Analysis: Indonesia’s trade deficit raises urgency to boost refining capacity

Analysis: Indonesia’s trade deficit raises urgency to boost refining capacity

Singapore — Indonesia will likely speed up its ongoing projects aimed at boosting the country’s refining capacity as Southeast Asia’s biggest energy consumer continued to post its trade deficit in the first quarter, with imports of transportation fuels extending the upward momentum.

Indonesia saw its oil product imports continue to rise early this year, receiving 2.38 million mt of gasoline over January-February, up 16.2% from 2.04 million mt imported during the same period a year earlier, latest data from Statistics Indonesia showed.

The uptick in gasoline imports could continue, with state-run oil and gas company Pertamina purchasing between 10-12 million barrels/month for delivery over March-May in recent trading cycles, S&P Global Platts reported earlier.

In comparison, Indonesia’s gasoline imports had averaged around 9.32 million barrels/month or 1.1 million mt/month over the same period a year earlier.

Meanwhile, Indonesia’s crude and condensate imports in 2018 slipped 2.9% from the previous year to 16.93 million mt and cargoes received during January-February tumbled 42.6% year on year to 1.74 million mt, illustrating Jakarta’s determination to increase dependency on domestic crude oil as the economy battles against widening current account and trade deficits.

However, industry sources noted that there is a limit to how much Indonesia could save on its overall energy import bills by slashing crude purchases as the country continues to depend heavily on oil product shipments from overseas to meet domestic auto fuels demand due to its limited refining capacity.

Indonesia’s current account deficit increased to $9.1 billion in the fourth quarter 2018 from a deficit of $8.6 billion in Q3, Bank Indonesia said in a quarterly report.

Despite the ongoing efforts to slash crude oil imports, Jakarta still recorded a trade deficit of $190 million in Q1 this year, according to data from Statistics Indonesia.

This is why Indonesia urgently needs new refineries to fully meet domestic fuel demand, Pertamina’s refining and petrochemical mega projects director Ignatius Tallulembang said.

“Indonesia has managed to cut crude imports by a big margin over the past few quarters but rising gasoline imports would continue to offset such effort … the aging domestic refineries must be upgraded and expanded quickly,” said another senior executive at the state-run oil and gas company who declined to be named.

SPEEDING UP CILACAP PROJECT

In order to cater the government’s ambition to tackle the lofty oil import bills by improving the country’s self-sufficiency in auto fuels, Pertamina recently set a deadline for Saudi Aramco to make its final decision on the joint Cilacap refinery upgrade and expansion project.

Pertamina expects both parties to reach an agreement on the project valuation in June, which would allow the project to be realized after years of discussions and planning stages that caused a lengthy delay, a senior official said last week.

The Cilacap expansion project would allow Pertamina to produce an additional 80,000 b/d of gasoline, 60,000 b/d of diesel and 40,000 b/d of jet fuel, company sources previously told Platts.

Majority of Pertamina’s domestic refineries have not been upgraded for around 20 years or more. The company is only able to produce 700,000 b/d equivalent of fuel that is insufficient to meet domestic oil products demand of 1.4 million b/d.

“June is the deadline. Aramco did not accept the initial project valuation figures that we had given. They asked to appoint independent international company to carry out the valuation,” Tallulembang said.

“We discussed the results and we are still trying until June. The parties have agreed to carry out the alignment until June,” he added.

Pertamina and Aramco had first entered into a Heads of Agreement in November 2015. Both companies planned to revamp Cilacap refinery with a total estimate investment of $5.5-5.8 billion.

If the parties fail to reach a final deal in June, Pertamina would still go ahead with the refinery project either by its own or with other partners, Tallulembang said.

Pertamina said it expects the project to be on stream by no later than 2025.

Originally, the revamping project had been designed to be fully completed in 2022.

“Pertamina is committed to continue the project with or without a partner. We will use our own money if necessary,” Tallulembang said.

The Cilacap expansion project includes increasing the CDU capacity, revamping the RFCC from 62,000 b/d to 81,000 b/d and installing a new 43,000 b/d hydrocracking unit as well as building a new petrochemical unit that would increase paraxylene production from 280,000 b/d to 485,000 b/d.

Source: https://www.spglobal.com/platts/en/market-insights/latest-news/oil/043019-analysis-indonesias-trade-deficit-raises-urgency-to-boost-refining-capacity

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