Iran War’s Energy Shock Is Spreading to Crop-Based Fuels

v33}o60fmlrqr99r6yk8ewdn_media_dl_1.png Polymer Update, Bloomberg

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(Bloomberg) — Another corner of the energy market is being threatened by the war in Iran, as prices for methanol — essential to biofuel production — surge in Southeast Asia. 

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The spike risks crimping output of crop-based fuels and adding to the region’s energy crunch. Indonesia is the world’s biggest producer of palm oil, a large portion of which is converted into biodiesel to meet the country’s steep blending targets. Methanol is key to that process, helping to break down the crop and convert it into fuel. 

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However, prices for the alcohol have climbed as ship traffic grinds to a near halt amid the US-Israeli attacks in Iran, crimping vital commodity shipments — much of which often head to Asia. QatarEnergy last week said it would halt production of downstream products including methanol after the closure of its massive liquefied natural gas plant. 

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Methanol prices for delivery to Southeast Asia jumped 24% last week to $402 a ton, the biggest gain since 2007, data from analytics firm Polymer Update shows. If the disruption continues, inventories in Indonesia could run low and biofuel production may fall short of the government’s monthly quotas as soon as April, according to traders familiar with the matter who asked not to be identified. 

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The energy and mineral resources ministry didn’t immediately respond to a request for comment.

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That threatens further tightening energy supplies in the region, which is highly dependent on imports and has been hit by the sharp slowdowns in oil and gas shipments. Biofuels have historically been seen as a way to combat that reliance and produce more energy at home. Vegetable oil prices have climbed since the war’s outbreak, with palm oil briefly surging as much as 10% on Monday.

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Indonesian biofuel production remains stable for now and the industry is seeking solutions should the conflict persist, according to Catra De Thouars, a vice chairman of the Indonesian Biofuel Producers Association, known as Aprobi. Supply is seen secure for the next two months, barring any significant increase in demand, and the industry could turn to alternative methanol suppliers such as Malaysia and Brunei to cover part of the gap.

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Still, there are risks if the war drags on as the country imports most of its methanol from the Middle East, he said. Domestic production is insufficient to meet demand.

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