Asia-Pacific governments are putting in place tougher biofuels mandates, spurring a wave of investment in biodiesel plants and boosting the region's importance to the global ethanol industry.
The changes are shining a spotlight on the southeast Asian biodiesel sector. Domestic demand is likely to increase as a result of the tougher mandates, even as the region remains a key exporter of palm oil — the main feedstock for biodiesel production in southeast Asia — to Europe and the US.
Malaysia and Indonesia, the world's two largest palm oil producers with combined supply of around 50mn t/yr, are planning to increase oil palm planting and develop biodiesel processing facilities. While not all of the projects in the pipeline are likely to be realised, the plans may still leave significant volumes of biodiesel available for export to the EU and US, and to a lesser extent elsewhere in Asia-Pacific.
Most Asia-Pacific plants sell on European EN 14214 specifications to the EU, focusing on RED-certified shipments, with some sales to the US. Smaller amounts of palm-based biodiesel or palm methyl ester (PME) are consumed for mandatory blending within the region in Indonesia, Malaysia and Thailand.
Indonesia has a mandatory 10pc biodiesel blend in place, which is likely to boost consumption of biodiesel to 3.5mn kl/yr (60,000 b/d) from 2mn kl/yr previously. Indonesian biofuel producers are expecting higher biofuels subsidies in 2017, backed by the prospect of stronger palm oil export demand. Jakarta has introduced new regulations making it mandatory for non-subsidised diesel to contain a 20pc (B20) mix of biodiesel, with penalties imposed for non-compliance.
The additional biodiesel demand created by the higher mandate must be met by domestic supplies. Indonesia has the capacity to produce around 74,000 b/d of biodiesel.
Domestic feedstock supply availability may rise, with exports of crude palm oil (CPO) and palm oil products from Indonesia expected to fall by around 15pc to 22.5mn t in 2017 because of a global slowdown in demand.
Indonesia's palm biodiesel consumption increased in the first half of 2016, largely driven by a palm oil levy scheme that funds the country's biofuel subsidies. The Indonesia Estate Crop Fund has received $54mn from the levy on palm oil exports since July, with the proceeds used to subsidise prices of the fuel. Around 1mn t of palm methyl ester was subsidised through the scheme in January-June, compared with 600,000t in the same period in 2015.
Malaysia's plans to increase its biodiesel mandate to 10pc from 7pc are also expected to boost domestic consumption of CPO and reduce exports. The higher mandate could consume up to 1mn t of CPO in 2017, up from 500,000t of CPO that was consumed at the 7pc rate in 2015. But the increase has been postponed indefinitely from its latest planned implementation date of 1 December because of "the difference between CPO and diesel prices in the current volatile market", the government said in November.
The successful implementation of Malaysia's B10 policy hinges on backing from carmakers in the country, many of which are resisting the move on the grounds it may have an adverse impact on engines and lubrication systems. But Kuala Lumpur is adamant it will push through with the change.
Dynamics are also changing in the regional ethanol market. China has emerged as a major consumer of US ethanol supplies, importing 70.5mn gallons from the country in 2015, up from just 3.3mn USG/yr earlier. Total ethanol imports to China reached almost 687,000m³ in 2015, exceeding the import requirements of key regional importers Japan and the Philippines.
China may increase ethanol imports next year, but not by the same extent. Beijing is focusing on investments in overseas ethanol production and agricultural operations to ensure security of supplies. And the potential for near-term growth in Chinese ethanol demand may be limited by a lack of government policy support for stronger ethanol mandates.
India has adopted an E5 mandatory blend and will remain a net importer of ethanol in 2017. But domestic supply issues, resistance to pricing levels and regulatory problems mean the country has yet to meet its 5pc blending target, with it often blending at closer to 1-2pc levels.
India produces around 2.1bn l/yr of ethanol, 75pc of which is used in the food and beverage industry. India has so far imported 1.3bn l/yr of ethanol for the first half of 2017. The country has set an E20 target, which would require more than 7bn l/yr of ethanol, should it be implemented.
Elsewhere in the region, Thailand's gasohol consumption has risen — and exports have fallen — after the government ended retail sales of 91 Ron gasoline in 2013. Thailand made consumption of E20-blend gasoline mandatory last year, which is likely to help send domestic ethanol consumption up by 10pc in 2017.
The Philippines has had an E10 blending mandate in place since 2014, but domestic ethanol production falls short of its total requirement of around 500mn l/yr. The country is likely to continue to import supplies from the US or Brazil given attractive economics and freight rates. The country's supply deficit is expected to remain in place until late 2017 at least, and if proposed new plants are not built — or existing capacity expanded — its dependence on imports is set to continue.
