Indonesia's PT Pertamina Plans $7 Billion in Refinery Upgrades

Researched by Industrial Info Resources (Sugar Land, Texas)--PT Pertamina (PERT:IJ) (Jakarta, Indonesia) is studying a $7 billion development master plan to increase crude feedstock flexibility for five of its refineries in Indonesia. Set to be completed by 2018, the planned modifications will allow the processing of lower-cost sour crude and improve profit margins at the refineries. In August, Pertamina signed a contract with UOP Processes International Incorporated (Jakarta, Indonesia), a subsidiary of Honeywell International (NYSE:HON), to perform a bankable feasibility study for the refinery development master plan.

Refined fuel in the country is derived from six oil refineries that process approximately 1 million barrels per day of Indonesian sweet crude; however, due to a steady decline in domestic crude oil production, the company is converting its refining equipment to utilize a greater volume of heavy crude. The UOP study will determine certain configurations that will let the refineries run most economically with the heavier crude oil.

Currently, the country relies on imports to meet local demand for diesel and gasoline. Domestic demand for refined products is increasing by an average of 7% a year due to income growth and increased car ownership. According to Indonesian President Susilo Bambang Yudhoyono in 2012, "At least three additional refineries are needed to ensure future energy requirements."

Indonesia has arrangements with foreign and domestic partners to construct nine new refineries and increase production of refined fuel by a total of 3 million to 4 million barrels per day; however, these projects are still under negotiation. By comparison, modernizing the existing refinery equipment is considered more practical to manage than building grassroot refineries. The upgrades, aimed at producing high-value products from low-value residue, could help boost Pertamina's total output by an equivalent of 200,000 barrels per day.

"The additional capacity is equivalent to the capacity of one refinery," said Chrisna Damayanto, the director for processing of Pertamina.

Although it is the largest crude producer in Southeast Asia, Indonesia faces limitations that prevent it from ensuring an efficient, sustainable fuel supply. Several options are under study, and modernization is seen as a means that could allow PT Pertamina to run at full capacity and respond to increasing domestic demand for petroleum products.

"The master plan will serve as a guideline to make Pertamina a world-class company in the downstream business," said Karen Agustiawan, PT Pertamina's president, referring to the upgrade.

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