PALMOILMAGAZINE, JAKARTA – Indonesia’s mandatory biodiesel program continues to deliver strong results, emerging as a strategic tool to reduce fossil diesel imports, save foreign exchange reserves, and strengthen domestic crude palm oil (CPO) demand.
Since its launch in 2015 through December 2025, the biodiesel program has distributed 83.88 million kiloliters, with total funds disbursed reaching IDR 239 trillion. The policy has generated foreign exchange savings of IDR 750.74 trillion and reduced greenhouse gas emissions by 222 million tons of CO₂.
The government also recorded value-added tax (VAT) revenue of IDR 21.41 trillion from the program, underlining its broad multiplier effect on the national economy.
The steady rollout of biodiesel mandates—from B20, B30, B35, and now B40, with B50 under discussion—has significantly increased domestic demand for CPO. This has created a new structural demand base for the palm oil industry, helping support domestic CPO prices, especially when export markets face pressure from trade barriers, sustainability campaigns, or weaker global demand.
Biodiesel Production Depends on Methanol Supply
Biodiesel is produced through esterification and transesterification, a chemical process that combines CPO or its derivatives with methanol to produce Fatty Acid Methyl Ester (FAME), the main component of biodiesel fuel.
As the biodiesel blend ratio rises, demand for FAME also increases, automatically lifting methanol consumption as a critical production input.
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According to data cited by Palmoilmagazine.com from Kontan, Director General of New and Renewable Energy and Energy Conservation (EBTKE) at the Ministry of Energy and Mineral Resources, Eniya Listiani Dewi, said national methanol demand would surge significantly if B50 were fully implemented.
“If both subsidized and non-subsidized diesel adopt B50 mandates equally, Indonesia would require around 2.5 million to 2.8 million tons of methanol per year,” Eniya said during a parliamentary meeting in Senayan on November 13, 2025.
She explained that methanol is an essential chemical reactant used to convert CPO into FAME.
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The Biodiesel Paradox
Despite major foreign exchange savings, Indonesia faces a growing structural issue: continued reliance on imported methanol.
Domestic methanol production capacity currently stands at only around 600,000 tons per year, far below industrial demand. As a result, imports remain dominant, mainly sourced from the Middle East.
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“Current domestic methanol production is only 600,000 tons. Imports are still high, mostly from the Middle East,” Eniya said.
This means that if the biodiesel mandate expands to B50, Indonesia could face a new energy paradox: foreign exchange savings from lower fuel imports may be partly offset by rising methanol imports needed for FAME production.
Government Pushes Local Methanol Industry
To address the issue, the government is promoting construction of a national methanol plant in Bojonegoro, East Java, with estimated investment of US$1 billion to US$1.2 billion, or around IDR 19.08 trillion. The facility is targeted for completion by the end of 2027.
Previously, Energy and Mineral Resources Minister Bahlil Lahadalia said the project is crucial to reduce methanol imports, which currently reach around 2 million tons annually.
Upstream-Downstream Integration Is Key
Going forward, the success of Indonesia’s biodiesel program should not be measured solely by CPO absorption, foreign exchange savings, or lower carbon emissions. Building a self-sufficient supply chain for supporting raw materials such as methanol will be equally important.
In other words, biodiesel has become a strong pillar for CPO prices and a powerful foreign exchange saver. But to maximize its benefits, Indonesia must ensure that key FAME production inputs can also be supplied domestically.
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Only then can the country’s energy transition be not only greener, but also stronger from an industrial and trade balance perspective. (P2)
