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 Indonesia's Pertamina HVO ambitions face obstacles

27.04.2021 (www.argusmedia.com) - Indonesian state-owned refiner Pertamina has started offering renewable diesel for export but still needs to clear some obstacles to oblige potential buyers.

The company issued a tender to sell a couple of small palm oil-based cargoes of 1,000t for May and 4,000-5,000t for June, which closed today, but given they did not possess International Sustainability and Carbon Certification (ISCC) so interest was thin, according to traders.

Without ISCC certification its use will not count towards renewable mandates in Europe under the Renewable Energy Directive (RED). Given the steep price premium of hydrotreated vegetable oil (HVO) over regular gasoil there was little incentive to buy the cargoes. Argus assessed Class I palm oil-based HVO at $1,650.94/t fob ARA yesterday, $1,083.33/t over gasoil.

Even away from Europe the lack of legislative incentive for HVO meant the product Pertamina was offering had limited value outside of Indonesia.

Renewable transport mandates are comparatively weak across Asia. Even potential buyers in South Korea, which is raising its biofuels mandate to 5pc (B5) this decade, said they were uninterested as HVO is not considered a biofuel under current law.

Indonesia could theoretically use the HVO domestically to meet its high B30 mandate, particularly given it can be used as a drop-in fuel with no blend wall unlike regular biodiesel.

But this opens further problems as Jakarta subsidises the use of biofuels by charging export duties and levies on crude palm oil and derivatives, which are used to cover the price difference between them and regular diesel so as not to harm the consumer.

The cost of producing HVO far exceeds that of regular biodiesel, which will drain finances even more than they are now with palm oil $430/t more expensive than gasoil. Indonesia was already forced to hike the export tax structure to generate enough funds to meet the B30 mandate this year.

To make a presence in the export market Pertamina will need the ISCC certification, which the company is aiming to get in September or by the end of the year at the latest, according to market participants. But even once this is in place the market for palm oil-based biofuels is contracting. This is poised to continue over the next several years as environmental and sustainability issues around the vegetable oil pile up.

The new RED II, which is being transposed into national laws in Europe this northern hemisphere summer, states a phasing out of palm oil from the renewables mix starting in 2023 until there is none by 2030. Some member countries are halting this ahead of this timeframe including France, Austria and just last week Belgium that announced it will stop using it next year.

Pertamina began trialling HVO production from palm oil at the end of last year and once fully up and running will make 1,000 b/d at its Dumai refinery, 6,000 b/d at Cilacap and 20,000 b/d at Plaju by the end of 2023.

An option it may have to increase demand options is to expand the feedstock base to include used cooking oil (UCO), which is considered a waste feedstock under RED II and so offers higher greenhouse gas savings and counts double towards European mandates.

ISCC certified Class II UCO-based HVO commanded a $115/t premium over Class I yesterday at $1,965.05/t fob ARA. Jakarta has already signalled its intent to make more use of the potential 3mn kl/yr (2.64mn t/yr) of UCO reserves in the country, of which [220,000t was exported last year](https://direct.argusmedia.com/newsandanalysis/article/2182870.

By Amandeep Parmar


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