Indonesia's Pertamina to Augment Refining Output by 400,000 Barrels per Day

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Researched by Industrial Info Resources (Sugar Land, Texas)--PT Pertamina (Jakarta), a state-owned Indonesian oil exploration and refining company, has announced plans to construct refineries in the country to increase oil production and reduce imports. The current plan includes the development of two refineries and the expansion of an existing facility in the next three to five years. The aggregate refining capacity of all three units will be about 400,000 barrels per day (BBL/d).

The new refining units will be located in Bojonegara in Banten province and Tuban in east Java. The Bojonegara refinery is expected to be the first of the two new units to commence operations. The Tuban complex will start up in 2012 after the completion of the first refinery. Investment details have not been finalized, but sources indicate that the Bojonegara refining facility could cost about $4.2 billion. The expansion will be carried out at the Balongan refinery in west Java. PT Pertamina currently operates six refineries. The Balongan refinery, one of the largest, has a refining capacity of 125,000 BBL/d.

PT Pertamina is in talks with the government for funding and is seeking suppliers of crude oil and financial partners for these projects. The company, which was established in 1957 as PT Permina and renamed as PT Pertamina in October 2003, has business interests in both upstream and downstream activities.

The company recently announced that it will spend nearly $1 billion to overhaul its upstream facilities and infrastructure to increase output. PT Pertamina expects to produce 171,200 BBL/d in 2009, which will be amount to a 7% increase in refining output compared with last year. The firm will invest $541.6 million in Pertamina EP (Jakarta), a fully owned subsidiary involved in the production and sale of oil and gas products. Pertamina EP and Pertamina Hulu Energi (Jakarta, Indonesia) are the two main contributors to the company's upstream business. Pertamina Hulu Energi undertakes upstream operations through the partnership model. PT Pertamina had deferred investments in Pertamina EP, which accounts for 80% of the firm's oil and gas output, because of liquidity issues. The proposed investments will be made in the Tambun gas fields in west Java and Liman oil fields in south Sumatra. The targets for refining output from the two firms for 2009 have been set at 132,250 BBL/d for Pertamina EP and 39,000 BBL/d for Pertamina Hulu Energi, amounting to an increase of 5.4% and 10.25%, respectively, over targets set in 2008.

PT Pertamina also plans to acquire shareholding interests in the Mahakam block owned by Total SA (NYSE:TOT) (Paris) and the deep water gas fields belonging to Chevron (NYSE:CVX) (San Ramon, California), both located in east Kalimantan, and oil fields located at the western Madura block in east Java.

In another move, Indonesia's government concluded a contract with ExxonMobil (NYSE:XOM) (Irving, Texas), the present operator of the Natuna block, and awarded PT Pertamina the rights to start exploration at the site. The government plans to make the operations more competitive by opening the Natuna block to more than one operator. Among other companies, Norway's StatoilHydro (NYSE:STO) (Stavanger Norway), CNOOC Limited (NYSE:CEO) (Beijing, China) and Shell (NYSE:RDS.A) (The Hague, The Netherlands) have been short-listed to bid for exploration of the $39 billion Natuna block. The Indonesian government has also been negotiating with Shell to move its refining operations from Singapore to Batam in Indonesia. About 192,000 new jobs are likely to be created if Shell were to move its 320,000-BBL/d refining facility to Indonesia.

According to the Oil and Gas Journal of Houston, Texas, oil reserves in Indonesia in 2007 were about 4.3 billion barrels. However, oil production has declined because of aging oil fields and limited efforts expended in exploration. Indonesia relies on imports to meet 38% of its total demand for oil. In 2007, the total fuel demand was 364.8 million barrels, of which the country produced 226.1 million barrels and imported 138.7 million barrels. In 2008, the country imported 142.1 million barrels to fulfill its domestic demand of 369.3 million barrels. In 2008, domestic production increased by 0.48% while imports increased by 2.3% against figures in 2007. With expansion of current facilities and development of new refineries, PT Pertamina hopes to make Indonesia energy-independent in the future by creating sustained domestic sources for fuel.

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