Indonesia launches B30 biodiesel to cut costs, boost palm oil

JAKARTA (Reuters) - Indonesia on Monday launched biodiesel containing 30% palm-based fuel, the highest mandatory mix in the world, in a bid to slash its fuel import bill and boost domestic palm oil consumption.

FILE PHOTO: A worker carries palm oil fruits during harvest time at Teluk Payu village in Banyuasin, Indonesia's South Sumatra province, November 15, 2016, in this picture taken by Antara Foto. Antara Foto/Nova Wahyudi/via REUTERS

President Joko Widodo said so-called “B30” biodiesel would allow Indonesia to cut its fossil fuel imports by 63 trillion rupiah ($4.5 billion) a year, up from 43.8 trillion rupiah saved in 2019 from existing B20 fuels.

“This will improve our current account deficit and increase our import substitution,” Widodo said at the launch.

Indonesia, the world’s biggest palm oil producer and exporter, has been gradually increasing the bio content of its biodiesel, aiming to absorb growing supplies of palm oil while also trimming costly fuel imports.

Since late 2018, bodiesel sold across Indonesia has had a mandatory 20% bio mix, using fatty acid methyl esters (FAME) made from palm oil.

“Indonesia is recorded as the first country to implement B30 in the world,” the energy ministry said on Monday, noting that its use will be mandatory from Jan. 1.

The program has already driven up price expectations for the edible oil as it would bolster demand at a time when output is forecast to slow, due to drought and haze from forest fires.

The government has allocated 9.59 million kilolitres (KL) of FAME for the B30 mandate in 2020, up from 6.63 million KL this year.

Widodo said the program would also help Indonesia preserve a market for a vital commodity instead of depending on exports.

The European Union concluded in March that palm oil causes excessive deforestation and plans to effectively phase it out as a fuel for transport. Indonesia has filed a complaint at the World Trade Organization.

“We will not be dependent on other countries who want to buy our CPO (crude palm oil),” Widodo said. “If you don’t buy it, I can use myself... Our bargaining position is stronger.”

The use of B20 is generally accepted for new vehicles. Supporters of higher blends have dismissed concerns raised by some industry groups that using more FAME could lead to engine problems, potentially increasing maintenance costs.

Indonesia aims to conduct road tests for biodiesel with 40% palm-based fuel next year, a senior minister said earlier this month.

Nicke Widyawati, chief executive of state oil and gas company Pertamina, said B30 biodiesel is currently available only in some select gas stations, but this would be widened to cover the whole of Indonesia by next month.

($1 = 13,970.0000 rupiah)

Writing by Gayatri Suroyo; editing by Richard Pullin