Booming demand for biofuels is expected to drive further palm oil expansion in southeast Asia and future expansion is expected mostly to occur in Malaysian Borneo.

Palm oil is the world's most productive oilseed and it's derived from the plant's fruit, which grow in clusters that may weigh 40-50 kilograms. A hundred kilograms of oil seeds typically produce 20 kilograms of crude oil that can be used in a range of food and cosmetics as well as for biodiesel production.

While an oil palm tree will grow for 100 years, its practical life in a plantation is about 25 years. Beyond that it is too tall to harvest. The traditional practice of burning the old growth before replanting is now banned in Malaysia. Today, the land is mechanically cleared before the young trees are transplanted. Oil palm trees grow 1.5 feet per year and start flowering and setting fruit roughly three years after planting. The trees are most productive at seven to 12 years of age. The average oil yield in Malaysia is 19 metric tons per hectare (7.7 tons per acre) although top producers get 25 tons per hectare (10 tons per acre). For comparison, soybeans and corn—crops, often heralded as top biofuel sources, generate only 446 and 172 liters per hectare, respectively.

In Malaysia oil palm production has risen from 151,000 metric tons in 1964 to 19.5 million metric tons in 2007. Over the same period, exports have climbed from 141,000 metric tons to 15.1 million metric tons. Oil palm plantations grew from 60,000 hectares in 1960 to more than 3 million hectares in 2001. In 2004, 43% of these of these were located in Sabah and Sarawak, on the island of Borneo.

Booming demand for biofuels is expected to drive further palm oil expansion in southeast Asia and future expansion is expected mostly to occur in Malaysian Borneo. This is because, on average, biofuel crops grown in the tropics yield about five times as much energy as those grown in temperate zones. Corn, for example, produces 145 kg of oil per hectare per year, sunflowers 800 and rapeseed 1000.

In March 2008 the crude palm oil price for June delivery on the Bursa Malaysia Derivatives exchange reached US$1,280 per tonne and whilst the price has slipped since then, rapidly growing demand makes Palm Oil represents an out-standing investment opportunity.

Palm oil land in East Malaysia can be acquired for as little as $1,800 per acre and with each acre capable of producing 7.7 tonnes of palm oil (around 50 barrels), it's not surprising the smart money is moving into Palm Oil in a big way. Private investors are now scrambling to supply the nascent palm oil biofuels industry as well as oil for food production. Malaysia now produces ROSPO certified palm oil from sustainable reserves which commands a premium of approximately US$50 per tonne and the country is at the forefront of sustainable palm oil production.

Malaysian Property Partners can provide expert advice on all aspects of palm oil investment.

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