KUALA LUMPUR/AMSTERDAM – Palm oil prices are set to end the year on a high as Europe’s green fuel sector takes its first big consignments from top grower Malaysia to convert into diesel at a time when crude oil prices are soaring. But much will depend on the performance of palm-based fuels, industry officials have said, which are relatively untested compared with renewable energy sources developed decades ago, such as rapeseed oil and ethanol derived from sugar cane. Dutch firm Biox will build four power plants that will run on palm oil byproducts, which it says are cheaper than other renewable energy sources used by European Union countries as they try to cut greenhouse gas emissions and crude oil import bills. «It’s a trend we hope will extend to the whole of the EU biofuels sector,» said Azizi Meor Ngah, chairman of the Malaysian Palm Oil Association. Europe is short of diesel as it has underinvested in refinery production in recent decades while motorists are increasingly switching to the fuel instead of gasoline. The EU has set a non-binding target of 5.75 percent biofuel content by 2010. Biox agreed last week to buy palm oil byproducts, mainly distillates, from Malaysian plantation IOI Group Bhd for 10 years starting from 2007. This followed an agreement in early October to buy 100,000 tons a year from Golden Hope Plantations Bhd over the same 10-year period. «We chose palm oil products because they are the most efficient in terms of energy efficiency and cost of production,» said Edgare Kerkwijk, group finance director for Biox, which is also considering building plants in Italy, Portugal and Greece. «Rape oil is efficient too but it’s too expensive… and we are looking to switch to other products,» he told Reuters. Competition for rape oil Rape oil is the preferred choice of the EU biodiesel industry because of its availability and quality, but fierce competition with the food sector has driven up its price by more than 100 euros over the past two months, to 610 euros per ton. Crude palm oil from Malaysia has risen 5 percent in value in the last two months to about $442 (360 euros) a ton. Palm fatty acid distillates are trading at about $340 (280 euros) a ton. «We don’t want to use crude palm oil because it’s the most expensive palm product,» Kerkwijk said. «We don’t want palm olein because we don’t want to compete with the food industry.» Crude palm oil and olein, its main edible product, are processed into palm diesel or the methyl ester used in diesel engines. Palm biomass, such as palm tree components, and distillates, can make instant fuel for industrial burning. «The future plans of biofuel industries are not based just on rapeseed,» said Pascal Cogels, director general of Fediol, the European vegetable oil producers and processors’ federation. «People are including more palm oil and soy oil into the mix.» Fediol expects palm oil and its products will make up 20 percent of the EU’s biodiesel in the next five years. To do so, it would have to claw away some of the market share of rape oil, which now accounts for about 85 percent of the EU’s biodiesel. The EU now imports about 3.5 million tons of refined and crude palm oil a year, mainly from Malaysia and Indonesia. This is set to rise by about 1 million tons next year as two new Malaysian-owned palm oil refineries come on stream in Rotterdam. Palm oil imports for electricity generation in the Netherlands were around 200,000 tons in the first eight months of 2005, EU oilseed traders said. For the whole year, Dutch power plants could consume up to 400,000 tons of palm oil, industry officials estimated. In a report last month, the US Department of Agriculture said biodiesel had the potential to boost palm oil imports by more than 1 million tons a year. In Britain, green start-up Biofuels Co is set to run its new 250,000-ton plant in northeast England on cheaper feedstock than rape oil, including palm oil. A 100,000-ton biodiesel plant, partly owned by British supermarket giant Tesco, is expected to come on stream by 2006.