Indonesian palm oil-based biodiesel output is expected to nearly double to 1.3 million tonnes this year as domestic producers eye strong overseas demand, a senior industry official said on Monday.Indonesia produced an estimated 700,000 tonnes of biodiesel using palm oil as feedstock in 2007, said Paulus Tjakrawan, secretary general of the Association of Indonesian Biofuels Producers.
“Every government in the world is now concerned about environment and energy security. They will continue to develop biofuel,” Tjakrawan told the Reuters Global Agriculture and Biofuel Summit from Jakarta.
Demand for biofuels has soared around the world as countries look for alternatives to fossil fuels in a bid to fight climate change and solve energy security problems. Crude oil soared to an all-time high of $100 a barrel in early January.
The increase in output would come mostly from big biodiesel producers who have integrated biodiesel plants, Tjakrawan said.
“They have their own plantations, mooring, ports and sometimes their own ships. So they have the capacity to export,” he said.
The country’s biodiesel production is expected to see an additional capacity of 600,000 tonnes this year, growing from an existing production capacity of 1.3 million tonnes a year, said Tjakrawan.
Producers in the country have been struggling with negative margins because of soaring crude palm oil prices. Indonesia still subsidises retail fuel prices, meaning biodiesel has to compete with cheap subsidised fossil fuels.
Indonesia is Asia Pacific’s only OPEC member but it is one of the smallest producers. It has to spend billions of dollars on oil subsidies and importing oil products.
“We didn’t expect palm oil to become so expensive. Our margin is just enough for our operating cost,” he said.
He said about 3-4 companies had suspended their operations because of negative margins while others were operating between 30-40 percent of their installed capacity.
Malaysian crude palm oil futures hit a new record on Monday with the benchmark March contract at 3,342 ringgit ($1,026) a tonne, surpassing a high of 3,280 ringgit reached on Friday.
State oil firm Pertamina, retailing biodiesel since May 2006, has cut the biodiesel blend in diesel fuel to 2.5 percent, from 5 percent, as rising palm oil prices and a lack of incentives had cut margins.
The cost of biodiesel has surged to 7,700 rupiah ($0.816) a litre in October 2007 from around 5,000 rupiah a litre a year ago. But at pump stations, biodiesel was sold at the same price as subsidised diesel oil of 4,300 rupiah per litre.
Tjakrawan said producers were in talks with the government for incentives to boost biodiesel output, including subsidising costs of buying feedstock.
“It’s not fair that the government gives a subsidy for imported fossil fuel but is reluctant to give a subsidy for biodiesel,” said Tjakrawan.
