Indonesia introduces the world's highest biofuel content in diesel fuel

The world's largest producer of palm oil, Indonesia, is increasing the mandatory content of biofuel from palm oil from the current 30% to 35% (B35) on February 1. The country's Ministry of Economy believes that this will partially offset the reduction in oil exports to Europe, where edible oil has been banned from being used in biofuels, as its production is linked to deforestation. The agency assures that the B35 program will not lead to interruptions in the supply of edible oil on the domestic market. The government has asked local vegetable oil producers to increase domestic market supplies by 50% to 450,000 tonnes over the next three months to meet rising demand ahead of Islamic religious holidays.

It will be recalled that in April 2022, Indonesia introduced price control measures for local edible vegetable oil, including a three-week ban on its export, which shocked the market and led to an increase in palm oil prices to $1,700/ton.

In order to reduce dependence on imported diesel fuel and maintain demand for universal vegetable oil, Indonesia introduced the world's highest mandatory biodiesel content in fuel.

Experts at the Palm Oil Country Fund (BPDPKS) estimate that 30.22 million rupees ($2.02 billion) will be needed to subsidize the distribution of biodiesel in 2023, which will be slightly less than last year, despite the higher cost of the palm oil blend, as the difference between palm oil and fossil diesel has decreased.

Taxes received from palm oil exports are used by the Fund to subsidize biodiesel production and other programs, including palm tree replanting.

The higher-quality blend is expected to boost consumption of fatty acid methyl ester (FAME), a fuel derived from palm oil, to 13.15 million kiloliters, compared with last year's 10.4 million kiloliters. This corresponds to the use of 11 million tons of crude palm oil (CPO), compared with 9.6 million tons of CPO last year.

The Indonesian Palm Oil Association (GAPKI) estimates palm oil production in 2023 at 50 million tons.

Yesterday was a public holiday in Malaysia, so palm oil prices remained at 3,813 ringgit/t or $895/t, but they may drop today on export data. According to the inspection company AmSpec Agri Malaysia, the export of palm oil in January decreased by 26.8% compared to December from 1.46 to 1.07 million tons, in particular crude palm oil – from 492.79 to 236.05 thousand tons.