Oil price spike leads to palm oil as alternative

Mumbai, Sept 15 | Updated: Sep 16 2005, 07:24am hrs
The oil price spikes are leading various nations to seriously look at alternative fuels. In India while Jatropha as bio-diesel and ethnol as a blend with petrol are gaining momentum, palm oil, Indias largest consumed imported oil is finding its demand gallop as an alternative fuel globally.

This fuel is mostly used for generating electricity in power plants rather than in automobiles or trucks. Palm oil is increasingly used as a fuel, especially in the European Union.

It has become the second largest importer of palm oil last year just behind China, almost exclusively on the basis of its use as a fuel. Industrial use of palm oil in the European Union for 2004/2005 is estimated at 1.3 million tons, with about 1 million of that for fuel.

Given its price advantage relative to other vegetable oils, palm oil will likely receive increasing attention as an alternative fuel. Such attention is driven by high petroleum prices and efforts to reduce dependence on fossil fuels.

The industrial use of palm oil has continued to grow dramatically, rising 54% in the last three years. While the rapid growth in the industrial use of palm oil before 2003/2004 was due to the expansion of the Oleo Chemical Industry in Southeast Asia, recent increases are linked to the rise in petroleum prices beginning in 2003/2004.

The annual change in food use since 2000/2001 has averaged 7% while changes in industrial use have been a more robust 18%. Food use still dominates the overall use of palm oil at 74% of production for 2004/2005, but this is down from 83% of production in 2000/2001.

However, as a result of increased industrial use of vegetable oil in the longer term, stocks are likely to come under pressure and prices should rise, moderating the growth in demand for industrial vegetable oil, says US Department of Agriculture (USDA) in its recent report.