Indonesia biofuel

Supparoek Sawangwong, Senior Analyst, Asia Powertrain Forecast

03 March 2020

Indonesia accelerates biodiesel fuel initiative

Indonesia currently spearheads the global palm oil industry as the world’s largest producer and exporter country, generating over 36 million metric tonnes in 2016, of which 25 million were exported worldwide. This figure rose to 43 million metric tonnes in 2019. Asia and Europe are among Indonesia’s main palm oil export destinations, where the bulk of the consumption goes towards the production of consumer goods, including foods, cosmetics and biofuels for the energy sector.

A seismic change occurred in January 2018, however, when the European Parliament voted to ban the use of palm oil in biofuel production within the European Union (EU) from 2020, in a bid to curb rainforest deforestation, particularly on the islands of Sumatra and Kalimantan.

To offset a potentially massive inventory build-up resulting from lost EU demand, Indonesia hit upon a sustainable solution by targeting the high purchasing power available in the domestic market, most notably in the transport sector.

“the government kicked off a new initiative, aimed at reducing the use of traditional diesel, by releasing B20 diesel (20% biodiesel plus 80% petroleum diesel) in early 2019”

The primary use of palm oil in Indonesia is as a raw material in biodiesel production. Recognising this, the government kicked off a new initiative, aimed at reducing the use of traditional diesel, by releasing B20 diesel (20% biodiesel plus 80% petroleum diesel) in early 2019. This was upgraded to B30 in December of last year.

The state-owned oil company PERTAMINA demonstrated its support for the government initiative by upping its output of the biodiesel catalyst sodium methylate oxide. This chemical compound is supplied to other energy companies to be blended with regular diesel fuel, which is then sold as biodiesel to consumers.

To further advance its foray into the biodiesel sector, the Indonesian government alluded in early February to the planed deployment of B40 biodiesel within the 2021-2022 period. Were this to come to fruition, it would absorb more than 10 million metric tonnes of domestic palm oil output annually. We expect the trial stages for B40 to begin around March or April of this year.

“the government’s biodiesel programme is, in fact, part of a medium-term strategy to reduce the country’s reliance on, and deficit of, expensive fossil fuel imports.”

Looking at the bigger picture, the government’s biodiesel programme is, in fact, part of a medium-term strategy to reduce the country’s reliance on, and deficit of, expensive fossil fuel imports. The aim of boosting biodiesel usage is to reduce diesel fuel imports by US$4.5 billion in 2020. This, in turn, should improve Indonesia’s trade balance, which fell into the red in 2019.

In light of these rapid developments, it would not be inaccurate to say that a direct consequence of the EU ban on palm oil imports has been to galvanise the development and proliferation of biofuels in Indonesia, particularly biodiesel. The speed at which the government has already responded suggests that the deployment of higher grades of biodiesel, such as B50, in the foreseeable future is not unrealistic … but it remains to be seen how the initiative will pan out.