Could biofuels be the antidote that Asia needs for oil shocks?

NEW DELHI / JAKARTA / KUALA LUMPUR – Countries across Asia are increasingly switching to domestically produced biofuels to cut fossil fuel imports and reduce their vulnerability to oil shocks.

Asia’s oil import bills have ballooned since the start of the US-Israeli conflict with Iran on Feb 28. Global crude oil prices have jumped from US$72 per barrel then to around US$100 now.

India already sells fuel blended with 20 per cent ethanol. But on May 15, it announced new technical specifications for higher ethanol blends, including E30 petrol, marking a significant push towards alternative fuel adoption.

It also plans to formalise the use of blends as high as 85 per cent and have vehicles run on pure ethanol in the coming years, according to an April proposal.

In Indonesia, the world’s largest palm oil producer and exporter, the government has announced a mandate to increase the palm oil blend in its biodiesel to 50 per cent (B50), starting on July 1.

Indonesia produces some of its own diesel through domestic refining, but relies on imports to meet demand. This upgrade aims to halt diesel fuel imports by substituting them entirely with domestically produced biodiesel.

Malaysia, too, plans to increase the palm oil blend in its biodiesel to 15 per cent starting on June 1, up from the current 10 per cent mandate. It also plans to reach a B50 blend within the next two to three years.

But this shift to biofuels has brought a new set of risks. Diverting crops for fuel raises the chances of higher food prices. The production of biofuels also involves massive water consumption and use of land, which leads to increased greenhouse gas emissions from deforestation.

A May report commissioned by Rainforest Foundation Norway estimates that 52 million ha of additional cropland – approximately the size of Thailand – will be needed to meet the projected 2030 global demand for biofuels.

On May 13, India, the world’s second-largest producer and exporter of sugar, banned most forms of sugar exports until Sept 30, pushing up global prices.

A key reason for the ban is an anticipated fall in domestic sugarcane production because of lower-than-normal monsoon rainfall, leading to a supply crunch that could increase local sugar prices.

But there is another factor at play. India has increasingly diverted sugarcane juice and molasses towards ethanol production in recent years. Allowing unrestricted export of sugar would have meant less feedstock for its enhanced biofuel production ambitions.

Similarly, Jakarta’s move was followed by a decision on May 20 to centralise exports of key commodities, including palm oil, requiring them to pass through a state agency, raising fears of a global supply disruption. Its past steps to curb palm oil exports sought to prioritise ​local sales and boost feedstocks for biodiesel.

Growing palm oil demand

Indonesia’s decision to ramp up biodiesel use comes as domestic palm oil output has largely stagnated, contrasting sharply with surging local demand.

According to the Indonesian Palm Oil Association (GAPKI), national output grew by just 10 per cent, rising from 51.3 million tonnes in 2021 to 56.5 million tonnes in 2025. Over the same period, domestic demand jumped more than 30 per cent, from 18.42 million tonnes to 24.16 million tonnes, driven primarily by successive biodiesel mandates.

The remainder of the output was allocated for export, which recorded a 9.5 per cent increase to 32.34 million tonnes in 2025. But GAPKI chairman Eddy Martono told The Straits Times that if export demand for palm oil increases further, Indonesia might not be able to fulfil it.

Jakarta’s reported plans to restrict palm oil exports have already worried consumers across the world, as this would raise costs for importers of the edible oil such as India, the world’s top palm oil importer.

Indonesia’s total demand for palm oil for biodiesel blending reached 12.7 million tonnes in 2025, and the transition to B50 is forecast to create an additional domestic demand of 3 million to 3.5 million tonnes of palm oil annually.

“Indonesia must increase output – it is something we cannot avoid,” Mr Eddy said. He noted that the focus must be on improving productivity by felling older, less productive trees and replacing them with new, high-yielding varieties.

Adopting domestic biofuels is an attractive alternative, especially when imported fossil fuels remain at high prices. According to one estimate, achieving the 20 per cent ethanol blend has helped India save nearly 45 million barrels of crude oil annually, while reducing foreign exchange outflow by around 1.5 trillion rupees (S$20 billion).

In Malaysia, rising crude oil prices have narrowed the cost gap between palm-based biodiesel and ordinary diesel, something that had stalled Kuala Lumpur’s push for higher blending mandates.

Agricultural economist Julian McGill said Malaysian biodiesel will remain a cost-effective alternative to diesel as long as Brent crude oil hovers above US$85 per barrel while Malaysia’s palm oil price stays at around US$1,120 per tonne.

The widening gap between gas oil and palm oil prices has also fundamentally altered the economics of biodiesel in Indonesia, noted public policy expert Lin Che Wei.

The price of diesel rose sharply – from around US$95 per barrel before recent geopolitical shocks, to nearly US$200 at its peak – before moderating to about US$145. Palm oil prices, by contrast, increased by only around 17 per cent to 20 per cent, making it more attractive.

But while using biodiesel domestically saves US dollars by cutting reliance on imported fossil diesel, it also means forsaking vital foreign exchange earned from palm oil exports.

“Any decision to raise biodiesel blending (therefore) must carefully weigh both benefits: export earnings versus diesel-import savings,” said Mr Lin.

Risks to food production

Even as Asian countries expand the use of biofuels, experts argue that they should scale it without creating new risks, particularly to food systems and long-term sustainability.

Dr Shweta Saini, CEO of Arcus Policy Research, a New Delhi-based research organisation, said India must prioritise food crops first for human consumption, and then for animal feed and, finally, for biofuels.

“Ethanol has made us relatively more self-reliant. However, this shift is coming at the cost of agricultural land,” she told ST. “In a country where agricultural land is not increasing and where food and nutritional security is still a key concern, we cannot have prime land go to crops for energy.”

While driving up crop yields to meet greater biofuel feedstock demand is necessary, doing so has increasingly become a challenge because of more extreme weather. Lower rainfall associated with El Nino, for instance, has led to greater reliance on irrigation – driving up groundwater usage – and the need for higher-yielding varieties, something Dr Saini noted that India has had limited success with in recent years, with the exception of maize.

Mr Luke Holt, director for energy for the Asia-Pacific at Ramboll, a global architecture, engineering and consultancy firm, said the most important guard rail in managing the food-versus-fuel trade-off is to prioritise waste and residue feedstocks, such as used cooking oil and agricultural residues like rice stalks and forestry trimmings, as the foundation of biofuel strategies.

“Relying on purpose-grown food crops, whether grains or palm oil, introduces direct competition with food supply, exposes markets to price volatility, and can amplify shocks when geopolitics disrupt global commodity and shipping flows,” he told ST.

India has intensified its efforts to turn agricultural and municipal waste, as well as industrial by-products, into biofuel. This includes a mandate to increase the blend of compressed biogas, produced from waste such as crop residues and cattle dung, in natural gas from 1 per cent in March 2026 to 5 per cent by March 2029.

“Clearly we see that India’s biofuel portfolio should shift, at least in the longer run, away from food grains to residue and waste-based streams,” said Dr Saini.

Other challenges ahead

But as biofuels begin replacing fossil fuels, there are many challenges to contend with, including supply chain issues, to ensure a reliable feedstock supply.

Across Asia, progress has been uneven due to feedstock price volatility, infrastructure limitations and fragmented regulatory systems.

Vehicles also need to adapt to the new fuels. Users in India have complained about lower mileage and damage to their cars from E20 petrol.

In Johor, truck drivers feel that B10 biodiesel delivers slightly less power than the B7 version. Johor Trucking Association president Chai Pei Yoon said the current B10 biodiesel contains more impurities than its B7 equivalent, requiring more frequent oil filter changes.

“Frequent replacement is needed to prevent damage to the injectors, which may cost more than RM1,000 (S$322) to replace,” she told ST.

Countries also need to redefine what efficiency means in the wider context of biofuels. This involves moving away from a narrow focus on output volumes – how many litres are produced from what quantity of food crop – to verified life-cycle carbon intensity and overall system performance.

It takes about 2kg to 3kg of rice to produce a litre of ethanol, but growing even 1kg of rice requires roughly 3,000 litres of water.

“True efficiency in biofuels should be measured by emissions reduction, resource use and system integration, not just production scale,” said Mr Holt.

He noted that achieving this will require improving conversion yields while lowering energy and water intensity; designing biofuel policy around carbon intensity and not just production targets; and strengthening traceability and certification systems.

“Countries that prioritise waste-based feedstocks, proven technologies and credible sustainability frameworks are far more likely to achieve durable outcomes than those pursuing rapid expansion without these safeguards.”