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Biodiesel market hopeful on Indonesian B20 mandate extension from Sep 1

Singapore — Asian biodiesel market participants said Tuesday they are hopeful the extension of Indonesia's 20% (B20) blending mandate, to include non-Public Service Obligation demand will start from September 1 as planned.

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A major Indonesian biodiesel producer said he was unsure of the specifics, but was positive that the new mandate would be implemented. This was because President Joko Widodo signed a decree last Wednesday confirming its implementation and also because current blending economics were favorable for raising the mandate.

The palm oil-gasoil, or POGO spread, was assessed at minus $109.40/mt on Monday, according to S&P Global Platts data, which means that biodiesel was cheaper than gasoil, making discretionary blending attractive even without a B20 mandate, traders said.

"This is really bullish news for the palm oil and biodiesel industry," another Indonesian biodiesel producer said.

Analyst at Palm Oil Analytics Sathia Varqa estimated the additional demand for feedstock crude palm oil generated by the non-PSO sector at 4 million mt a year, roughly 80%-85% of Indonesia's current CPO stocks.

Widodo signed the decree to include B20 blending for all sectors, either subsidized gasoil or non-subsidized gasoil, a government official said Tuesday.

In the previous regulation that was signed in 2016, B20 was only applied to subsidized gasoil, Director of Bioenergy at the Energy and Mines Ministry Andriah Feby Misna told Platts.

"We are also still preparing the revision of Energy and Mines Minister [Ignasius Jonan's] decree on technical issues related to biodiesel. We expect to complete in one to two days, and to be able to implement the B20 expansion mandate on September 1," Misna said.

Indonesia applied export levies on palm oil products collected by the Estate Crop Fund for Palm Oil that will be used to subsidize biodiesel once there is a gap between the gasoil price index and the biodiesel price index, Misna said.

Indonesian gasoil consumption this year is expected to reach 28.5 million-30 million kiloliters, of which 21 million kl will come from domestic refineries, and the remainder will be imported. Gasoil consumption this year has increased from 27.5 million kl in 2017, which consisted of 21 million kl from domestic refineries and 6.5 million kl from imports, according to the Energy and Mines Ministry' data.

The blended biodiesel for the subsidized portion of gasoil demand has already reached 1.25 million kl in the first half of 2018. The government had estimated that biodiesel consumption would be 4.4 million kiloliters in 2018, if non-PSO sectors began blending B20 biodiesel by August. This would save the Indonesian government $1.55 billion in foreign exchange due to lower gasoil imports in 2018.

The government also plans to bring forward a B30 mandate to 2019 from the originally planned 2020. The government estimates that B30 volume next year would be 8.8 million kl of biodiesel. However if only B20 is applied to PSO and non-PSO, the volume is expected to be 5.9 million kl.

"The Indonesians are serious about this. Unfortunately, there has been no update on the new B10 mandate yet," a Malaysian biodiesel producer said. In July, the Malaysian government said it planned to raise its mandate to B10 from B7 by second half of 2019.

--Christina Siantar, christina.siantar@spglobal.com

--Anita Nugraha, newsdesk@spglobal.com

--Edited by Jonathan Dart, jonathan.dart@spglobal.com