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Palm oil demand from Indonesia biodiesel sector to surge by 2020

NUSA DUA, Indonesia (Reuters) -- Indonesian demand for crude palm oil (CPO) for use in biodiesel will grow nearly 70% by 2020, a government agency said on Friday, as the price gap with conventional diesel narrows and more subsidies for blending become available.

Indonesia, the world's top producer of palm oil, is pushing to increase usage of biodiesel to cut its oil import bill andcurb greenhouse gas emissions.

Its so-called B20 programme requires a minimum 20% blend of bio content in diesel fuel this year, up from 15% in 2015.

The biodiesel sector's appetite for palm oil will increase to 10.6 MMt by the start of the next decade from 6.3 MMt forecast for this year, said Bayu Krisnamurthi, chief executive of the Indonesia Estate Crop Fund.

"Looking forward, we calculated that by 2020, 26% of palm oil will go to biodiesel, so biodiesel becomes the new demand for the palm oil industry," Krisnamurthi said at a palm conference in Bali on Friday.

The fund is a government agency in charge of collecting palm oil levies to finance biodiesel subsidies in the country.

"The gap is getting thinner," said Krisnamurthi, referring to the spread between prices for biodiesel and conventional diesel coming down by around 30% this year as oil prices strengthened.

The palm industry hopes the drive towards biodiesel will provide underlying support for prices for the edible oil, which hit a four-year high on Thursday amid a forecast decline in Indonesia's palm oil output.

Meanwhile, the country is targeting a 90% increase in unblended biodiesel consumption in 2017 to 5.5 MMkl from an estimated 2.9 MMkl this year, an energy ministry official said.

The 2017 target is "with the assumption that there is an expansion of subsidies", Dadan Kusdiana, secretary of the renewable energy directorate, told reporters on Friday.

Indonesia started collecting a levy on its palm oil exports in July 2015 -- $50 per tonne for crude palm oil and $30 for processed palm oil products -- and uses part of that to help fund biodiesel subsidies.

Levies collected by the Indonesia Estate Crop Fund would also need to increase to pay for additional biodiesel subsidies, Kusdiana said, adding that his office had proposed an incremental increase.

The fund is targeting a 14% increase in levies collected in 2017.

Reporting by Emily Chow in NUSA DUA and Wilda Asmarini in JAKARTA; Writing by Fergus Jensen; Editing by Joseph Radford

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