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ANALYSIS: Palm oil consumption might get a useful boost if ambition succeeds


Indonesia’s state-owned oil company, Pertamina, has made its first batch of biodiesel made entirely from refined crude palm oil (CPO).


This is a momentous step for the country, its trade, for renewable road transport fuel - and for those in the European Union and elsewhere who are lobbying against the extension of CPO consumption, on the ground that palm oil plantations are enviromentally damaging.


Pertamina’s CEO said that the trial run shows "that our refineries and catalysts are ready. Next, we have to think how to make the economic side work too."


The 100% biodiesel does not use CPO directly. Like all palm oil-based biodiesel it uses the fatty acid methyl esters (FAME) derived from palm oil. But the higher the blend of FAME, the greater the risk of corrosion of engine parts and of clogging up the engine at low temperatures. Cracking the 100% palm oil target is the biodiesel Holy Grail. The technical challenge has been overcome - the marketing challenge now arises.


Indonesia’s consumption


Palm oil production is strategically vital to Indonesia’s economy, providing about about 16% of the value of total national exports. Indonesia is the world’s biggest producer of CPO; it established a biodiesel blending mandate in 2006 in an effort to wean itself from expensive fossil fuel imports. Indonesia’s domestic production of fossil crude oil has been steadily falling since 2000.


Meanwhile the country’s steadily growing road transport sector - rising by almost 10% annually - has meant that fossil oil consumption stubbornly remains at around 40% of the country’s total energy use, around 30% of that going into road transportation.


And while the state is pushing hard on the biodiesel button, Indonesia relies on an army of smallholders to produce 40% of its some 43m tonnes of CPO annually, produced from around 35m acres. The state provides a (highly complex) system of financial support to these smallholders, but they have been struggling with recent price volatility.


Indonesia’s domestic consumption of biodiesel in 2021 is estimated to be 10m kilolitres, assuming that demand returns to normal, against a target of 9.6m this year. In the first six months of this (very abnormal) year consumption was lagging, at 43% of that target.




Targets are one thing - achievements another. There’s no news as to when the 100% biodiesel might be widely commercially available; on past evidence Indonesia’s government-set targets for biodiesel consumption were regularly undershot during 2013-19.


Indonesia thus issued in 2018 an edict obliging commercial entities across all sectors of the economy to use B20 - and it pledged to use sanctions for those failing to do so. Late 2019 its raised the bio-content in its biodiesel mandate from 20% to 30% (B30).


Indonesia increased its palm oil export levy, to help support expansion of its biodiesel programme, to $55 per tonne in May this year. In June Malaysia, the world’s number 2 producer of CPO and Indonesia’s main competitor, said it would exempt CPO from export duties this year, making its CPO around $15 per tonne cheaper than Indonesia’s.


By signalling its determination to push ahead with B100, Indonesia is waving the self-sufficiency flag - showing the world it hopes to soak up any CPO surplus.

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