Rising Fuel Demand, Indonesia Needs More Oil Refining Capacity

Rising Fuel Demand, Indonesia Needs More Oil Refining Capacity

Fuel demand in Indonesia already reached 1.6 million barrels per day (bpd).
However, oil refining capacity only stands around 1.1 million bpd, implying
that 43 percent of fuel consumption in Indonesia needs to be imported from
abroad. Oil refining capacity today is roughly the same as it was 15 years
ago, meaning that there has been limited progress in development of
Indonesia's downstream oil industry. Without adding refining capacity,
Indonesia is on track to become the world's largest fuel importer within the
next decade.

Indonesia currently has six oil refineries, all operated by the nation's
state-owned energy company Pertamina. Pertamina CEO Dwi Soetjipto, who was
recently removed, continuously emphasized the need to boost investment in
Indonesia's downstream oil industry. Stagnating investment is reflected by
the fact that Pertamina has not built a new oil refinery in the last quarter
of a century. It is often mentioned that Indonesia should take an example of
Singapore where oil refinery capacity stands at 1.5 million bpd, while
domestic fuel demand is only around 150,000 bpd.

It should also make investment into Indonesia's upstream oil sector more
attractive when the crude oil output can be processed domestically. The
reason why Indonesia whole oil industry has more-or-less been in a state of
decline over the past two decades is due to a lack of investment in oil
exploration. Weak investment in this sector is generally attributed to tough
bureaucracy and an unclear and uncertain regulatory and legal framework.

Provided the construction of two new oil refineries - one in Bontang (East
Kalimantan) and one in Tuban (East Java) - is completed by 2023 (each good
for 600,000 bpd) then Indonesia's total installed oil refining capacity will
touch around 2 million bpd in the same year. However, this will most likely
not be enough to meet domestic demand. Earlier, I Gusti Nyoman Wiratmaja,
Director General of Oil & Gas at Indonesia's Energy and Mineral Resources
Ministry, predicts that the Indonesian people will consume 2.6 million bpd
of fuel by 2025. Despite the continuous need for fuel imports, the need to
import crude oil (required to be processed in the refineries) remains as
well, and thus will continue to put pressure on the trade balance (and
rupiah exchange rate).

Meanwhile, the existing six oil refineries of Pertamina are also scheduled
to get a facelift (expanding their refining capacity). However, this will
require big investment and that is what makes Pertamina eager to seek
foreign partners. There is, however, a big advantage for Pertamina to have a
well developed downstream segment within the company's business structure as
it is also eager to acquire oil fields abroad. Former Pertamina CEO
Soetjipto said it makes it easier to win tenders abroad because Pertamina
has plenty of refining capacity. The state-owned company plans to boost oil
production to 438,000 bpd in 2017, with most of the growth expected to
originate from acquisitions in Russia, Iran, and Iraq.

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Link to Original Article:
http://www.indonesia-investments.com/business/business-columns/rising-fuel-d
emand-indonesia-needs-more-oil-refining-capacity/item7589?

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com