Indonesia Removes Ethanol Ban, Recognizes Octane Benefits Of Ethanol

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.”

Learn more about the Council’s work to promote ethanol in Indonesia.