The world market for biodiesel is at present small - probably less than 150,000 bpd - and is mainly concentrated in Europe. After Europe comes the US and between them they account for more than 90% of the world’s biodiesel consumption. Some Asian countries have begun to produce and consume biodiesel and a few - such as the Philippines - have a legal requirement for diesel fuel to contain biodiesel. Even here, though, the requirements are small. The Philippines’ diesel pool contains less than 1% biofuel.

Some countries are experiencing quality problems with their biodiesel.. China, for example, has set quality standards at the same level as Europe or the US in many cases, which most of its producers cannot yet meet. Commercial vehicle operators also complain that the lower fuel efficiency of biodiesel means that they get about 5% fewer miles per gallon compared with mineral diesel fuel.

The high cost of biodiesel is also slowing down the uptake of the fuel. In many countries across Asia this has meant that governments have had to increase fuel subsidies at a time when most of them are trying to reduce subsidies or abolish them altogether.

The high cost of biodiesel has come about partly as a result of the small scale on which the fuel is manufactured, but mainly because of the huge rise in raw material costs. The fourth quarter of 2007 saw many oil-bearing plants at record price levels. Palm oil at one stage touched $900/t. At such raw material prices, the break-even price for biodiesel would have been around $1,000/t. At the time, however, it was trading below $850/t, causing huge losses to biofuel manufacturers.

The large increases in the price of oil crops has been partly caused by the opening of new biodiesel manufacturing plants across Asia and partly by growing demand in China for agricultural commodities in general. Several manufacturers are now looking for cheaper feedstocks, notably jatropha.

Jatropha is most widely used in the Philippines. It is cheaper than palm oil and most other feedstocks: partly because it does not have a competing food use. Jatropha-based biodiesel blends are being developed by the Philippine National Oil Company (PNOC), which has been able to produce fuel to EU and US standards. PNOC wants to increase biodiesel production ten-fold to just over 60,000 bpd. To do this, it must plant some 5of jatropha for use as raw material for the fuel.

Most other Asian countries appear to be sticking to more conventional feedstocks, including palm oil, coconut, rapeseed and soy. The high price of palm oil is, however, forcing a number of biodiesel producers to switch to other crops, but some of these are important food crops and biodiesel producers are now being blamed for pushing up the price of staple foods.

In an attempt to forestall criticism from those who accuse them of competing for scarce food crops, some biodiesel manufacturers are talking of establishing plantations to grow crops specifically for fuel production. This has raised further alarm, however, since such plantations would almost certainly involve the replacement of complex tropical rain forest ecosystems with monoculture. As well as the threat to native species, it could also greatly increase rainwater runoff in areas noted for their high rainfall, leading to soil erosion and landslips.

Concerns about the rain forest have led to a nervousness amongst some biodiesel manufacturers about the future of their industry, and some analysts are beginning to downgrade their forecasts of future demand. There are plans for over 800,000 bpd of biodiesel production capacity worldwide over the next few years. World demand, however, looks like being well below 300,000 bpd.

The Asia/Pacific region is already experiencing a surplus of manufacturing capacity. Scores of plants have been built over the last few years but many are now closed or running below capacity as a result of the enormous rise in feedstock prices. China appears to be about the only country in Asia where biodiesel plants are running close to full capacity. Here, manufacturers have been helped by a government decision to restrict the development of new production facilities in order to reduce the demand for crops that are also used as food.

Another problem for Asia’s producers is the small size of their plants. Many are around 5,000 bpd or below. A company called Natural Fuels has announced plans for a 12,000 bpd plant in Singapore but such sizes remain the exception rather than the rule. Asia’s biodiesel producers need both the economies of scale that come from larger manufacturing units and a fall in feedstock prices. Without both several more plants may need to close in order to bring supply and demand for biodiesel more closely into balance.