Indonesia’s biofuel B40 plan expansion at risk on high palm oil prices

Indonesia’s plan to implement a 40% biodiesel blending (B40) mandate is likely to face further delays due to high palm oil prices, a government official told newswire Reuters, in a move that reinforces existing fears that the biodiesel expansion plan is unclear.

Indonesia currently has a B30 (30% biodiesel blending) mandate, introduced in January 2020, but it struggled to implement it last year as a drop in fossil fuel prices, due to the Covid-19 pandemic, led to unfavourable blending economics.

The implementation of the B40 biodiesel mandate was originally targeted for July 2021.

While some companies, such as Indonesia’s PT Pertamina, have stated that they are ready for the B40 mandate implementation, there are issues regarding the production costs of producing the biodiesel.

“The price of CPO [crude palm oil] for biodiesel production should not necessarily follow global prices as it is produced in Indonesia and used for the production of biodiesel” Pertamina’s President Director Nicke Widyawati said in an Investor Summit in July.

The Indonesian Palm Oil Association (Gapki) also said earlier this year that the B40 implementations is likely to be delayed beyond 2022.

Palm oil holds firm

Palm oil futures on the Bursa Malaysia have remained at high levels this year on the back of bullish vegoil prices and a strong energy market.

In Malaysia, the front month palm oil contract reached MYR4,364/mt ($1,039/mt) on August 25, up 13% from the start of the year.

Strong demand from key buyers - China and India - have continued to keep prices supported this year, while output concerns in Malaysia due to low yields and labour shortages at palm oil plantations have also supported the futures contract.