Securing Indonesia's downstream energy security

Securing Indonesia's downstream energy security

Synergy Downstream's Jeff Wilson explains how cross government ministry
regulatory reforms and private sector investment will enable Indonesia to
secure downstream energy security in the national interest

Apart from growing domestic energy demands, Indonesia has the potential to
become a major fuels storage and trading hub.

Despite growing imports of crude oil, oil fuels and LPG demand, which are
projected to account for 80% of total demand by 2025, the repeated failures
by consecutive governments to fully implement oil and gas laws and
regulatory reforms, combined with gross long term under-investment, means
that a growing downstream energy security crisis is unfolding.

To put the situation into perspective, Indonesia currently has no mandatory
crude oil, oil fuels or LPG operational reserves or emergency reserves at
all. Fortunately this situation is now changing - creating significant
private sector investment opportunities in storage and distribution
infrastructure and reserves.

Jeff Wilson, managing director at Synergy Downstream, explains that until
recently there have been many barriers to level playing field competition,
which have maintained the national oil and gas company's de-facto monopoly
across several large volume downstream market sectors.

These barriers have increasingly manifested themselves through continued
underinvestment, supply shortages, declining fuel stocks, substandard
products and product pricing abuses. Fortunately these problems are now
being addressed.

He says: 'It has been accepted by key stakeholders that downstream energy
security cannot be achieved on time by maintaining Pertamina's (national oil
and gas company) de-facto monopoly, expanding its storage capacity and
product reserves or by addressing the monumental challenges within
government budget constraints and competing priorities.

'Security requires multiple supply chains and infrastructure solutions that
can only be effectively realised by a combination of regulatory reforms,
significant private sector investment and level playing field competition.'

Despite any or all proposed or planned refinery projects becoming
operational, more than 80% of Indonesia's oil fuels and crude oil
requirement will need to come from imports - strengthening the need for more
storage and logistics infrastructure.

Wilson explains: 'Domestic oil fuels and LPG demand is growing at a rate of
4% to 5% per year. For Indonesia to realise the government's energy security
targets of 30 days operational reserves and 30 days emergency reserves an
additional 19,000,000 KL of oil fuel and crude oil storage and 1,500,000
tons of refrigerated LPG storage must be constructed, commissioned and
stocked by year 2025.

This means that Indonesia needs to quadruple all existing storage
infrastructure by 2025.

A package of regulatory reforms that ensure a transparent level paying field
competitive market is needed, along with regulatory oversight, enforcement
and significant private sector investment.

In fact, Wilson estimates that $82 billion (including refineries) must be
invested in Indonesia's downstream sector in the next eight years to realise
the government's energy security objectives.

Five consecutive downstream energy security projects, financed in part by
the British Government, sponsored by the National Energy Council (DEN),
championed by the Ministry of Energy and Mineral Resources (ESDM) and
supported by the Downstream Oil and Gas Regulator (BPH Migas) have been
executed by Synergy Downstream Solutions. The reports, conclusions and
recommendations have been endorsed and some recommendations have been
implemented with others moving forward.

Wilson adds: 'Given both the government and Pertamina's long term financial
constraints, key project recommendations focus on delivering downstream
energy security at no cost to the government through level playing field
competition and private sector investment.'

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Link to Original Article:
http://www.tankstoragemag.com/display_news/9948/Securing_Indonesiarsquos_dow
nstream_energy_security/

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com