Biodiesel enters fuel mix as govt OMCs face growing margin squeeze

With retail diesel prices frozen, state-run oil firms are blending up to 5% biodiesel at select outlets as crude costs rise and marketing margins come under pressure

State-run oil marketing companies (OMCs) are supplying diesel blended with up to 5 per cent biodiesel at select retail outlets across the country, as surging crude oil prices deepen under-recoveries on the fuel, a person aware of the development told Business Standard. 

“Vegetable oil-based biodiesel is being blended up to 5 per cent wherever it is available. It is available largely in Gujarat, Rajasthan and the Delhi-NCR region. OMCs are now offering good prices. Companies that are able to source raw materials at lower rates are offering it now,” said Sandeep Chaturvedi, chairman of the Biodiesel Association of India (BDAI). 

Biodiesel is currently priced at around ₹88 a litre, compared with ₹95.20 a litre for conventional diesel in Delhi-NCR. 

OMCs’ underrecoveries were estimated at ₹8 per litre on petrol and ₹9 per litre on diesel, rating agency Icra had estimated on September 23. 

The move comes as the Indian crude oil basket has averaged around $122 a barrel in October amid the West Asia crisis, up 77 per cent from nearly $69 a barrel in February, before the conflict began. 

While private fuel retailers Nayara Energy and Jio-bp have raised petrol and diesel prices in response to elevated crude costs, state-owned OMCs have kept retail rates unchanged. This has squeezed marketing margins at the three public-sector oil companies — Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) — making higher biodiesel blending a potential source of relief. 

In October, both private retailers raised petrol prices by ₹5 a litre and diesel prices by ₹3 a litre. Biodiesel, an alternative fuel component that can be blended with conventional diesel, is produced by chemically processing vegetable oils such as soybean and palm oil, waste cooking grease, used cooking oil and animal fats. Ethanol, by contrast, is an alcohol typically produced from sugarcane, corn and other biomass. 

Under the National Policy on Biofuels, India has set an indicative target of 5 per cent biodiesel blending in diesel by 2030. Yet biodiesel-blended fuel currently accounts for no more than 0.5 per cent at most retail outlets. “This 5 per cent was expected and may gradually happen across the country, as it is part of the government policy. However, we are not aware of this now. The oil marketing companies may also have to fine-tune technology, it seems,” said Sai Giridhar, president of the Federation of Automobile Dealers Associations (Fada). 

BDAI said blending biodiesel at levels of up to 5 per cent does not require disclosure by oil companies under IS 1460, the Indian Standard established by the Bureau of Indian Standards (BIS) that specifies quality requirements and technical parameters for automotive diesel fuel. “It comes almost like an additive, and will improve overall compression and reduce particulate emissions by 85 per cent,” Chaturvedi said. 

The push to increase biodiesel blending comes as the government’s ethanol-blending programme for petrol faces criticism following the full implementation of 20 per cent blending. Motorists have raised concerns over fuel efficiency, compatibility with older vehicles and the limited availability of lower-ethanol alternatives. 

While the government has ruled out blending ethanol with diesel, Nitin Gadkari, minister of road transport and highways, has indicated that bio-isobutanol could be introduced as an alternative component for diesel blending.