Why Can’t We Use Palm Oil as Fuel?

 

While Malaysia sits on large palm oil stockpiles (exceeding 3m tonnes), the decision not to aggressively funnel it into car fuel is driven by a mix of stalled infrastructure, powerful export economics, technical limitations, and policy inertia. 

Palm oil is already used in biodiesel, but the scale is deliberately constrained. 

1.    The Infrastructure Bottleneck 

The most immediate hurdle is that Malaysia simply cannot physically blend higher concentrations of palm biodiesel fast enough. The nationwide standard remains B10 (10% palm biodiesel, 90% diesel), while the planned upgrade to B20 has largely stalled. Former minister Teresa Kok noted that critical depots in Bintulu, Sandakan, Tawau, and Kota Kinabalu lack sufficient blending capacity or are awaiting upgrades. Rolling out higher blends requires synchronized upgrades across feedstock supply, quality control, and logistics—a costly and slow process the government has been hesitant to fully fund.

 

https://simple.wikipedia.org/wiki/Biodiesel 

 

2.     Export Revenue vs. Domestic Fuel 

Malaysia produces roughly 20 million tonnes of palm oil annually. Only about 1 million tonnes currently goes to biodiesel, while 15–16 million tonnes are exported, generating massive foreign exchange (palm product exports hit RM112.4 billion in 2025). Using that stockpile domestically for fuel would mean sacrificing high-value export revenue. Furthermore, high Crude Palm Oil (CPO) prices (frequently above RM4,000/tonne) make biodiesel expensive relative to fossil diesel, often requiring subsidies or tax waivers that strain government finances.

 

3.    Technical & Engine Limitations 

Palm biodiesel has poor cold-flow properties due to its high saturated fat content. It can congeal at low temperatures, which is why Malaysia restricts biodiesel to B7 in highland areas while allowing B10/B20 in the lowlands. Additionally, some auto-manufacturers have historically objected to higher palm biodiesel blends due to concerns over long-term engine fouling and viscosity issues. These technical constraints make a rapid, nationwide shift to high blends less straightforward than simply burning the stockpile.

 

4.    Supply Chain & Economic Factors 

Refining into Biodiesel: Palm oil must first be processed into Palm Oil Methyl Ester (PME) or biodiesel rather than used raw. 

Blending Limits: Malaysia implements controlled blending (such as B10, B15, and rising targets) to balance engine safety, vehicle manufacturer approvals, and supply chain readiness before pushing toward higher mixtures like B20 or full B100 pilots. Our R&D is not yet scaled up to meet higher mixtures hence the low blending levels.

 

5.    Policy & Strategic Priorities 

The government has chosen to prioritize energy exports and food security over aggressive domestic fuel substitution. Palm oil is a strategic export commodity, and policies like the National Energy Transition Roadmap (NETR) are now channelling investment toward advanced biofuels (like Sustainable Aviation Fuel) rather than just road transport biodiesel. There is also a "food vs. fuel" tension, as palm oil is a staple cooking ingredient, and diverting too much to fuel could drive up domestic food costs. 

In short, the 3+ million tonnes in storage reflects a surplus of a valuable export commodity, not a free pool of fuel waiting to be burned. Until the blending infrastructure is upgraded, the price gap is closed, and engine compatibility is fully addressed at scale, Malaysia will likely continue to treat palm oil primarily as an export earner rather than a primary motor fuel.