Indonesia will be the main driver for increasing use of vegetable oil as feedstock for biodiesel in the coming decade, the UN Food and Agriculture Organization, or FAO, and the Organization for Economic Cooperation and Development, or OECD, said in their annual outlook report.
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Under its 'B30' mandate, Indonesia -- the world's largest palm oil producer and exporter -- blends 30% palm-oil based fuel into its biodiesel to lower its fuel imports and boost domestic production of palm oil.
"Biodiesel consumption is projected to increase by 7% over the coming decade; Indonesia accounting for two-thirds of additional consumption," the FAO and OECD Agricultural Outlook 2021-2030 report released July 5 said.
In Indonesia, the use of vegetable oil to produce biodiesel is projected to grow 23.2% to 7.9 million mt between 2021-2030, the report said, citing supportive domestic policies.
While the Indonesian government was looking to increase its palm oil blending mandate to 40%, or 'B40', in 2021, the implementation date has been pushed to 2022 due to record-high palm oil prices and lower fuel consumption. The FAO-OECD outlook expects Indonesia's biodiesel blending rate to remain around 30% over the projection period of 2021-2030.
Meanwhile, in the European Union -- the world's largest biodiesel market -- palm oil consumption is projected to decline as the updates to its Renewable Energy Directives, or RED II, sets limits on the use of palm oil as a biofuel feedstock.
"Biofuel policies in the United States, the European Union and Indonesia remain a major source of uncertainty in the vegetable oil sector given that about 14% of global vegetable oil supplies go to biodiesel production," the outlook said.
Supply constraints ahead
Production of palm oil is expected to weaken due to increasing attention to sustainability concerns and the aging of oil palm trees in Indonesia and Malaysia, the report said.
Global palm oil production is set to grow 18% from 2020 to 90 million mt in 2030, according to the report.
While the surge in prices over the last year along with Indonesia's blending mandate could catalyze investments in the palm oil sector, land availability will be the major constraint to growth, FAO and OECD said.
Indonesia and Malaysia account for about 85% of the world's supply of palm oil.