Indonesia is set to miss its ambitious targets on the use of biodiesel this year due to logistical and infrastructure problems, government officials and analysts said, potentially weighing on the price of palm oil. Southeast Asia's biggest economy and the top producer of tropical palm oil introduced a regulation last August boosting the use of palm-based biodiesel, in a move to cut its oil import bill.
Jakarta's energy ministry raised the minimum bio content in diesel fuel used for transport to 10 percent, up from 3-10 percent previously. For the power industry, the minimum was doubled to 20 percent. The government has set a biodiesel consumption target in 2014 of 4 million kilolitres, of which 1.56 million kilolitres is for subsidised diesel for vehicles, with the rest to used by power plants and non-subsidised sectors such as mining and plantations.
But by end-May, only 447,000 kilolitres had been used in the subsidised diesel sector, Dadan Kusdiana, director of renewable energy and energy conservation at the mining ministry, told Reuters by text. He was unable to give data for other sectors. Kusdiana said the figure for subsidised diesel was forecast to rise to 1.34 million kilolitres by the end of the year.
Analysts, however, have been sceptical the government could meet its targets due to issues in making biodiesel available throughout the island archipelago, particularly in more remote eastern provinces, and providing adequate supervision to ensure the new standards were being adopted. CIMB Investment Bank expects total biodiesel consumption of about 1.5 million kilolitres in 2014.
"You cannot force somebody to use something that is not easily available in the market in far away places," CIMB analyst Ivy Ng said. Indonesia's state energy firm Pertamina said in March it procured palm oil in two tenders to blend 2.381 million kilolitres of biodiesel out of a planned total of 5.3 million kilolitres for 2014 and 2015 combined.
A third tender to buy palm oil for blending into biodiesel to feed demand in eastern Indonesian provinces was due to be issued by April but has so far not been issued. Analysts said the slower-than-predicted take up would be negative for palm oil prices, but the market was currently focusing on the prospect of drier weather from an expected El Nino weather event and higher crude oil prices.
Rising crude oil prices helped the benchmark September palm oil contract to a three week high at 2,477 ringgit ($770) in early Thursday trade. "Although the biodiesel mandate has not taken off as fast as expected, we remain optimistic on its prospects," CIMB's Ng said in a note.
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