The transition to the B15 biodiesel programme, which raises palm oil-based biodiesel blending from B10 to B15, comes at a crucial time as global fuel prices remain elevated and supply uncertainties persist, according to CGS International economists Nazmi Idrus.
The move is expected to strengthen Malaysia’s energy security by reducing dependence on imported diesel while supporting domestic palm oil consumption.
However, analysts cautioned that the long-term sustainability of the biodiesel programme remains uncertain, as its success depends heavily on global price dynamics, particularly the spread between palm oil prices and gasoil.
While current market conditions appear favourable for higher biodiesel blending, a reversal in commodity prices could increase inflationary pressures and place greater strain on government finances.
Strategic role beyond commercial returns
The biodiesel programme is not viewed solely as a commercial initiative but also as part of Malaysia’s broader strategy to enhance energy diversification, support the palm oil industry and contribute towards climate commitments.
Despite some progress, the sector continues to face structural challenges, including underutilised refining capacity, inconsistent policy direction and volatile export demand.
These issues have limited profitability and weighed on investor confidence in the biodiesel industry.
Price dynamics remain a key challenge
A major factor influencing biodiesel viability is the price relationship between palm oil and gasoil, as well as competition from other vegetable oils.
Domestically, subsidised diesel prices have historically reduced the competitiveness of biodiesel, requiring government intervention through blending mandates and financial support to maintain demand.
Nazmi noted that higher biodiesel mandates could translate into increased fiscal obligations, particularly if the price gap between biodiesel and fossil diesel widens.
Recent diesel price rationalisation measures have helped narrow the gap, but the industry remains exposed to global commodity cycles.
Short-term benefits expected, but risks remain
In the near term, elevated diesel prices have improved the economics of biodiesel blending, creating a supportive environment for the B15 rollout.
The programme could help reduce palm oil inventories while providing broader benefits through improved fiscal conditions, lower import dependence and stronger export opportunities.
However, these gains may prove temporary if global price trends shift.
The recent easing in gasoil prices has raised concerns that the advantage enjoyed by biodiesel could weaken, potentially increasing subsidy requirements and raising costs for consumers.
Longer-term challenges also remain, including weaker export prospects due to changing European Union policies and the need for greater investment in biodiesel infrastructure.
ESG integration crucial for long-term growth
For Malaysia’s biodiesel industry to remain viable over the long term, analysts believe it must become more closely integrated with the country’s wider decarbonisation and energy transition agenda.
Among the proposed reforms include using carbon tax revenues to offset subsidy costs, introducing flexible blending ratios that can adjust according to market conditions, and expanding the use of alternative feedstocks such as used cooking oil and other waste-based products.
The analysts said these measures could improve the industry’s resilience while ensuring biodiesel continues to contribute towards Malaysia’s energy security and sustainability goals.
