Petronas urges EU to rethink palm oil phaseout, flags biofuel affordability

Malaysian state-owned oil company Petronas has urged EU lawmakers to adopt a more permissive stance toward palm oil-based biofuels, flagging cost advantages and concerns around a just transition for Asian producers.

Speaking at London's International Energy Week conference Feb. 27, Bahrin Asmawi, Petronas' downstream strategic planning head, said that blanket bans on palm oil-based feedstocks from Europe risk dampening biofuel demand by squeezing cheap feedstock sources and pushing up prices.

The EU has taken an increasingly tough stance toward palm oil, historically one of its primary biofuel feedstocks, due to concerns around land use and associated deforestation relating to its production. Under the Renewable Energy Directive (RED II), the bloc made palm oil-based biodiesel ineligible for fulfilling renewable transport targets after 2030, a measure already implemented early by seven member states.

Palm oil byproducts -- including palm oil mill effluent (POME) and palm fatty acid distillate (PFAD) -- are not impacted by the same restrictions, but have nevertheless been subject to rising scrutiny. Explicitly classified as an advanced feedstock in the RED, POME remains eligible for "double counting" incentives to fulfill mandates, while PFAD is only interpreted as a waste feedstock among certain EU member states.

Malaysia and Indonesia are the two dominant palm oil producers , accounting for over 80% of global palm oil supplies together.

Already, Malaysia's crude palm oil exports to the EU dropped by 42% on the year in 2023, the Malaysian Palm Oil Council reported, although POME exports increased 184% over the same period, while the waste product has continued to enjoy a privileged status.

"In terms of getting towards a fair transition in the developing countries, I think this is an area where we need to balance affordability, reliability and sustainability," said Asmawi, who added that a role must be protected for Asian countries to participate in the clean energy space.

Though many stakeholders are banking on newer biofuel pathways, such as alcohol-to-jet, nascent technologies remain uneconomic as a short-term solution, Asmawi said.

"You can make the product but it's just too expensive to pass it down to consumers," he added.

Petronas has plans to develop and operate a biorefinery at its Pengerang Integrated Complex in Malaysia, where it currently coprocesses bio feedstocks to produce sustainable aviation fuel (SAF) and hydrogenated vegetable oil (HVO). The new site will have capacity to process around 650,000 mt/year of raw materials and produce up to 12,500 mt/day of SAF, HVO and bio-naphtha.

Taking a cue from initiatives such as the Indonesian government's Indonesian Sustainable Palm Oil System (ISPO), the Malaysian refiner has already moved to establish responsible palm oil sourcing, Asmawi said, advocating for a middle ground involving best practices rather than blanket bans.

Stopgap role

In both Europe and abroad, refiners have highlighted the short-term role that biofuels can play before longer-term, zero carbon solutions come to fruition.

The sector will be key in the automotive industry over the next 10-20 years, before a wholesale shift to electrification, according to Magnus Heimburg, CEO of Swedish refiner Preem, also speaking at IE Week Feb. 27.

Regulatory hurdles can limit refiners' ability to respond to short-term demand opportunities in markets such as renewable diesel, however, Heimburg said.

"It's very important that when you ask for your environmental permission to revamp existing refineries that it be quick and efficient," Heimburg said, criticizing approval processes that can take years. "That's a lot of time and that we are losing in order to try to transform society and put biofuels into the market," he said.

Near-term market growth will additionally rely on consumers' willingness to pay a premium for early low carbon fuels.

"Consumers, at least initially, need to prepare themselves to pay a little bit extra for the transformation and the way we live our lives," Heimburg said, adding that prices should become "more and more reasonable" as electrification takes pressure off the market.

Biofuel prices currently command hefty premiums to conventional transport fuels, though rising emissions costs are expected to narrow the gap. Platts, part of S&P Global Commodity Insights, assessed the cost of producing HVO in Northwest Europe at $1,817/mt Feb. 27, while M1 ICE LS gasoil was priced at $846.50/mt. CIF ARA SAF was assessed at a $2,000/mt premium to conventional jet fuel, up 6% on the month.