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Indonesia's appetite for ethanol-blended gasoline doubtful despite removal of ban

Highlights

Indonesia removes ethanol ban on gasoline imports

Regular gasoline still seen as the import of choice

Biodiesel programme remains supported

Singapore — Southeast Asia's largest buyer of gasoline, Indonesia, has taken another step toward lowering its overall oil purchasing costs by removing its ban on pre-blended gasoline imports, but the prospects of the policy picking up has been downplayed by wider market participants.

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With the removal of the ban, imports of 88 RON gasoline and 92 RON gasoline by state-owned Pertamina will be allowed to contain ethanol at a blend rate of up to 3% and 7%, respectively, according to a statement released by the US Grains Council on May 28.

Indonesia mainly imports 88 RON gasoline and 92 RON gasoline through state-run Pertamina, the former of which is then consumed two different ways domestically, either as a government-subsidized 88 RON grade or a blended unsubsidized 90 RON variant.

92 RON gasoline on the other hand, is generally imported as a finished grade and sold as "Pertamax."

In 2019, imports of motor gasoline of grades 90 RON and below totaled 7.978 million mt, making up 54.9% of total gasoline imports from the country, according to data from Statistics Indonesia. The rest of imports consisted of gasoline of grades between 92 RON and 97 RON, the data showed.

The removal of the ban comes as Indonesia marches forward with its aims to narrow a nagging current account deficit, which has remained in the red in large part due to the country's heavy reliance on oil imports.

In the first quarter of 2020, the net oil and gas component of Indonesia's current account amounted to $2.727 billion, which although improved from Q4 2019's $3.237 billion, still amounted to large portion of the country's $3.924 billion current account deficit in Q1 2020, data from Bank Indonesia showed.

"Industry analysis indicates under a five-year average price and with a fully-realized target of 10 percent pre-blended imported gasoline, Indonesia could save an estimated $750 million by replacing higher-cost aromatics with ethanol – or more if the country also directly imports ethanol," the US Grains Council statement also added.

ETHANOL IMPORTS DOUBTFUL

Despite the potential cost savings, however, industry participants were doubtful that the lifting of the ban would directly impact gasoline trade flows in the near term.

"There are too many factors working against using [US ethanol] blended gasoline. One has to consider whether it is even workable to bring the cargo from the US," one Singapore-based gasoline source said.

"There is a lot of cargoes to buy in Asia. It is also cheaper to buy [gasoline] from the region given lower freights," another gasoline source said.

Likewise, the prospects of Indonesian imports of ethanol-blended gasoline were dismissed by sources on the ethanol front.

"With ethanol at a premium to gasoline, the only blending that will work is mandatory blending," an ethanol trader said. "Indonesia has an ethanol blending policy for years but was never enforced or fulfilled," the trader added.

Indonesia's ethanol blending has been in place since 2006, with the country targeted to shift toward E10, or bioethanol-mixed gasoline blending, in 2020. However, the policy, unlike the B30 palm-based biodiesel blending mandate, was never enforced.

Nevertheless, "We [US Grains Council] will continue to engage with local leaders as they work to capture the full range of economic, environmental and health benefits associated with [gasoline] blends beyond 10 percent," Manuel Sanchez, USGC regional director for Southeast Asia said in the US Grains Council statement.

BIODIESEL REMAINS SUPPORTED

Notwithstanding the expected slow pick up in the country's ethanol blended gasoline appetite, Indonesia's biodiesel policy remains on track.

Under a multi-year road map, Indonesia shifted to a mandatory B20 program in September 2018, which called for 20% biodiesel to be blended into gasoil. It then rolled out the B30 biodiesel fuel program late 2019 in preparation for its shift to higher biodiesel content fuel in January 2020, with the government already having announced it is targeting the introduction of a B50 program by 2021.

Indonesia supports its biofuel program by collecting levies on crude and refined palm oil exports and covering the spread between biodiesel and gasoil for Indonesian biodiesel producers.

Indonesia collects a $55/mt export levy on crude palm oil exports through its CPO Fund, which was set up in 2015. The funds collected by the CPO Fund is used to subsidize the blending of biodiesel into gasoil in Indonesia.

Reflecting the uptick traction that biodiesel has obtained domestically, Indonesian gasoil imports have been on a steady decline, with traders saying that the downward trend will likely be maintained as increasingly higher amounts of palm oil is blended into gasoil.

Latest Statistics Indonesia data showed that Indonesia's gasoil imports fell 25.73% month on month to 268,160 mt in March, although the decline recorded for the month would partly be attributable to the effects of lower gasoil consumption in the country due to the effects of demand destruction from COVID-19.