Jakarta – Indonesia is set to import at least 1 million kilograms of ethanol annually from the United States, a commitment formalized in a recently signed trade agreement. The deal, part of the broader Agreement on Reciprocal Trade (ART) between the two nations, aims to bolster Indonesia’s biofuel supply as it moves towards higher ethanol blends in gasoline. This development, while intended to support Indonesia’s energy goals, raises questions about the country’s capacity for domestic ethanol production and the implications for its existing energy policies.
The agreement, signed on February 20, 2026, in Washington D.C., stipulates that Indonesia cannot adopt or maintain any measures that would impede the import of bioethanol from the U.S. As reported by DetikOto, the ART also mandates Indonesia to supply gasoline containing 5% bioethanol (E5) by 2028 and 10% (E10) by 2030, with a longer-term goal of reaching a 20% blend (E20).
The required annual import quantity of 1 million kilograms, equivalent to approximately 1.2 million liters, is a significant figure. This commitment comes as Indonesia has been actively pursuing policies to increase domestic ethanol production, including a previous mandate for 20% ethanol content in all gasoline (E20) before 2028. The shift towards importing from the U.S. Appears to be a parallel strategy, acknowledging the current limitations in meeting domestic demand.
Balancing Domestic Production with Import Needs
Indonesia’s Minister of Energy and Mineral Resources (ESDM), Bahlil Lahadalia, explained the rationale behind the import agreement. According to Liputan6, Lahadalia stated that imports are necessary to supplement domestic production until Indonesia can fully meet its biofuel needs. “Until our production can meet domestic needs, there is room for us to import, including from America, until our domestic production needs are met,” he said.
The government is aiming to foster growth in the domestic bioethanol industry, but recognizes the need for a reliable supply to meet the mandated blend targets. Lahadalia acknowledged that while some domestic production exists, it is currently insufficient to cover the projected demand. The import agreement is therefore seen as a temporary measure to bridge the gap.
Currently, PT Pertamina and PT Sinergi Gula Nusantara (SGN) are constructing a bioethanol plant in Banyuwangi, East Java. This facility is projected to produce 30,000 kiloliters of bioethanol annually, utilizing sugarcane as a feedstock. However, this capacity alone will not be enough to satisfy the country’s growing requirements.
A Broader Trade Agreement
The ethanol import commitment is just one component of the larger ART agreement between Indonesia and the U.S. Indonesia is expected to import $15 billion worth of U.S. Energy commodities annually, including crude oil, fuel, and liquefied petroleum gas (LPG). This broader trade deal reflects a strategic effort to strengthen economic ties between the two countries.
The use of ethanol in Indonesia’s fuel mix is not limited to gasoline. The industry also requires ethanol for various other applications. This diversified demand further underscores the need for a stable and sufficient supply, prompting the government to explore multiple sourcing options.
Challenges and Considerations
The decision to import ethanol from the U.S. Has sparked debate, particularly given the government’s previous emphasis on reducing fuel imports and incentivizing domestic ethanol production. Some critics question the logic of increasing reliance on foreign sources while simultaneously promoting local industry. Lahadalia, however, defended the move, stating, “Until chickens grow teeth, if we are not creative in doing this (ethanol blending), we will not be able to do it all domestically.”
The successful implementation of the ethanol blending mandates will depend on a number of factors, including the timely completion of domestic production facilities, the efficient management of import logistics, and the availability of necessary infrastructure to support the distribution of ethanol-blended fuels. The government will need to carefully monitor these developments to ensure a smooth transition.
As Indonesia navigates its energy transition, the balance between domestic production and strategic imports will be crucial. The agreement with the U.S. Represents a pragmatic approach to meeting immediate needs while continuing to invest in long-term self-sufficiency.
The next key development to watch will be the progress of the Pertamina-SGN bioethanol plant in Banyuwangi and its contribution to meeting the E5 mandate scheduled for 2028. Further updates on domestic production capacity and import volumes are expected in the coming months.
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