Indonesia Could Face Obstacles in Advancing Higher Biofuel Blends: Sources
The Indonesian government could see obstacles in accelerating plans to introduce 20% of ethanol blending in gasoline and increasing biodiesel blending to 50% from the present B40, sources said.
An Indonesian source dismissed the possibility of bringing forward the E20 target from 2028 because it will take time for sugarcane plantations — source of the planned feedstock for ethanol production in the Southeast Asian country — to grow and mature.
Another option is for Indonesia to import ethanol from Brazil, but the latter is unlikely to have much excess to export due to its own ethanol blending program, the source added.
Meanwhile, Indonesia’s plan to launch the mandatory B50 — a blend of 50% palm oil-based biodiesel and 50% conventional diesel —could be revived due to surging crude oil prices triggered by the Middle East conflict, Deputy Energy Minister Yuliot Tanjung was quoted in media reports as saying. The plan was scrapped in January due to technical and funding concerns.
While Indonesia presently has sufficient inventories of crude palm oil or CPO to produce biodiesel for B50, this will come at the cost of CPO exports, the source said.
This has been echoed by the Indonesian Palm Oil Association or GAPKI, which said that CPO production has been relatively stagnant over the past five years, so more CPO diverted to biodiesel production will naturally mean less such fuel available for exports.
Furthermore, Jakarta imposes an export levy on CPO, which is used to subsidize biodiesel blending in diesel meant for public use. Thus, lower CPO exports will lead to less funding available for the subsidies, according to GAPKI and the source.
Global CPO production is expected to drop as the exports of urea — which is used as fertilizer in palm oil plantations — from the Middle East are affected by the current conflict.
Palm oil plantations in Indonesia are not as dependent on urea from the region compared to those in other countries, so the former should be able to maintain their CPO production rates, the source said. However, CPO sellers may prefer to export CPO at higher global prices rather than use it in domestic biodiesel production.
Hence, the trade-off of the B50 program is the loss of revenue from export levies imposed on higher CPO export prices, the source added.
Another issue caused by the Middle East conflict is the sourcing of the catalyst used in biodiesel production.
As the catalyst is homogeneous and harder to recover during biodiesel production, it needs to be constantly replenished, the source explained. A biodiesel plant requires an average of 300-400 metric tons of catalyst monthly.
Around half the biodiesel plants in Indonesia source their catalysts from Saudi Arabia, which are typically shipped out from Al Jubail port, confirmed another source close to an Indonesian biodiesel producer.
However, as shipments are likely to be affected by the current disruption at the Strait of Hormuz, biodiesel production may fall in the near term if producers are not able to receive their catalyst shipments.
The government should therefore monitor domestic biodiesel production rates before deciding if an increase to B50 is feasible, the first source added.
—Reporting by Kite Chong, kchong@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com