Eyes of the Fleet

Eyes of the Fleet

Wednesday, December 14, 2005

Biodiesel in Thailand

Alternative fuel start-up in Thailand reported here. Government control of price for raw materials is an issue:
The volatility of diesel fuel prices and palm oil prices makes biodiesel production a precarious investment. If diesel fuel prices are high and palm oil prices are low, the investment is a no-brainer. But that is seldom the case.

To help out the farmers, the government controls the production of palm fruit in order to keep prices as high as possible. And to help out motorists, the government tries to keep prices at the pump as low as possible.

To say the least, balancing the prices of the two commodities is a delicate process.

“If the price of palm fruit is too low, then we won’t have enough raw materials to make the fuel,” Weera says. “On the other hand, if the price of biodiesel is too high then nobody will use it. We have to balance giving the farmer a high price and keeping the cost low enough so people will switch from regular diesel.”

Golden Biodiesel’s own cost structure bears this out. To produce one liter of pure B100 biodiesel, the company spends about 20 baht – 15 baht for a kilogram of raw materials and five baht for processing.

To encourage the use of biodiesel, Golden Biodiesel sells it 10-15 percent cheaper than regular diesel. Since diesel now sells for 22.69 baht per liter at pumps across the country, Weera’s firm barely covers its expenses.

The problem is that raw material (palm oil, vegetable oil or stearine, a kind of vegetable fat) costs can range from as low as 13 baht per kilo up to about 17 baht. If the price of raw materials shoots up at the same time global diesel prices fall, then all of a sudden Weera is losing lots of money before his feet are firmly on the ground.
Interesting balancing act.

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