The Influence of Crude Oil Price in Biodiesel and its Implication on the Production of Palm Oil: The Case of Indonesia

Abstract

1. Introduction Nordin, Simeh, Shariff and Baharim (2007), proved in their studies that there is a relationship between the price of crude oil and biodiesel. The results showed that the increase in oil prices during the period of the last few years encouraged some countries to begin to pay attention to the use of alternative fuels, among others from the plant (biodiesel). The increase of petroleum will increase biodiesel production. Ramli, Abas, R. and Ayatollah (2007) in their studies proved that the crude oil price is affected by biodiesel, the first derivative product of palm oil which produces palm oil (known as crude palm oil or abbreviated with CPO), utilizing biodiesel which comes from palm oil, the results showed that the biodiesel increase has affected the crude palm oil price. The development industries based on this CPO in addition directed to produce food products such as cooking oil, margarine, shortening, Cocoa Butter subtitute (CBS), and vegetable ghee, it is also directed to produce non-food products, such as industrial oleochemical primary (fatty acid, fatty alcohol, glycerin) and other oleochemical derivatives, namely surfactants, cosmetics, farmacy, and bioenergy. Oil palm plantations and palm oil industry as a means to improve the socio-economic conditions of rural communities through the implementation of operations Inti-Plasma programs (Zen et al., 2006). When the world oil price increases, many countries use CPO as raw material of bio-diesel fuel as a substitute (Karuppuswamy, Sundararaj and Elangovan, 2007; Pociovalisteanu et al., 2010; Thalassinos and Politis, 2012; Thalassinos et al., 2012). These conditions favor the use of biodiesel as a variety of targets alternatives to fossil energy applied to several countries in the world (Kennerly and Neely, 2003). In 2020, the European Union set a target of 10 percent biofuels of raw palm oil. Zen, Barlow and Gondowarsito (2006) studied that the crude oil prices have an influence on the palm oil as pointed out by Ahuja and Khamba (2008). It has been proved that there is an influence of biodiesel on the production of palm oil. The research result on the biodiesel and its impact on crude palm oil and its implications for palm oil, showed that the growing number of biodiesel has a positive and significant effect towards crude oil palm as well as the implications for the production of palm oil rises (Ashayeri, 2007). The increase of demand and the use of palm oil as a fuel is expected to cause disruption of the availability of CPO as raw materials for food, especially palm oil (Chand and Shirvani, 2000; Enkawa and Schvaneveldt, 2001). Novelty of this research is to add the existing variables into world oil price of the biodiesel and its impact on crude palm oil and its effect on oil palm. 2. Theory and Hypothesis As Santoso (2014) has pointed out bio-diesel is a natural renewable energy source that made from biomass or vegetable oil. As the bio-diesel has physical properties very similar to petroleum derived diesel fuel or ADO (Automobile Diesel Oil), bio-diesel has been used for motor engine since 1880's. In 1920's, bio-diesel production infrastructure has been nearly eliminated since diesel engine manufacturers altered their engine to utilize petroleum diesel that was much cheaper than Bio-diesel production. Recently, an increase on oil consumption, crude oil price, and ADO import have lead to consider bio-diesel utilization for transportation sector in Indonesia. An increase of the crude oil price that lead to a decreasing cost differential for bio-diesel production, bio-diesel utilization as alternative energy source in Indonesia is a real possibility. Some environmental impact concerns would also increase the bio-diesel utilization prospect. Oil palm is a highly profitable crop adapted to the humid tropics and the area devoted to this crop is likely to expand significantly in the future. It has many environmentally favourable attributes over its full life cycle. …