20/02/2011 (The Jakarta Post) - In an effort to reduce prices, the government may issue a regulation requiring state oil and gas company PT Pertamina to use biofuels in producing non-subsidized fuels, a senior official said Friday.

Energy and Mineral Resources Ministry bioenergy director Maritje Hutapea said in a press statement that such a strategy would reduce the prices of non-subsidized fuels from around Rp 8,000 (90 US cents) per liter to around Rp 7,000.

“I believe that customers will be interested in the mixed fuels as long as the quality isn’t different from the pure oil-based fuels,” she said in the statement.

She added the ministry was now studying the possibility of launching the regulation, but claimed that no official decision had been made on the details of the planned regulation or when it would be issued.

Pertamina spokesperson Mochamad Harun said the government’s plan to reduce the price of non-subsidized fuels might not run as smoothly as expected due to high prices of biofuel raw materials.

“The price of crude palm oil (CPO), for example, is currently very high. Producers mostly prefer to sell their CPO rather than convert it into biofuels,” he said in a telephone interview.

He said Pertamina would increase its biofuels usage if the stock was sustainable and the prices were lower than oil prices. However, the company was always ready to obey all instructions issued by the government, he added.

According to a Bloomberg report, the price of palm oil for May delivery on the Malaysia Derivatives Exchange touched US$1,223 per metric ton Friday.

The report says that palm oil has rallied 43 percent in the past year, touching a 35-month high of $1,307 a ton last week.

The price of crude seems to be cheaper than palm oil. On the New York Mercantile Exchange the crude price stood at $86.11 a barrel, or only $643 per metric ton.

University of Indonesia energy expert Kurtubi told The Jakarta Post that with the high prices of raw materials, mixing biofuels with non-subsidized fuels might not be a good idea to make prices more affordable.

“The government should boost the utilization of biofuels, not to reduce prices, but to cut our dependence on oil,” he said.

He predicted that popular unrest in several major oil producing nations in the Middle East, such as Libya and Bahrain, might cause global oil prices to top $150 per barrel in the near future, especially if unrest spread into Saudi Arabia.

“This is the right moment for the government to put back biofuels as alternatives to end our [exposure to] volatility in the global oil price rally,” Kurtubi emphasized.

If the government was serious about increasing the utilization of biofuels, it should ensure their availability by expanding production capacity, he said.

“Land allocation was among the most-needed elements to ensure sustainable supply of raw materials such as cassava and jatropha,” he added.

Cassava and other starch-rich crops can be turned into ethanol to be mixed with gasoline-based fuels, while CPO and jatropha oil can be processed to become bio-diesel or even used directly to replace diesel.