National Biomass Strategy 2020:

New wealth creation for the palm oil industry

Sept 2012
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Agenda
Introduction to NBS
Opportunities for industry
Pelletization
Biogas
Biobased chemicals
AIMs role moving forward


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Objectives of the National Biomass Strategy 2020
2
Create a national strategy on how to use biomass for
high-value downstream activities (e.g., bioenergy,
biofuel, biochemicals), starting with palm oil biomass
Primary objective: maximize sustainable GNI impact
from oil palm biomass in the 2020 time frame
Other considerations
Downstream value creation
High value job creation
Indigenous technology creation within Malaysia
Sustainability impact and emissions impact
Design principles
Private sector led
No specific technology recommendations
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Inclusive stakeholder effort: 300+ interactions
Stakeholder
involvement
Advisory
panel
Stakeholder
labs
Survey with
~170
plantations
and ~70 mills
3
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Malaysia generates 80 m tonnes of dry palm biomass per year
Annual availability
9.6 46.4
0.8 4.1
1.4 6.7
1.4 6.9
3.0
Per ha
(tonnes of dry
biomass)
National total
(m tonnes of
dry biomass)
Site of
production
Plantation
Mill
Mill
Mill
Plantation 14.4
Biomass Type
Shells
(PKS)
EFB
Fiber
(MF)
Fronds
Trunks
12.2
(wet weight)
59.3
(wet weight)
Mill
POME
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PKS Fiber EFB Fronds Trunks
Biomass types (USD per tonne dry weight)
Detailed biomass costing methodology
5 - 21 15 0 0 0
Harvesting
&
collection
2
19
(chipping)
26
(chipping)
0
31
(shredding +
compacting)
5
(compact
ing)
Pre-
processing
3
29
(fertilizer),
no application cost
11
(fertilizer)
5
(appli-
cation)
+ 24
(fertilizer)
3
(appli-
cation)
+ 41
(2010 price)
13
(2010 price)
Substitu-
tion
1
9 - 80 8 - 81 0 - 113 0 - 40 0 - 97
Transport-
ation
4
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300
240
180
120
60
0
55
480
420
360
50 45 40 35 30 25 20 15 10 5 0
The 2010 national biomass cost curve (fully-loaded cost methodology)
Cost of biomass in 2010
RM per tonne (dry weight)
Biomass available
Million tonnes
25 m tonnes below USD 80
at fully-loaded cost
13 m tonnes below
USD 60 at fully-
loaded cost
2 m tonnes
below USD 40
at fully-loaded
cost
Pre-process-
ing cost
3
Substitution,
harvesting
and collect-
ion cost
1
2
Transport cost 4
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Mills
Refinery
Bulking
Oleochemicals
Chemicals
Biodiesel
25 m tonnes of biomass could be mobilised across Malaysia
5.75
3.57
0.45
2.23
1.42
0.19
2.15
0.30
3.70
Less than RM 135/tonne More than RM 240/tonne
Between RM 135-240/tonne
3.82
1.27
3.00
0.40
1.07
0.29
3.59
0.71
1.39
0.89
0.35
0.37
6.43
1.74
0.10
Pasir Gudang
(7.4)
4.28
2.79
0.33
Tawau
(1.76)
Port Klang
(9.77)
Kuantan
(6.15)
Kunak
(1.60)
Lahad Datu
(5.70)
Sandakan
(8.09)
Butterworth
(3.84)
Bintulu
(8.26)
Pasir Gudang
(7.39)
Biomass available
million tonnes
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Biomass opportunity in Sabah province
FULLY-LOADED COST
Lahad Datu is the 2nd largest port
based bulking installation for palm oil in
Sabah

Biomass available (incremental)
million tonnes
Cost, USD/tonne
5.0
2.4
2.2
Total 60 80 40
0.4
Lahad Datu
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SOLID BIOMASS
Wide range of downstream uses for oil palm biomass
Lignocellulosic biomass
Neutra-
ceuticals
Pellets

Other

Wood
industry

Fertilizer Biobased
chemicals
Biofuels Bioenergy
Diesel/
jet-fuel
substitutes
Bio-
plastics
Other
Petrol
substitutes
Bioenergy
to grid
NON-EXHAUSTIVE
Co-firing
at mills
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Biobased chemicals should offer highest value-add in the future
1,100-3,515

215-390

24-78
15-150x
380-1,250
430-1,100
Revenue generated per tonne of lignocellulosic biomass input (dry weight)
RM
Upper range
Lower range
Fertilizer
Bio-
energy
Biofuels
Bio-
based-
chemi-
cals
Wood
industry/Pel
lets
Existing revenue per tonne today
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Biobased chemicals to reach commercial scale between 2015-2020
2013-15
Biofuels
Biobased
chemicals
Today
Fertilizer
Wood
industry
Other Bioenergy
Pellets
2015
2020
2020
OPF juice
pathway
Ligno-
cellulosic
pathway
Biofuels
Biobased
chemicals
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0
5
10
15
20
25
30
35
2020 2015 2011
Additional 20% biomass shift towards higher value uses by 2020
Energy
Wood
products
1%
1%
3%
1%
4%
Use of biomass by type of end-product
6%
4%
9%
3%
9%
Share of total biomass available
in given year
Bio-chemicals: Uncertain, but
very high value
Bio-fuels: Requires blending
mandate
Pellets: Possible today, enables
mobilization
Fuels
Pellets
Biobased
chemicals
Biomass
to wealth
Business
as usual
Biomass used
Million tonnes, dry weight
11% 31%
Total:
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Private sector initiative to mobilize the biomass with targeted government
support
Government
role
Funding
(private sector
led primarily
through EPP
mechanism)
Capabilities
Orchestration
Challenges
Disproportionate
focus on fertilizer
Understanding of
downstream
opportunities
and technology
options
Short-term
monetization
focus
Plantations
Large plantations and cooperatives
Technology companies
Downstream companies
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Potential mobilization structure in 2015
Plantations
and mills
Cooperatives
Technology
players
Input to engineered
wood player
Input to ethanol inter-
mediate producer
Input to specialized
chemicals player
Downstream
players
Specialized
biochemical
cooperative
Regional
pellet
cooperative
Regional
portfolio
cooperative
National
wood pellet
cooperative
Specialized
energy
cooperative
Fully owned
pellet plant
Input to independent bio-
energy plants
Part-owned biorefineries
Full play portfolio
cooperative
ILLUSTRATIVE
Small
holder
Small
holder
Small
holder
Indepen-
dent mill
Indepen-
dent mill
Indepen-
dent mill
15%
12%
32%
10%
28%
3%
% of biomass off take
Mid
size
Large
corp.
Large
corp.
Mid
size
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15
0
200
400
600
800
1,000
0 5 10 15 20 25 30 35 40
Mobilised biomass (%)
Incremental GNI impact of ~RM 30 billion
SOURCE: EPU, Future of Industrial Biorefineries, 2010, FiT Handbook, NKEA EPP5, Ullmanns and Kirk Othmer, SRI, Lactic acid and PEP Yearbook
2010, Journal of Palm Research 1999,, Platt's data strip, SRI, Press search, Expert interview
Business as usual
2020
2015
Biomass to
wealth scenario
2015
2020
bn RM GNI impact
6-7
1
Today
35-39
Cumulative
RM 28-35 bn
investment
Cumulative
RM 8-10 bn
investment
Average revenue per tonne of biomass
RM
2-3
11-12
~2% additional GNI impact
~66,000 new jobs
~12% CO
2
e abatement
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The National Biomass Strategy was launched by Tan Sri Bernard
Dompok at BioMalaysia in November 2011
SOURCE: Press articles
Given that Malaysia is the worlds largest
exporter of palm oil, its waste alone holds
tremendous potential for the creation of high value
industrial applications
- Prime Minister Datuk Seri Najib Tun Razak, at the launch
of the strategy at the opening of BioMalaysia 2011
Accelerate and expand
existing EPPs
Launch of the National Biomass Strategy Anchored to specific EPPs to catalyze
EPP 5 Biogas to
energy
EPP 6 Develop
bio-based chemical
industry
OPBC industry
consortium
Pelletization plants
for export
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After the launch of the NBS, we subsequently ran a series of 4 parallel labs
to detail out initiatives under Palm Oil NKEA
Objective
Policy
implica-
tions
Biogas Biobased
chemicals
Pellets OPBC
Validate biogas
financial
feasibility and
define clear
targets for
country-wide
implementation
Validate technol-
ogical and
financial
feasibility and
define a clear
path for Malaysia
to capture fell
opportunity
Validate pellets
business case
and define a
clear end state
for Malaysia as
part of attempt to
capture portfolio
of opportunities
Help accelerate
sustainable tech-
nology of palm oil
related biomass
Timeline
4 - 5 January, KL
13 January, KL
6 + 9 January, KL
16 January, KL
6 + 9 January, KL
16 January, KL
11 - 12 January,
Kota Kinabalu
Amendments or
modifications to
existing EPP 5
Additions to
existing EPP 6
Develop detail
and content
behind new
Initiative
Develop detail
and content
behind new
Initiative
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Agenda
Introduction to NBS
Opportunities for industry
Pelletization
Biogas
Biobased chemicals
AIMs role moving forward


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Agenda
Introduction to NBS
Opportunities for industry
Pelletization
Biogas
Biobased chemicals
AIMs role moving forward
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In Asia, there is a shift in focus to bioenergy with ambitious targets set for
the next ten years
18
+546%
15
2020
(Target)
119
13
16
2015
(Target)
52
6
1
11
6
2009
2
3
9
32
75
China expects to increase consumption of biomass energy by
~6x in the next ten years
Energy equivalent, million tonnes coal equivalent
SOURCE: Energy Research Institute, National Development and Reform Commission 2010
Liquid biofuel
Biofuel gas
Biomass pellet fuel
Biomass power
30%
CAGR
(2009 - 2020)
5%
16%
26%
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Exporting pellets to Asia has payback periods of 4-6 years and annual
EBIT of 7-12m for 100k tonne plant
SOURCE: Press search, Expert interview
RM per tonne
Economics of pelletization
1 10% WACC assumed 2 Based on prices from Korea / China market
Total capex of RM 44 million
Yearly EBIT of RM 7-12 million
Payback period of 4-6 years
If only using EFB, requires supply from 4 -5 60 tonnes/hour mill
Asian markets could be more attractive with less complex logistics involved
and less stringent pellet standard requirements
Description of plant
If mill has biogas
facility and is co-
located with
pellet plant, then
cost for steam
and power is
removed
Minimal transport
cost with mill and
pellet plant
located next to
bulking hub (ave.
distance of ~5 km
from hub)
A
B
A
B
44
23
41 408
0
FOB
cost @
Port
Klang
2
Ave.
biomass
cost
EBIT
75-120
244 - 289
Labor Mainte-
nance
20-25
Opex
total
100-120
Power
60-80
Steam Shipping
(N/A)
CAPEX
1
Minimum scale of
20,000 tonnnes of
pellets is possible,
requiring EFB from only
1 60t/h mill
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Agenda
Introduction to NBS
Opportunities for industry
Pelletization
Biogas
Biobased chemicals
AIMs role moving forward
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Biogas to energy initiative has been highlighted in the Palm Oil NKEA and
National Biomass Strategy
Acceleration of EPP 5 to encourage
mill-level conversion of biogas to
energy, not only for grid-connected
mills but for all mills across the
nation.
Biogas plants will be developed at the 500
mills over the next 10 years. Of these, 250
mills will target to supply electricity to the
national grid by 2020. Another 233 mills
will capture biogas to be used as fuel for
their own boilers. The balance 17 mills will
use methane gas for both options.
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Current technology provides options for biogas capture and utilization
Boiler with
modified
burner
Turbine Generator
Electricity
Steam
Gas boiler Turbine Generator
Bio-digester tank
Scrubber
Biogas
engine
Gas
engine
Methane capture
Membrane-covered
lagoons
Steam/electricity generation
Modified
boiler
New gas
boiler Electricity
Steam
Electricity
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Utilizing biogas in existing grid-connected mills to generate and sell
electricity via the FiT is profitable
Source: CDM PDD; UNFCCC website; Biogas EPP Lab
Million RM per mill per year
Business case example for 60 t/hr (300,000 tons p.a.) FFB mill plant
1 Based on Modified Palm Oil Mill case
2 10 years amortization period
3 Assuming EUR 5.2/t CO
2
e; Carbon credit can be gained only until end of 2017 or 2020
Assumptions
Gas engine
installation
1
:
Capex of RM 12-
16 m for 60t/h
mill capacity

Opex is 3% of
Capex
Grid connected:
Generates 1 MW
electricity to support
mill operation and
supply to the grid
CDM: Generates
33k CERs annually
0.7
EBIT
0.3-1.0
Carbon
credit
3
Cost
saving

0.4
Electricity
revenue
2.0
Biomass
revenue
0
Opex

0.5
0.4
Capex
2
1.2-1.6
Without CDM: EBIT of RM 0.3-0.8 m and payback period of 8-9 years
With CDM: EBIT of RM 1.0-1.5 m and payback period of ~6 years
Surplus energy can be used to power pellet plant, thereby almost doubling EBIT from
pelletization
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Electricity generated by an off-grid mill can be utilized by localized
communities or a co-located biomass plant
Source: CDM PDD; UNFCCC website; Biogas EPP Lab
Million RM per mill per year
Business case example for 60 t/hr (300,000 tons p.a.) FFB mill plant Assumptions
Gas engine
installation
1
:
Capex of RM 12-
16 m for 60t/h
mill capacity
Opex is 3% of
Capex
Non-grid
connected:
Generates 1 MW
electricity to support
mills and pellet plant
operations
CDM: Generates
33k CERs annually
Without CDM: EBIT of RM 0.9 m and payback period of 6-7 years
With CDM: EBIT of RM 1.6-2.0 m and payback period of ~5 years
1 Based on Modified Palm Oil Mill case
2 10 years amortization period
3 Assuming RM 0.40/kWh electricity cost baseline
4 Assuming EUR 5.2/t CO
2
e; Carbon credit can be gained only until end of 2017 or 2020
0.7
EBIT
0.9-1.6
Carbon
credit
4
Cost
saving
3
3.0
1.2-1.6
Capex
2
0.4
Opex

0
Biomass
revenue
0
Electricity
revenue
0.5
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Agenda
Introduction to NBS
Opportunities for industry
Pelletization
Biogas
Biobased chemicals
AIMs role moving forward
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Biofuels from lignocellulosic biomass expected to reach commercial scale
around 2015, biobased chemicals between 2015-2020
SOURCE: MOSTI R&D for Biomass 2010, Status of 2nd Generation Biofuels Demonstration Facilities in June 2010,
MY-Basic Workshop February 2011, Expert interviews
Today
Fertilizer
Wood
industry
Other Bioenergy
Pellets
2015
2020
Ligno-
cellulosic
pathway
Biofuels
Biobased-
chemicals
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5
4
3
2
1
0
Market size
m USD, 2010
42,000 40,000 38,000 36,000 34,000 8,000 6,000 4,000 2,000 0
Fumaric acid
Ethylene oxide
Succinic acid
PLA
Acetone
Acetic acid N-Butanol
Glutamic acid
Lysine
Acetaldehyde
Citric acid
Lactic acid
Xylitol
Serine Ethylene
Aspartic acid
Ethanol
Market growth potential
Percent, 2010-15
19
11
10
9
8
7
6
Vanilin
There are many potential components
SOURCE: ICIS; BCC; BREW report 2010, Ullmanns and Kirk Othmer, SRI, Lactic acid and PEP Yearbook, Expert Interviews, W2W Roadmap Team
Commercial
1
Pilot-scale
1 Based on 1st generation technology
NOT EXHAUSTIVE
2010 average price
(USD per ton):
Aspartic acid: 9,900
Succinic acid: 2,600
Polylactic acid: 2,200
Ethylene oxide: 1,900
Lysine: 1,700
Glutamic acid: 1,600
Ethanol: 1,200
Ethylene: 1,000

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The market is expected to grow to RM 110-176 bn by 2020
+5% p.a.
2020
11-12
2009
7.2
48
110-176
8-13%
p.a.
2020 2009
Share of biobased chemicals (2020)
Lignocellulosic derivable
chemicals market
10-16%
RM trillion
% of chemicals market
expected from biobased
sources
RM bn
% of biobased chemicals
derived from lignocellulosic
material
9%
SOURCE: SRI; BCC; IEA 2009; F.O. Licht; press clippings
ESTIMATES
Overall chemical industry development
x
=
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What business models could make this happen?
Partnering with end-to-end players
that can convert all the way from
biomass to specialized chemicals
End-to-end joint
ventures between
downstream
players and
plantations
2
Partnering with specialized chemical
company and jointly contracting a technology
provider to convert biomass to sugar
Specialized
chemicals joint
venture with tech-
nology license
agreements
3
License biomass to sugar
conversion and selling the
fermentable sugars
Plantations as
fermentable sugar
supplier
4
Selling raw biomass to highest
bidder without taking part in any
downstream activity
Plantations just
supply biomass to
highest bidder
1
Plantation involvement
Passive Active
Starting point business models
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What will the high-level business for a biobased chemical plant look like
150,000 tons (output) biobased chemical plant
Capital cost, USD per
ton capacity:
Total capital cost,
million USD:
1,000-2,000 USD per ton
150-200 million USD
Operating costs
excluding biomass
Domestic / foreign / public
investments:
Number of jobs per
plant:
Pretreat
ment
Hydrolysis
e.g.
enzymatic
Fermenta
tion
Distillati
on
10-12% of capex
20% / 80% 0%
150-200
50
50
50
75
23
248
Sugar
price
EBIT Pre-
treat-
ment
En-
zymes
Feed-
stock
Capex
USD per ton
Initial view cost of converting biomass to sugar
ESTIMATES
Economics of converting sugar to
biochemicals depends on type of
chemical developed
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Agenda
Introduction to NBS
Opportunities for industry
Pelletization
Biogas
Biobased chemicals
AIMs role moving forward
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The 1MBAS initiative was launched on 22 March 2012 by PM at Parliament
1MBAS:
A broader initiative to ensure Malaysia will
become a leader in biomass utilisation and the
Nation and its people will benefit from the
opportunities
To develop strategies for all Malaysian
Biomass utilization opportunities (Palm Oil,
Forestry, municipal waste etc.)
To ensure and support delivery of National
Biomass Strategy objectives:
Create new high value industries
Create jobs for Malaysians
Create additional GNI for the country

1MBAS will focus on driving new sources of income
generation, driving inclusiveness through job creation
at all levels including in most remote parts of Malaysia
and enhance development of new industries through
the utilisation of biomass Prime Minister Dato Seri
Najib Tun Razak at the launch of 1MBAS
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On the same day 18 organisations committed to set up OPBC
36
OPBC is a consortium made up of Malaysian upstream plantation companies,
international downstream chemicals companies and Malaysian and International
Academia and scientists
The Oil Palm Biomass Center will focus on expediting the scaling up of technologies
to convert biomass to high value chemicals in Malaysia

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1MBAS taskforce A cross-agency unit to ensure delivery of NBS
initiatives, while contributing to each respective agencys KPIs
37
FOCUS ON AND STRENGTHEN
DELIVERY of Malaysias National
Biomass Strategy
ATTRACT PARTNERS to JV with
or invest in high-value added
biomass uses by providing a united
front
ALIGN STAKEHOLDERS, public
and private sector, towards a
common goal and aspiration
MOBILIZE BIOMASS to facilitate
effective usage towards high-value
added applications
1
2
3
4
DELIVERY MANAGEMENT of
EPPs with regular reporting and
updates to Palm Oil NKEA
5
Responsible for the
development of
plantation industries
namely palm oil,
rubber, timber,
cocoa, tobacco,
kenaf, pepper and
sago.
Custodian of Palm
oil industry to
enhance the well-
being of the
Malaysian oil palm
industry through
research,
development and
services
The government's
principal agency for
the promotion of
the manufacturing
and services
sectors in
Malaysia.
Nurture and
accelerate growth
of Malaysian
companies,
promote FDI and
Create conducive
environment for
biotechnology


Task
Force
Others
Develop investment opportunities /
incentive packages
Conduct international and domestic
roadshow to attract
Facilitate introduction of international
players into Malaysia
Drive implementation of policy or government
initiatives as lab result
Reporting to Palm Oil NKEA
Tracking and monitoring of EPPs and initiative
status
Identify willing plantation owners and facilitate
formation of cooperatives
Assist coops in developing biomass portfolio
strategy
Conduct technology
scanning to identify
latest trends,
opportunities
Develop knowledge
platform to share
findings
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TaskForce process flow
38
Inform
Alert
Facilitate
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www.innovation.my

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