The B15 biodiesel program of Indonesia is a program that stipulates to blend a mandatory 15 percent of fatty acid methyl ester (derived from palm oil) with 85 percent of diesel. This program was designed to relieve pressure on the trade balance and government budget deficit as it should lead to a decline in crude oil and fuel imports. Moreover, Indonesia is the world's largest producer of crude palm oil (CPO).

The B15 program was launched in April 2015 (as the follow up of the B10 program). However, compliance has been low as biodiesel producers had to wait for further regulations (such as the new biofuel index price and matters related to the new palm oil export levies that are used to finance the biodiesel program), while state-owned energy company Pertamina ran out of fatty acid methyl ester (FAME) reserves. As such, the B15 program is still to see its full implementation. However, the government has already announced it is keen on launching the B20 program in 2016 (raising the mandatory amount of FAME to 20 percent in the blend).

Higher domestic consumption of palm oil in Indonesia should manage to boost global palm oil prices. After having plummeted to historic lows earlier in 2015, palm oil prices have recovered on speculation that palm oil output will be curtailed due to the El Nino strike, floods (year-end monsoon rains) and increased domestic demand in Indonesia. Currently, Malaysian palm oil futures are touching a 18-month high (around USD $581 per ton) and it is assumed that palm oil prices will rise gradually in 2016. However, as global petroleum prices are expected to remain under the USD $40 per barrel level in the foreseeable future, demand for palm oil will be curbed. Therefore, it is difficult for CPO to rise above USD $650 per ton.

Sahat Sinaga, Vice Chairman of the DMSI, said domestic palm oil consumption in Indonesia next year is to rise to 11.5 million tons. Indonesia is expected to absorb 7.1 million tons of CPO for food processing (from 6.9 million in 2015) and the remainder for the biodiesel program (from an estimated 868,000 tons this year). This would also imply that Indonesia is set to replace India as the world's largest palm oil consumer. India is estimated to consume 7.2 million tons of palm oil in 2015.

Sinaga stated that due to higher domestic consumption Indonesia's CPO exports will decline to 21 million tons in 2016. This year Indonesia's CPO exports are estimated to reach 23 million tons in terms of volume or USD $20 billion in terms of value.

DMSI also revised down its prognosis for Indonesia's palm oil production in 2016 from 31.5 million tons previously to 30.8 million tons due to El Nino-inflicted dry weather.

Indonesian Palm Oil Production and Export Statistics:

    2008   2009   2010   2011   2012   2013   2014   2015¹
(million metric tons)
  19.2   19.4   21.8   23.5   26.5    30.0    31.5    33.1
(million metric tons)
  15.1   17.1   17.1   17.6   18.2    22.4    21.7    23.0
(in USD billion)
  15.6   10.0   16.4   20.2   21.6    20.6    21.0    20.0

¹ indicates forecast
Sources: Food and Agriculture Organization of the United Nations, Indonesian Palm Oil Producers Association (Gapki) and Indonesian Ministry of Agriculture