Why We Should Be Crude To Each Other

The jury is still out on bio-fuels. Depending on who you believe, it is either a panacea for all the ills of our reliance on crude oil--including the adverse effects on the environment--or, it could be like a little known Stallone movie called Cobra.

In that movie, his famous line is “You’re the disease and I am the cure.” Except that the cure in this case may be even worse than the disease. The use of bio-fuels could bring about prosperity to many developing nations, but it could lead to, for example, higher food prices--as farmers in developed countries use consumables as biofuels--and deforestation, and in the end do more damage to the environment than the fossil fuels it is replacing.

It will take a lot of international coordination, in terms of policies and R&D, to get biofuels right. In Sao Paolo, Brazil, almost all cars run on bio-fuel converted mainly from sugarcane. The country has weaned itself off its dependence on crude oil. But it took them 25 years to get there. The bio-fuel revolution in other parts of the world has surged in the last three years.

Take Malaysia and Indonesia. Between them, they control about 90% of the world’s crude palm oil production. This has burgeoned in the last few years.

Malaysia’s palm oil output is expected to reach a record of $RM40 billion this year, a growth of 25% from 2006. The Malaysian government had granted 92 licenses to set up bio-diesel plants by the end of July 2007. But how much of the growth is due to demand--for the manufacture of products such as soap, in places like China and India--and how much is due to speculative activity?

What will this increased demand have on land use? Malaysia-based conservation agency Wild Asia said “the focus on expanding oil palm acreage for bio-diesel will ultimately be unsustainable given the scarcity of land”, as quoted in Forbes. Essentially, they will have to dig deep into forested land to satisfy this demand.

The Organisation for Economic Cooperation and Development (OECD) has called on governments to cut their subsidies for biofuel and instead encourage research into technologies that would avoid competing for land use with food production.

Surely, this is where there could be some synergy here. As Singapore pours resources into life sciences, perhaps it should consider setting up research and development facilities in bio-fuels. Singapore could certainly attract talent and develop the infrastructure to do so. And there is no land to compete for bio-fuels here.

Given our experience in petroleum refining, surely there is some shared learning that can occur. Especially in the way the fuels are distributed and marketed. Plus, it could be a benchmark for cooperation between the two countries.

Should we be going crude? Or am I just being naïve?