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Analysis: Indonesia's diesel, gasoline imports under pressure as biofuel targets increase

Highlights

Jakarta aims to increase domestic biofuel mix to 40%

Gasoil/diesel imports in 2020 could fall below 3 million mt

Refinery upgrades may also diminish gasoline import demand

Singapore — Indonesia's diesel and gasoline imports appear likely to continue falling in 2020 as the country steps up efforts to increase the domestic use of biofuel and reduce its persistent current account deficit.

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Indonesia's gasoil/diesel imports tumbled 33.43% year on year to 3.82 million mt in 2019, according to latest data from Statistics Indonesia. Gasoline imports during the second half of 2019 were down 5.6% from the same period a year earlier at 6.938 million mt, the data showed.

Imports of both products look poised to decline further in 2020 as Jakarta's growing emphasis on improving its trade balance further pressures state-run Pertamina to cut fuel import bills and encourage domestic consumers to embrace the use of biofuel.

The Indonesian Biodiesel Producers Association last week announced plans to begin the trial use of B40 fuels in March, expanding on an earlier aim set by the Ministry of Energy and Mineral Resources.

Indonesia upgraded its biofuel mix to 30%, or B30, in January from B20 earlier.

Reflecting the growing focus on biofuel usage, Indonesia's gasoil/diesel imports could fall below 3 million mt in 2020, according to Asian traders and Pertamina fuel marketing managers surveyed by S&P Global Platts.

Indonesia saw its current account deficit spike and Pertamina's purchasing power for oil significantly impacted by a depreciating local currency during late 2018 and first half 2019.

The government has since stepped up efforts to stabilize the trade balance sheet and the exchange rate by lowering its petroleum import bill and making the most of domestic crude and fuel production.

The economy recorded a current account deficit of $30.4 billion in 2019, according to Bank Indonesia data, significantly wider than the $16.2 billion deficit recorded in 2017.

BIOFUEL USAGE

According to Sathia Varqa, owner and co-founder of Palm Analytics, "9.6 million kiloliters of biodiesel will be consumed under the B30 mandate in 2020 and total production of [Palm Oil Methyl Ester] will be around 10.6 million kiloliters."

Domestic biodiesel capacity is even set to be fully utilized throughout the year, with crude palm oil feedstock – a component of biodiesel production – forecast to increase to "9.5 million kiloliters," according to Varqa.

With the push to increase the domestic biofuel mix to 40%, Asian gasoil traders have turned bearish on Indonesia's gasoil demand and imports.

"There's going to be a lot more gasoil with expansions, new refineries [in Indonesia]... and now less demand with the move [towards biodesel]," said a middle distillates trader based in Singapore.

Optimistic market observers however, note that the pace of decline in motor fuel demand and imports might not be as sharp as initially expected.

On top of Indonesia's B30 mandate for the transportation sector, a 30% biodiesel mandate is required in the "industrial and commercial" and power generation sectors, said Loren Puette, analyst at S&P Global Platts Analytics.

"A portion of the 2020 biodiesel mandate will go towards these uses. On-road 2020 biodiesel consumption could stay above 6 million kiloliters," Puette added, indicating that biodiesel usage in the transportation sector was expected to remain steady at the current level.

REFINERY UPGRADING

In addition to the use of biodiesel, Indonesia's imports of motor fuel and other oil products could also diminish as Jakarta renews pressure on Pertamina to upgrade its domestic refineries.

President Joko Widodo last November ordered an "overhaul" of state-owned Pertamina, reshuffling the company's top leadership and tasking Basuki Tjahaja Purnama alias Ahok as president commissioner to oversee efforts to reduce fossil fuel imports.

Since then, the state-owned company has initiated a string of agreements with foreign state-owned energy giants to develop domestic plants, accelerating the country's refinery development master plan that is slated to begin commercial operations in 2021.

In mid-January, the company obtained a pledge from Taiwan's CPC Corporation for a $22 billion investment for the development of its Balongan petrochemical refinery.

Around the same time, Pertamina inked separate agreements with UAE investment company Mubadala for the upgrading of its 260,000 b/d Balikpapan refinery in East Kalimantan and the UAE's state-run Abu-Dhabi National Oil Company for further works at the 125,000 b/d Balongan facility.

"In the long term, Asia's demand for gasoline and gasoil will fall as countries become more self-sufficient. We saw this with Vietnam after the start of Nghi-Son Refinery [in 2018]. The market will have to consolidate sooner or later," a Singapore-based gasoline trade source said.