Indonesia launches B50 biodiesel programme amid concerns over costs and palm oil supply
Indonesia launched its B50 biodiesel mandate, raising palm-based blending from 40% to 50% to reduce diesel imports and boost energy security. While expected to save 157.28 trillion rupiah, higher palm oil prices, subsidy needs, reduced exports and tighter edible oil supplies may challenge long-term sustainability.
Jakarta: Indonesia will begin implementing its national B50 fuel mandate on Wednesday, requiring a blend of 50% palm-based biodiesel and 50% conventional diesel as part of the country’s strategy to reduce dependence on imported fuel and strengthen energy security.
The move marks one of the world’s most ambitious biofuel programmes and increases the biodiesel share from the earlier B40 blend. The decision to revive the B50 rollout came after a rise in crude oil prices following the Iran conflict, after the plan had earlier been put on hold in January due to funding constraints, Reuters reported.
Energy Minister Bahlil Lahadalia said last week that Indonesia expects to eliminate diesel imports from this year under the expanded blending programme.
However, analysts caution that recent changes in energy markets may challenge the economic viability of the policy. Brent crude prices have fallen sharply in June following improved supply conditions after a temporary easing of tensions between the United States and Iran, while palm oil prices remain elevated due to expectations of stronger biofuel demand.
As a result, palm oil became more than $260 per metric ton costlier than diesel during June, raising concerns over the economics of higher biodiesel blending.
Aryan Mithiborwala, biofuels analyst at Rystad Energy, said the long-term sustainability of the programme will depend on whether the government can manage higher feedstock and funding requirements under B50.
He noted that maintaining manageable subsidy costs will depend on how narrow the price gap remains between biodiesel and conventional diesel once oil price volatility eases.
Under the new policy, B50 fuel will primarily be used in public transport buses, trucks, heavy equipment, agricultural machinery, ships and diesel power plants.
Indonesia supports biodiesel pricing through a subsidy mechanism funded by export levies collected from palm oil shipments through the Indonesia Plantation Fund (BPDP). As the world’s largest palm oil exporter, the country relies on these revenues to maintain affordability.
According to market data, palm oil traded at a premium of nearly $400 per ton over diesel during January and February before narrowing and briefly turning into a discount in April amid the oil price surge linked to the Iran conflict.
BPDP chief Eddy Abdurrachman said the current levy structure could support B50 if crude oil remains around $85 per barrel and crude palm oil stays near $1,000 per ton.
Energy think tank Institute for Essential Services Reform (IESR) estimated that subsidies become necessary when crude palm oil prices rise above ten times the price of a barrel of crude oil. With current crude prices near $72 per barrel and palm oil exceeding $1,100 per ton, subsidy support would be required.
IESR Executive Director Fabby Tumiwa said the programme remains manageable as long as the plantation fund maintains sufficient financial reserves, but warned that the government may ultimately need to bridge any funding gap.
Industry representatives also pointed to another challenge. GAPKI Chairman Eddy Martono said stronger domestic biodiesel consumption could reduce Indonesia’s palm oil exports despite expectations of higher production, which may in turn lower export levy collections used to finance subsidies.
Bohao Yao, research associate at Wood Mackenzie, said expanding the blending ratio to B50 would divert larger volumes of palm oil for domestic use while reducing export revenues and increasing subsidy requirements.
The Energy Ministry estimates the B50 programme could reduce fuel import spending by around 157.28 trillion rupiah ($8.78 billion) this year, compared with projected savings of 139.8 trillion rupiah under the earlier B40 programme. Indonesia’s oil and gas imports totalled $32.77 billion in 2025.
At the same time, analysts warned that stronger domestic demand could tighten global edible oil supplies and put upward pressure on food prices.
Indonesia allocated 15.64 million kilolitres of biodiesel under the B40 programme this year, compared with last year’s consumption of 14.94 million kilolitres. Energy Ministry estimates suggest biodiesel demand could rise to 20.1 million kilolitres under a full-year B50 programme.
The Indonesia Palm Oil Strategic Studies group said increasing blending without corresponding growth in crude palm oil production could reduce the programme’s economic benefits by lowering exports and increasing supply pressure.
Despite easing concerns over energy supply following the U.S.-Iran agreement, Energy Minister Bahlil said Indonesia would continue to plan cautiously and prepare for continued volatility through the end of the year.
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Source : ChiniMandi
