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21/4/06 JAKARTA  (Reuters) - Indonesia, the world's second-largest palm oil producer, is ready to meet the growing attraction of environmentally friendly biofuels, a senior industry official said on Thursday.
 
Benny Tjoeng, head of the agro-industry division of the Indonesian Palm Oil Producers Association, told Reuters in a interview he was confident about the sector's future.
Biofuels are taking on renewed global importance as countries seek to cut hazardous emissions and as crude oil hit record highs. Indonesia has been pushing for greater biofuel use to reduce oil consumption as its own crude reserves dwindle.

Several palm oil firms have been producing a total of 25 tonnes of biodiesel a month to run machinery and vehicles, said Tjoeng, who is also vice-president director of the largest listed plantation firm PT Astra Agro Lestari Tbk.

"A number of players have conducted studies about market potential but mass production has yet to start. But I think this will happen," said Tjoeng.

"It may not happen this year but we are heading towards that direction. Crude oil prices will be the trigger," he said.

Indonesia is forecast to produce 14.7 million tonnes of palm oil in 2006, up from 13.6 million tonnes in 2005. Exports in 2006 were expected to be 11.3 million tonnes against 10.3 million last year.

In Indonesia the biofuel mixture is typically five percent palm oil and 95 percent conventional diesel but Tjoeng said the proportion of palm oil could eventually rise to 20 percent.

"Some producers have tried using 20 percent of palm oil and there's no problem," he said.

Indonesia allows fuel retailers to blend in up to 10 percent biofuel.

Plantation company PT Bakrie Sumatera Plantations Tbk said this week it plans to jointly build the country's first biodiesel plant.

Bakrie Sumatera would build the US$25 million factory in a joint venture with construction firm PT Rekayasa Industri. The plant would have capacity to produce 60,000-100,000 tonnes of biodiesel a year.

Indonesia, which consumes 27 million kilolitres of diesel oil per year, has a potential to produce between 1.4 million to 5.4 million kilolitres of biodiesel a year, said Tjoeng.

"We have yet to produce (biodiesel) on a larger scale because it takes at least a year," said Tjoeng, referring to the time needed to set up a biodiesel plant.

The Southeast Asian country is a member of the OPEC oil producers' cartel but is obliged to import a quarter of its fuel and is scrambling for alternative energy sources.

In October, the government hiked domestic fuel prices in an attempt to ease pressure on its budget, sending inflation to a six-year high and driving up interest rates.