* Regulation aims to boost biodiesel use in 2014
* Analysts and industry worry about logistics, engine
* Biodiesel push could save billions of dollars if
* Take-up to more than double by 2015 - analyst
By Michael Taylor and Yayat Supriatna
JAKARTA, Nov 27 Indonesia will find it hard to
meet its ambitious timetable to burn more palm-based biodiesel,
hampered by the demands of distributing the fuel to its
thousands of islands and by reluctance to fill up tanks with
The Southeast Asian nation is the top producer of palm oil
and adding more to fuel could cut its oil import bill by around
$2.5 billion a year. That would help Indonesia reverse trade
deficits that have weakened its currency and dented investor
confidence in the region's largest economy.
Using more biodiesel at home would also help offset a likely
fall in exports after major customer the European Union agreed
to impose punitive duties on Indonesia for selling the fuel at
unfairly low prices.
Jakarta's energy ministry in August issued a new regulation
- to go into effect next year - raising the minimum bio content
in diesel to 10 percent, up from levels of 3-10 percent. For the
power industry, the minimum was doubled to 20 percent.
But Indonesia is already failing to meet its existing
domestic biodiesel requirements despite plentiful palm oil
supplies and abundant refining capacity, and analysts say the
new regulations will not be met overnight.
"The stumbling block is whether they can roll it out to the
rest of the region where they have not done the logistical
preparation," said Ivy Ng, senior research analyst at Malaysia's
CIMB Investment Bank.
Indonesia's current biodiesel consumption is estimated at
about 5 million barrels a year, about half the 9.4 million
barrels it should use under current rules, according to the
Indonesian Biofuel Producers Association (APROBI).
The new regulation would take consumption to around 25
million barrels if implemented in full, but Ng said she expected
consumption to rise to about 12.5 million barrels by 2015.
A consumption boost will benefit biofuel producers and
plantation owners such as Wilmar International and
Astra Agro Lestari, but the sticking point will be how
quickly the oil industry and consumers respond to the new rule.
Indonesia has to import up to 6 million barrels of diesel a
month, about 40 percent of its total oil product consumption,
because the refining capacity at state-owned oil company
Pertamina can only meet around two-thirds of demand.
If the new regulation was fully implemented, Indonesia would
import around a third less diesel, saving more than $200 million
a month based on benchmark diesel prices GO25-SIN, according
to industry and Reuters calculations.
Analysts and industry officials point to insufficient
blending capacity at Pertamina, as well as a lack of the
separate shipping and storage capacity needed for biodiesel, as
a reason for not meeting usage requirements.
Transporting biodiesel from the domestic hubs on Java and
Sumatra islands is more expensive than shipping diesel direct
from Singapore due to the limited availability of tankers, said
APROBI general secretary Paulus Tjakrawan.
Pertamina though says it can ship the required level of
biodiesel, blaming the slow take-up so far on concerns that the
blend can damage engines.
"There are some challenges from the car industry. All of the
cars can use this blended fuel, but it could impact the engine
in the future," said Pertamina refinery director, Chrisna
"Car producers are already complaining to the government
about these problems."
Indonesia's powerful auto industries lobby group GAIKINDO
has said the new biodiesel blend can lead to a rise in fuel
consumption and overheating in the types of engines used in
For consumption of the blended fuel to eventually meet
targets, Ng said state power company PLN would need to convert
to biodiesel at its diesel-fired power generators.
PLN president director Nur Pamudji told Reuters the power
company would adopt the new standard with its existing
"There won't be a problem with storage tanks - the existing
tanks can be used straight away," Pamudji said in a text
message, adding that the new regulation would have no impact on
the power company's diesel engines.
(Additional reporting by Fergus Jensen and Viriya Paramita;
Editing by Tom Hogue, Randy Fabi and Richard Pullin)