Indonesia could miss palm-based biodiesel goal

KUALA LUMPUR: Indonesia may produce about 2.5 million tonnes of palm oil-based biodiesel in 2016, about a third of its targeted volume, because of the widening spread between biodiesel and gasoil, a Malaysian industry official said yesterday.
Indonesia, the world biggest palm oil producer, requires a 20% blend of biodiesel into gasoil in 2016 as it aims reduce its crude oil import bill, cut greenhouse gas emissions and create more demand for the edible oil.
The benchmark Malaysia palm oil futures climbed to their highest in almost two years in February at RM2,648 a tonne, driven by expectations of higher palm oil demand to meet the greater biodiesel output. The market has lost about 4% since then due to weak demand and a stronger ringgit.
"It will be difficult for Indonesia to fulfil its biofuel targets, given the fact that current differential between biodiesel and gasoil is well over US$300 (RM1,230) a tonne," U.R. Unnithan, deputy president of Malaysian Biodiesel Association told Reuters.
Prices for palm methyl ester, the raw component of biodiesel, in Southeast Asia are currently at US$630 a tonne versus gasoil prices in Singapore, the regional benchmark, at US$44.07 a barrel, or about US$328 a tonne.
Last year, President Joko Widodo increased biodiesel subsidies and raised the minimum bio content in diesel fuel to 15% from 10%. It has been raised to 20% this year and 30% in 2020.
Indonesia consumed an estimated 1.5 million tonnes of biodiesel in 2015, which works out to a blend of about 7.5% if you take the nation's total gasoil consumption into account, said Unnithan, who is executive director at privately held palm oil producer Carotino Sdn. Bhd.
For Malaysia, the official said the industry was pushing the government to implement B10, or 10% blend, from April onwards.
"We are in active discussion with the government and we hope that government is able come up with some decision within the month of March," he said.
Malaysian is expected to produce one million tonnes of biodiesel in 2016 if the 10% blend is mandated, up from about 700,000 tonnes consumed last year under the B7 programme.
Unnithan said palm oil prices could rally if higher volumes of palm oil are used in making biofuels. "For every RM100 increase in palm oil prices, the income to the country is roughly RM2 billion. The programme more than pays for itself."