We recently met Mr Kevin Loman, former MD of Bedford Biofuel, which is one of the two largest jatropha projects in the world. Much advancement has been made with jatropha in the past five years. We were pleasantly surprised to hear that airlines have been testing jatropha-derived jet fuel amidst tougher carbon emission standards and fuel efficiency. Of the companies under our coverage, only Genting Plant (BUY, FV RM11.22) has exposure to jatropha, having completed the genome sequencing of the crop. We believe jatropha may be one of the ways Genting Plant can monetize its investments in genome research.
What is jatropha? It is a non-edible oil and one of the second-generation biofuels which does not compete with food requirements. The crop gained prominence years ago when D1 Oil was floated.
Regulation boost. The EU is imposing carbon tax on all airlines flying into Europe, using 2009 as a baseline for carbon emission. This has led to a number of airlines, including Lufthansa, Japan Airlines, Air New Zealand, Thai Airways and several other airlines testing green jet fuel derived from jatropha. The tests were conducted in collaboration with aircraft makers Boeing, jet engine maker Rolls Royce and refinery technology provider, UOP Honeywell.
The benefits. We understand that even without regulations driving demand, “jat fuel” has its allure. It freezes at lower temperatures than regular jet fuel, thus allowing jets to fly higher; hence lowering resistance and consuming less fuel.
Improvement in technology. The use of domesticated seeds provided by science providers (versus using wild jatropha seeds) has resulted in more consistent as well as higher yields due to better tree architecture. Two of the key mistakes made by past jatropha ventures were: i) using wild seeds with unpredictable yields, ii) engaging outgrowers schemes without proper plantation management.
Comparison with palm oil. It is a common misperception that since jatropha can grow in arid land, it should grow well in oil palm territory. This is not so, as jatropha needs distinct dry weather to shock it into flowering and fruiting. Jatropha also thrives on porous soil such as sandy soil where the water table is low since the plant does not like “wet feet”. Hence, it does appear that within South East Asia, jatropha will do well in Thailand, Cambodia and Vietnam. Moreover, the plant’s carbon footprint also tends to be smaller, especially in Africa, as the natural vegetation in these areas consists of shrubs rather than tropical jungle, where the felling of trees will result in much larger carbon footprint.
Shorter gestation period. Jatropha trees start to flower and produce fruits within six months of field planting and reach peak production in four years. This means that it has a shorter gestation period than oil palm. Its economic lifespan is also much longer at 45 years although technological improvements may hasten the feasibility of replanting.
Genting Plant a potential jatropha play. Among the companies under our coverage, Genting Plant is the only one with a toehold in jatropha via its completed genome sequencing, which could potentially be used to enhance jatropha’s oil yield. We have not incorporated any contribution from its biotech division into our earnings forecast.
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