Indonesia Removes Ethanol Ban, Recognizes Octane Benefits Of Ethanol

(U.S. Grains Council) U.S. ethanol can now enter the Indonesian market by way of pre-blended fuel, following the recent removal of a ban on pre-blended product entering the country. This change creates a potential market of more than 200 million gallons (71 million bushels in corn equivalent).

The market development efforts to accomplish this policy goal began in December 2017,
undertaken jointly by the U.S. Grains Council (USGC), Growth Energy, Renewable Fuels Association (RFA) and the U.S. Department of Agriculture’s Foreign Agricultural Service (USDA’s FAS).

Already the fourth most-populous country in the world, Indonesia is expected to grow to the sixth largest global gasoline market within a decade. This increased demand for fuel is driven by members of the country’s rising middle class, who are dedicating part of their higher incomes to upgraded transportation options – especially from two-wheeled to four-wheeled vehicles.

“The removal of the ethanol ban in Indonesia is a tremendous development in this market and for our regional market development efforts to demonstrate the benefits of expanded ethanol use,” said Manuel Sanchez, USGC regional director for Southeast Asia. “We have worked tirelessly with our colleagues to demonstrate ethanol’s benefit, and this change in Indonesia is in line with other countries in this region that already blend ethanol into their fuel.”

Fuel blends in Indonesia are controlled by a state-owned oil company, Pertamina. The Indonesian government has encouraged Pertamina to reduce petroleum imports, while at the same time setting goals of achieving 23 percent of its energy needs from renewable resources by 2025. This tender change to allow ethanol fully supports those goals, as well as aspirations toward an E10 policy.

Through an in-country assessment in December 2017, a USDA Agricultural Trade Mission in July 2018, the Ethanol Summit of the Asia-Pacific and continued stakeholder conversations in 2019 and 2020, the Council and its partners have worked to explain how ethanol can meet these goals while providing cost-savings.

Pertamina has responded by removing a prohibition on ethanol as a component in gasoline import tenders. The removal opens the market for ethanol at a blend rate of up to 3 percent as a component of imported RON 88 and 7 percent for RON 92 gasoline.

RON 88 gasoline is consumed in two ways in Indonesia, as a low-octane, government-subsidized fuel and as a blend with RON 92. This resulting product – unsubsidized RON 90 – accounted for approximately 55 percent of total gasoline imports in 2019. RON 92 is imported as a finished grade gasoline sold under the brand “Pertamax.”

Industry analysis indicates under a five-year average price and with a fully-realized target of 10 percent pre-blended imported gasoline, Indonesia could save an estimated $750 million by replacing higher-cost aromatics with ethanol – or more if the country also directly imports ethanol. Ethanol use would also contribute to reducing the carbon intensity of the country’s transportation fuels and decreasing particulate matter and toxic emissions, both of which are harmful to the population.

On the U.S. supply side, the tender opening has the potential to realize more than 200 million gallons (71 million bushels in corn equivalent) of sales as pre-blended fuel. Although current volatility in oil prices will likely minimize short-term opportunities, the long-term value of ethanol remains.

“The long-term cost-savings for using ethanol in Indonesian gasoline will be measurable,” Sanchez said. “We will continue to engage with local leaders as they work to capture the full range of economic, environmental and health benefits associated with blends beyond 10 percent.” READ MORE

Excerpt from S&P Global Platts: Indonesia mainly imports 88 RON gasoline and 92 RON gasoline through state-run Pertamina, the former of which is then consumed two different ways domestically, either as a government-subsidized 88 RON grade or a blended unsubsidized 90 RON variant.

92 RON gasoline on the other hand, is generally imported as a finished grade and sold as "Pertamax."

In 2019, imports of motor gasoline of grades 90 RON and below totaled 7.978 million mt, making up 54.9% of total gasoline imports from the country, according to data from Statistics Indonesia. The rest of imports consisted of gasoline of grades between 92 RON and 97 RON, the data showed.

The removal of the ban comes as Indonesia marches forward with its aims to narrow a nagging current account deficit, which has remained in the red in large part due to the country's heavy reliance on oil imports.

In the first quarter of 2020, the net oil and gas component of Indonesia's current account amounted to $2.727 billion, which although improved from Q4 2019's $3.237 billion, still amounted to large portion of the country's $3.924 billion current account deficit in Q1 2020, data from Bank Indonesia showed.

"Industry analysis indicates under a five-year average price and with a fully-realized target of 10 percent pre-blended imported gasoline, Indonesia could save an estimated $750 million by replacing higher-cost aromatics with ethanol – or more if the country also directly imports ethanol," the US Grains Council statement also added.

Despite the potential cost savings, however, industry participants were doubtful that the lifting of the ban would directly impact gasoline trade flows in the near term.

"There are too many factors working against using [US ethanol] blended gasoline. One has to consider whether it is even workable to bring the cargo from the US," one Singapore-based gasoline source said.

"There is a lot of cargoes to buy in Asia. It is also cheaper to buy [gasoline] from the region given lower freights," another gasoline source said.

Likewise, the prospects of Indonesian imports of ethanol-blended gasoline were dismissed by sources on the ethanol front.

"With ethanol at a premium to gasoline, the only blending that will work is mandatory blending," an ethanol trader said. "Indonesia has an ethanol blending policy for years but was never enforced or fulfilled," the trader added.

Indonesia's ethanol blending has been in place since 2006, with the country targeted to shift toward E10, or bioethanol-mixed gasoline blending, in 2020. However, the policy, unlike the B30 palm-based biodiesel blending mandate, was never enforced. READ MORE