Indonesia faces challenges in moving towards ethanol production

Indonesia instituted a national ethanol policy in 2006, but has been having trouble meeting its goals. The country’s plans to develop bioethanol are facing many setbacks, including costly inputs, capacity limitations and trade restrictions limiting imports of alternative feedstock, according to a report published by the USDA Foreign Agriculture Service’s Global Agricultural Information Network.

Indonesia uses molasses, made from sugarcane, as the main feedstock in ethanol production, which has caused the number of producers to decline after recent environmental citations and increasing competition for molasses from the MSG industry and traders selling to export markets. The industry has also faced pressure because of the low supply of sugarcane due to weather events and competition from other crops that produce a better return for farmers.

Of the three companies in Indonesia capable of producing fuel-grade ethanol none consistently produce significant quantities. Ethanol is used primarily for industrial applications, such as cosmetics, pharmaceuticals, cigarettes, ink and paint.

Indonesia’s ethanol blending mandate program has remained inactive due to a lack of a financing scheme to cover the cost difference for bioethanol. Also, the country’s total capacity for fuel-grade ethanol sits at about 10.5 to 26.4 million gallons per year. An average U.S. ethanol plant has a capacity to produce almost 80 million gallons per year.

As part of Indonesia’s long goal towards an E5 program, the Ministry of Energy and Mineral Resources plans to implement a regional E2 blending program in 2018. The program will take place in Jakarta and its surrounding area.

As the rollout of E2 begins in 2018, Indonesia faces a new dilemma with the incorporation of ethanol as a viable renewable fuel in the long-term. Without a funding mechanism to address the price gap between ethanol produced from local molasses and gasoline it is unlikely local distillers will invest in increased capacity, storage and distribution of fuel-grade ethanol, and without an increased supply it seems unlikely the GOI will succeed in growing the E2 program beyond a regional pilot, it said in the report.

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