Securing the downstream petroleum industry<\/p>\n
Totok Sugiharto, Strategic Planning, PT Elnusa, Jakarta<\/p>\n
With growing competition and deregulation, the rules of the
\ngame in the downstream petroleum industry in Indonesia will
\nundergo some major changes in the next few years. The revolution
\nin the downstream petroleum sector (crude oil and petrochemical
\nrefineries, transportation, storage and bunkering, trading and
\ndistribution) has brought free-market dynamics to the structure
\nof the industry and the strategies of various players.<\/p>\n
Deregulation of the downstream petroleum industry will
\nundoubtedly lead to battles for market share, with new players
\nattempting to gain shares from current incumbents. To succeed in
\nthis battle, what will be the most effective strategies for
\nPertamina in the few next years?<\/p>\n
Following the new oil and gas law (No. 22\/2001) there is the
\npotential for new players as well as for Pertamina to build a
\nstrong downstream petroleum business.<\/p>\n
To develop a strong position in the Indonesian futures
\nmarkets, a key imperative is to understand market psyche,
\nbehavior and need. Segmentation of demand is a powerful tool to
\nhelp identify the most profitable areas, and to develop a supply
\nline that meets consumer needs more efficiently and effectively
\nthan the existing competition.<\/p>\n
In current market analyses, geographic and demographic
\nsegmentation is more often used, such as potential Indonesian
\nconsumer population data based on geographics, with Java making
\nup 64 percent of the national demand for petroleum products that
\nhave been identified as the most profitable segments.<\/p>\n
Petroleum consumers daily use about 920,000 barrels of refined
\nfuel, whereas about 85 percent of demand is produced by seven
\nrefineries owned by Pertamina. This means the rest is imported by
\nthird parties, which indicates an economy of scale amounting to
\nUS$1.28 billion each year (one barrel of fuel is equivalent to
\n$25). Whoever captures this market could become a major market
\nplayer in the future.<\/p>\n
Over the last three decades, Pertamina has played a central
\nrole in the national petroleum industry, since its authorization
\nthrough a 1971 law, encompassing the entire spectrum of the
\nbusiness from exploration and production, the refining of crude
\noil and petrochemicals, fuel distribution and trading,
\ntransportation of crude oil and refinery products, pipelines and
\nstorage.<\/p>\n
In November 2001, the government enacted a new regulation,
\nnamely UU No. 22\/2001, and Pertamina was to be transformed from a
\ngovernment-run organization to a state-owned enterprise. However
\nwhat will Pertamina's role be after the implementation of this
\nregulation?<\/p>\n
A new government regulation stipulated that Pertamina was no
\nlonger assigned to manage production-sharing contractors, who are
\nnow supervised by the Implementing Body, or BALAK.<\/p>\n
Thus, Pertamina's role was reduced to only stocking and
\nsupplying fuel and refined products, as well as profit-oriented
\nactivities. As with other oil and gas companies, Pertamina now
\nhas two main activities in the upstream and downstream areas.<\/p>\n
After the implementation of the new law, Pertamina's
\ndownstream business activities will not be engaged in the same
\nactivities, because these roles will be managed by a regulatory
\nboard (BATUR) that orchestrates and controls the stocking and
\nsupplying of refinery products.<\/p>\n
Pertamina will only be one of the players under the
\nsupervision of this regulatory board. In the refining of crude
\noil, Pertamina now operates seven crude oil refinery plants,
\nwhich does not include management arrangements for national
\nrefinery plants, and detailed regulations must still be prepared.<\/p>\n
As an archipelago, fuel distribution to remote areas requires
\na tanker fleet and pipelines, which Pertamina owns. Further
\npipeline transportation will be an effective and efficient
\nalternative medium of transportation. But investment costs for
\nconstructing pipeline networks are very large.<\/p>\n
In terms of storage, Pertamina operates transit terminals,
\napart from, among others, inland depots and small depots on
\nisolated islands in the eastern region. When considering the
\nimproved efficiency of these facilities, it would be impossible
\nfor Pertamina to maintain its role as a sole operator.<\/p>\n
In trading, nowadays most petrol stations are privately owned,
\nbut all operations are still controlled by Pertamina because they
\nsell Pertamina's products. With the existence of new players and
\nbetter competition, these petrol stations no longer have to sell
\nPertamina's products. Considering that these retail functions
\nrepresent \"the money-making\" part of the downstream industry,
\nPertamina has a strong interest in controlling its \"retail\"
\nparts.<\/p>\n
Based on market analysis and the perceived role of Pertamina
\nafter the oil and gas law, we can determine the following future
\nbusiness opportunities:<\/p>\n
oAnyone will be able to trade and import petroleum products;<\/p>\n
oThe Indonesian captive market will become more open, especially
\nthe areas left by Pertamina;<\/p>\n
o After its restructuring, Pertamina will need \"shadow
\ncompanies\", or players to secure the supply of petroleum
\nproducts;<\/p>\n
Pertamina will need to strengthen its market structure to
\nensure it does not lose its current captive market in the
\ndownstream industry. For this purpose, the following are
\nsuggested:<\/p>\n
First, Pertamina should operate seven crude oil refineries,
\nincluding petrochemical refineries, in line with operation
\ncontrols to secure the supply of fuel and refined products
\nthroughout Indonesia. These assets could become a basic capital
\nresource to support Pertamina's other downstream activities.<\/p>\n
Second, operational and investment costs for tanker
\ntransportation are very large; after implementation of this act
\nPertamina should not manage transportation anymore, but should
\noutsource this service to third parties. However, choices for
\noutsourcing transportation equipment must be assessed carefully,
\nbecause Pertamina should not carry large fixed costs, especially
\nwhile preparing for real competition in the downstream sector.<\/p>\n
Third, pipelines could be also outsourced and the operational
\ncontrol could be handled by other parties or subsidiaries, while
\nPertamina and other players could use these facilities together.<\/p>\n
Fourth, storage facilities represent the most important link
\nin the chain of the downstream petroleum industry, and could be
\noutsourced as well. With the justification of operational
\ncontrol, these functions could be transferred to subsidiaries,
\nand Pertamina and other players could also jointly use these
\nfacilities.<\/p>\n
Finally, in trading, Pertamina should have direct control,
\nespecially in the management of petrol stations. These facilities
\nrepresent the \"money-making\" aspect of the downstream petroleum
\nindustry. Meanwhile, commercial aspects in other refined products
\ncould use existing lines, through traders and distributors.<\/p>\n
PT Elnusa is a subsidiary of Pertamina.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/securing-the-downstream-petroleum-industry-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }