Malaysia is right now only doing it in small amount, but we are trying to promote this idea," he said. Turkey was using 25,000 tonnes of palm oil a year to blend with fuel, he said.

"Europe is using rapeseed oil as a fuel but palm oil is emerging as its cheaper substitute," Siraj said.

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Cleaner fuels and energy sources > Alternative fuels and energy sources
Industrial air pollution > Cleaner production

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