UPDATE 1-Indonesia cannot cover 2016 biodiesel subsidy on low crude -Agency

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JAKARTA, Jan 21 (Reuters) - Indonesia will struggle to subsidise domestic biodiesel supplies for the whole year if crude oil prices continue to plummet, a government official said on Thursday.

Crude oil prices have dropped to a 12-year low of around $28 a barrel, widening the price gap with biodiesel fuel, and making the greener fuel much less attractive for blending.

Earlier this week, the Indonesian Palm Oil Association said current subsidy mandates could not be sustained if crude prices remained low.

The government may only be able to subsidise biodiesel for eight to 10 months if crude prices continue stay at current levels or fall further, said Bayu Krisnamurthi, head of the Indonesian Estate Crop Fund Agency.

“If there are a lack of funds, we will seek solutions. We will keep coordinating with the government,” he said, adding that one of the options available was to seek a revision to the 2016 state budget.

Indonesia, the world’s top palm oil producer, is pushing greater biodiesel usage to reduce its oil import bill, cut greenhouse gas emissions and create more demand for the tropical oil.

Last year, President Joko Widodo increased biodiesel subsidies and raised the minimum bio content in diesel fuel to 15 percent from 10 percent. It will rise to 20 percent in 2016 and 30 percent in 2020.

Palm oil prices that have risen on supply concerns have pushed the price of palm methyl ester, the raw component of biodiesel, to $605 a tonne in Southeast Asia, according to Reuters data. That compares to gasoil prices in regional oil trading hub Singapore at $31.31 a barrel, equivalent to $223.26 a tonne.

Krisnamurthi said biodiesel consumption this year was expected to reach 6.93 million kilolitres (kl), up 73 percent from a previous estimate. No reason was given for the increase.

Indonesia’s consumption of biodiesel in 2015 declined to 863,000 kl from 1.78 million kl in 2014.

Implementation of Indonesia’s mandate on biodiesel will improve energy diversification and reduce up to 6.9 million kl of fuel imports, Krisnamurthi said, with an estimated reduction in state spending of $2 billion.

Reporting by Wilda Asmarini; Writing by Randy Fabi, Fergus Jensen and Michael Taylor; Editing by Christian Schmollinger