Indonesia's Pertamina Revives Balikpapan Refinery Upgrade Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--PT Pertamina Persero (Jakarta, Indonesia), an Indonesian state-owned oil and gas firm, entered into a memorandum of commitment with Star Petro Energy LLC (Dubai, United Arab Emirates), an oil and natural gas firm belonging to the ETA Ascon Group (Dubai), and Itochu Corporation (TYO:8001) (Osaka, Japan), a trading firm, for the upgrade of its Balikpapan refinery in East Kalimantan. The memorandum was signed during the opening ceremony of the Fifth World Islamic Economic Forum held in Jakarta earlier this month. The three firms will conduct further discussions on the upgrade project that was shelved in January this year. No explanation has been offered for the recent decision to revive the Balikpapan refinery upgrade project following the cancellation of plans that were announced in January.

Plans to upgrade the refinery were first conceived in early 2007 when Pertamina decided to increase the unit's refining capacity by 10% from 260,000 barrels per day (BBL/d) to compensate for the deficit of 27,000 BBL/d from the firm's Dumai refinery in Riau following a technical snag. Pertamina had to shut down one of the two hydrocracking units at the 160,000-BBL/d Dumai refinery, leading to a 50% reduction in diesel and kerosene production.

In October 2008, Pertamina, Star Petro Energy and Itochu set up a joint venture for the Balikpapan refinery upgrade project. Individual stakes to be owned by each firm in the joint venture had not been determined at that time. The refinery has two crude distillation units with capacities of 200,000 BBL/d and 60,000 BBL/d. The firms planned to increase the production capacity of the refinery to 280,000 BBL/d. Project plans also included a shift in feedstock from sweet crude to less expensive sour crude and the addition of a 50,000-BBL/d cracking unit to process heavy residue from the refinery in order to increase the output of gasoline and petrochemicals. Of the total volume of oil processed by the refinery, 30% is converted into residue that is sold at inexpensive rates. The refinery upgrade project was also aimed at increasing the processing efficiency and boosting the production of higher-priced products. The upgrade project was estimated to cost $1.7 billion and Pertamina had scheduled to complete the upgrade by 2011.

In December 2008, Pertamina announced that the project feasibility study was under way and would be ready in January 2009. However, in January the firm cancelled the project and also shelved plans to expand the capacity of the Cilacap refinery in Central Java from 348,000 BBL/d to more than 400,000 BBL/d. Ari Soemarno, President and Director of Pertamina, cited the global economic recession and market instability as reasons for shelving the two expansion projects. Soemarno also said that the project contractors -- Mitsui Engineering & Shipbuilding Company Limited (TYO:7003) (Tokyo, Japan), Toyo Engineering Corporation (TYO:6330) (Tokyo, Japan), and SK Corporation (Seoul, South Korea) -- were unwilling to provide quotes for services because of the volatility in the oil market.

In February 2009, Pertamina announced plans to develop two new refining units in Tuban in East Java and Bojonegara in Banten, and expand an existing unit in Balongen in West Java to boost domestic production by 400,000 BBL/d and reduce dependence on fuel imports. The firm currently has a total refining capacity of slightly more than 1 million BBL/d.

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