The Economy of Palm Oil-based Gasoline

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Dahlan Iskan
Dahlan Iskan, SOE Minister (2011-14)

IO – Melia Laniwati Gunawan has again propelled the reputation of Indonesian scientific community. She succeeded in creating palm oil powered gasoline known as bensin sawit (bensa). Last year, she also made a splash with the invention of “red-and-white” catalyst. As a result, Pertamina no longer needs to import catalysts to refine its crude oil. 

She now joins the league of three most prominent ITB female graduates, with the likes of Dr Betty Alisyahbana and Dr Nyoman Anjani. The former was President Director of PT IBM Indonesia and Commissioner of Garuda Indonesia, then became chairman of the ITB board of trustees while the latter is a top executive at Unilever Indonesia. Betty originally trained as an architect, but then ventured into business consulting while Nyoman graduated cum laude with a degree in mechanical engineering. 

Melia herself attained a degree in chemical engineering. “I wanted to become a chemistry teacher,” she told me. But in a twist of fate, she becomes a highly accomplished scientist, researcher, and lecturer instead. “The one person I am deeply indebted to is my supervisor Prof. Dr. Subagjo,” said Melia. “He supervised me all the way from S-1, S-2, to S-3,” said Melia, referring to the bachelor, master and doctoral program. “Without him, I am nothing,” he added, emphatically. 

Melia was born into a poor family. His father, Gunawan, was a public transport driver, plying the Bandung-Cimahi, sometimes majoring Bandung-Cirebon, route. 

When Melia was in her second year of junior high school in Bandung, her father died unexpectedly. “We didn’t know what caused it. We were still too young to understand,” she recalled. Since then, her mother has to raise five children; Melia is the eldest. To survive, her mother took up sewing orders. Melia would often help her. After graduating from junior high, Melia attended a private senior high school. The school, Bina Bakti Christian High School, was only three years old. She was the third intake. “I was the first alumni to be accepted into ITB,” said Melia with pride.

Melia was always known as a smart student who stood out among her peers. She always got 10 in math, and 8-9 in chemistry. To help pay the tuition fees at university, Melia taught chemistry at her high school alma mater. 

After graduating with a bachelor’s degree, Melia was given a scholarship to pursue a Master’s degree in chemical engineering at the same university so she could become a lecturer. Then, she was offered another scholarship to study a doctoral degree, also at ITB. Her doctoral dissertation was titled “Normal Conversion of Butanol to Isobutylene”. 

Melia is of mixed heritage. Her father was a Chinese Indonesian surnamed “Go” (or “Wu” in Mandarin). Her mother is a Sundanese, a native of Garut. They met in Bandung. Melia now has two daughters. One graduated from ITB majoring in design, the other a business graduate from Parahyangan University. “None of my daughters like chemistry,” revealed Melia. 

With the invention of bensa, palm oil now has broader use as biofuels. Before, we have had palm oil-powered diesel, sold as B20, B30 and so forth depending on the percentage of the palm oil in the mix. 

The ITB team went further. They managed to create D100, which is 100 percent unmixed biodiesel. But there is a downside: the raw material for D100 is still from crude palm oil (CPO). Too expensive! 

More commonly , CPO i s processed into cooking oil, soap, shampoo, toothpaste, etc. Not fuel. Palm oil companies only want to produce CPO because their ultimate goal is the same: to convert it into cooking oil. In fact, if the goal is to produce D100 or bensa, it doesn’t need to be processed into CPO. What we need instead is the industrial vegetable oil (IVO) factory. 

The question is, would palm oil companies invest in IVO plant to produce D100 and bensa? I bet they wouldn’t. They would prefer to build CPO factory. CPO can be sold to cooking oil companies, at home and abroad. Indeed, the price of CPO is at an all-time high now — US$1,400/ton. 

A businessman I know just sold his palm oil company during the commodity boom. Odd decision, you may think. “Exactly it has to be sold when the price is high. When later the price goes down, I can buy it back.” Make sense. 

As for biofuel , palm oil entrepreneurs might ask: If we build an IVO factory, who will buy the product? At what price? No one knows. This explains their disinclination. 

That’s why ITB will build its own IVO factory, to produce bensa. The advantage over fossil fuel derived gasoline is in its research octane number (RON). The RON of conventional gasoline as we know is 93 – or lower. While bensa can be as high as 112. So, I assume, in the future IVO can be mixed with RON 83 gasoline to yield RON 93 gasoline, or other types. 

The government fully supports ITB’s initiatives. After all, there is a large fund that can be used to continue the research without using the state budget: the endowment fund from CPO levy. The funds are collected by the Oil Palm Estate Fund Management Agency (BPDP-KS) under the Finance Ministry. The goal is to help fund the development of oil palm-based green energy. 

The first phase will see the construction of an IVO factory with a capacity of 50,000 tons in South Sumatra, estimated to cost around Rp120 billion, more or less the same as the cost to build a CPO factory. 

After gasoline is mass produced from IVO, of course the price can go down. However, even at the lowest price, my estimation is that it will still be around Rp20,000/liter. 

Indeed, palm oil is expensive. The challenge with bensa is actually people’s consumption of palm oil. The more mouths on earth to feed, the more expensive the cooking oil is, and consequently palm oil commodity itself. 

This is similar to the corn-based ethanol project. It has to compete with cattle feed. As the number of livestock continues to grow, corn is better for feed than for fuel. 

However, with bensa, we now have more choices for plant-based green energy. In fact, even if the price of palm oil falls in the future, it can still be used to produce gasoline. For the time being, the energy versus food debate is still won by the latter.