Indonesia targets three-year timeline for 50% biodiesel mandate

Indonesia's government is looking to increase its palm oil-based biodiesel mandate to 50% of its gas oil supply by 2028, Edi Wibowo, director of the Energy and Mineral Resources Ministry, said at an industry conference in Bali Nov. 7.

Indonesia, the world's largest palm oil producer and vegetable oil supplier, currently has the world's highest mandatory biodiesel blending rate of 35%, known as B35 and plans to increase it to 40% (B40) in 2025.

Indonesia's newly elected President Prabowo Subianto has expressed support for fast tracking the country's biodiesel program as a way to reduce crude oil imports as well as support the palm oil industry -- its primary agricultural export.

A 50% blend would require around 5 million mt of additional palm oil reserves to be diverted from exports to domestic use, analysts and Jakarta officials estimate.

"Our crude palm oil (CPO) production is 46 million mt. Currently, we use 20 million mt of CPO domestically and export 26 million mt," Indonesia's agriculture minister Andi Amran Sulaiman said Oct. 22, adding that such a diversion would not be a "problem".

However, industry sources have voiced doubts about the feasibility of scaling up the biodiesel mandate to 50% as the program is primarily funded by levies collected on palm oil exports, which cover the price difference between biodiesel and traditional diesel.

For B35 blending, the Indonesian government estimated earlier in 2024 that it would need to pay $1.75 billion due to the growing spread between global diesel and palm oil prices.

The latest 2028 timeline for B50 is two years later than Jakarta's earlier announcements in October, which hinted that a 50% blend rate could be implemented by 2026.

Jakarta's stance on scaling up the biodiesel mandate, along with higher export taxes from the second-largest producer, Malaysia, pushed palm oil prices to a two-year high by October-end as markets anticipated tighter supplies in the coming year.

Platts, part of S&P Global Commodity Insights, assessed the price of crude palm oil FOB Indonesia at $1,198/mt Nov. 6, up 3.7% from the start of the month.