Reuters - Indonesia's biodiesel consumption is likely to soar this year after the government introduced a new blending regulation, an industry group said on Monday.

Southeast Asia's biggest economy and the world's top producer of palm oil introduced a new regulation in August, aimed at burning more palm-based biodiesel and cutting its oil import bill.

Analysts have been skeptical that it could be fully implemented due to logistical hurdles in more remote provinces, but even a partial success has the potential to lift palm prices and narrow Indonesia's current account deficit.

Paulus Tjakrawan, chairman of the Indonesian Biofuel Producers Association (APROBI), however, is optimistic.

"Domestic biodiesel sales may jump to 3 million kilolitres this year, up from 1.006 million kilolitres last year," Tjakrawan told reporters.

He also forecast a 20 percent rise in biodiesel exports. The export forecast is surprising, given the long-running trade spat between Indonesia and its biggest biodiesel export customer, the European Union, over alleged biodiesel dumping and illegal subsidies.

"In 2014, Indonesian biodiesel producers may export 2.2 million kilolitres of biodiesel, up from 1.833 million kilolitres last year," said Tjakrawan. While exports to the EU are seen falling, higher buying by countries such as China, South Korea, Australia and the United States would help offset the drop, he said.

Indonesia's total biodiesel capacity is likely to hit 8.8 million kilolitres in 2015, added Tjakrawan, up from 5.6 million kilolitres at present.