Refineries urgently needed

During a keynote speech in a signing ceremony for numerous infrastructure contracts at the Energy and Mineral Resources Ministry, Jokowi pointed out the fact that the country had not built any new facilities for years although energy and fuel demand continued rising.

 

“This year, a decision has to be made and refineries must be built. Any country with a crude oil supply is welcomed. We need to have bigger stocking capacity here so that the supply chain can be shortened and we no longer need traders,” Jokowi said.

 

In the past years, the country had several plans to build new refineries. However, the attempts fell through, usually over financial issues. 

 

“In the next 20 to 30 years, we will face fights to secure energy and food. Therefore, we have to establish a grand strategy for our energy and food security,” the President said.

 

The President also highlighted the need to build up stockpiles during the period of low oil prices so that the country would not suffer when oil prices jump.

 

“It doesn’t matter if the stockpiles are located onshore or overseas. State-owned enterprises, Pertamina and the ministry have to think how to build up the stocks to anticipate price rebound,” Jokowi added. 

 

Global oil prices dropped by a third since late 2014 to about $35 per barrel recently following a global glut of supply caused by the success of US shale oil. As an importing country, Indonesia may currently enjoy the drop in prices as the country needs to spend less money to purchase the commodity, which has burdened the country’s current account. 

 

Indonesia’s oil demand is estimated to be equal to 1.6 million barrels per day, but Indonesia’s fields can deliver less than 800,000 per day because they have been depleted.

 

The lack of oil is exacerbated by aging refineries, which can run on less than their original capacities. There are currently six big refineries that had a capacity of 1 million barrels per day, but they are now operating at about the 800,000 level.

 

The government has rolled out regulations to support refinery development, in part by opening up the business to private players and planning to give incentives to investors who wish to develop refineries in the country.

 

“Apart from the regulations, we can also use state assets such as land in Bontang to host new refineries. There will be no land rent and they will get tax holidays. Another point is that Pertamina is obliged to be offtaker of the refineries’ product,” Energy and Mineral Resources Minister Sudirman Said said.

 

Pertamina is currently in the process of selecting a partner for the development of a refinery in Tuban. 

 

The company’s director for refineries, Rachmad Hardadi, previously revealed that Pertamina had shortlisted five candidates for the project, namely Russia’s Rosnef, Saudi Arabia’s Saudi Aramco, Kuwait’s Kuwait Petroleum International, China’s Sinopec and a consortium of PTTGC and Thai Oil.