Energy players hungry for control over green feedstock supply in S-E Asia

THE scourge of corruption is driving oil and gas majors and other energy players to seek direct ownership in South-east Asia’s agribusiness, said Nat Vanitchyangkul, the newly appointed regional chief executive officer of sustainability consultancy ERM.

This is so that they can better secure green feedstock – such as sugarcane or crude palm oil – as they build their biorefinery arsenal in the region. Currently, prices and conditions surrounding smallholders’ production of biomass are largely mediated through intermediaries, leaving the door open to bribery.

“Whenever you have to deal with smallholders, big corporations will not talk to hundreds or thousands of smallholders. They will have to talk to a middleman, and that’s where the corruption (and human rights concerns) come in. So they will have to come up with a new business model, because otherwise they cannot address this challenge,” said Vanitchyangkul, who was appointed to lead ERM’s Asia operations in October 2022.

The new business model, he said, could look a lot like the corporations acquiring, entering into a partnership, or establishing a joint venture with like-minded companies.

“If energy companies have never had to dabble in agribusiness before, they will now have to be a shareholder so they can have control over factors,” he added.

The impetus to get this right is tied to the growing global need to decarbonise supply chains by limiting the use of crude oil as a feedstock at refineries.

Vanitchyangkul said that as long as petroleum products continue to be produced with crude oil, there is “no way” the world will be able to substantially whittle down indirect emissions from suppliers, also known as Scope 3 emissions. Research and development is therefore focused on “second-generation biomass”, or advanced biofuels, which can be manufactured from various types of non-food biomass, but the technology is not yet ripe for widespread implementation.

Balancing tradeoffs

Vanitchyangkul, who has been with the consultancy for more than 25 years, said companies’ efforts to decarbonise their supply chain in South-east Asia comes with many challenges, straddling human rights, food security and deforestation.

Automobile companies would, for instance, have to navigate the potential impact of transition to electric vehicles on their supply chains in countries like Thailand, which brands itself as the “Detroit of Asia” for being a stronghold for internal combustion engine car manufacturing for decades, he said.

He also foresees the aviation sector’s switch to cleaner fuels presenting an issue in Thailand. “It is less of a problem in Malaysia to use crude palm oil to produce aviation fuel, as you have Sime Darby and IOI. If we do that in Thailand, you deal with smallholders,” he said.

Back to the example of biorefineries, he said they typically create a huge change in demand towards certain biomasses in certain countries, which can cause prices of certain food commodities, such as sugarcane, to rise unsustainably high. He has seen the situation quickly turn political, with impacted non-energy companies lobbying to limit feedstock supply to the biorefineries.

“With big companies, we are not talking small-scale refineries, but large-scale ones. If they cannot secure the (alternative feedstock in bulk), they cannot run the biorefineries,” he said.

What could happen then is that companies would be forced to import their biomass from neighbouring countries – crude palm oil, for instance, from Malaysia and Indonesia – to feed the biorefinery. Apart from creating a larger footprint than originally intended, this brings its own set of issues.

“You care about who will provide you the crude palm oil, whether they managed the plantation properly, whether they took care of the deforestation aspect, and all that… It never ends,” the environmental specialist said.

“If you don’t understand the potential impact of not having got the nature to feed your operation – you only understand one side of the coin, but not the complete view,” he said.

COP15 ‘suddenly popular’

Vanitchyangkul reflected that issues such as these are feeding a growing interest among companies to understand the intimate linkages between climate and nature, as they move from merely making net zero commitments to operationalising their strategies.

Of note is the sudden popularity among businesses of last December’s United Nations Biodiversity Conference in Montreal, Canada, also known as COP15. Business participation at COP15 has been described in the media as “unprecedented”, with around 1,000 accredited corporate representatives, far higher than any previous biodiversity summit.

“The business attention on biodiversity has never been like that,” he exclaimed. “They now have a better understanding that they are going to rely more on nature for their production, as well as offset the emissions that they produce.”

Vanitchyangkul also remarked that divestment of browner businesses are expected to be slow this year as energy security and a possible recession are the overriding concerns.

Still, while the pace of clean energy adoption might take a hit, the renewables agenda is not expected to go away, he stressed. “Even if we have the energy security issue, the way to solve that is renewables. That agenda is so clear. I don’t think they have to go back to the fossil business,” he said.