East Kalimantan Methanol to operate later this year
By Johannes Simbolon
BONTANG, East Kalimantan (JP): The operation of Kaltim Methanol Industry's methanol manufacturing plant in Bontang, East Kalimantan later this year will cause an oversupply of methanol on the local market.
But company president Abdul Wahab said yesterday the oversupply would not last long as the new plant could stimulate the development of other methanol-based industries in Indonesia like the acetic acid industry.
"Therefore, we are not worried about the oversupply because we believe demand will soon pick up with the development of other methanol-based industries," Wahab told The Jakarta Post at a ceremony marking the completion of the company's methanol plant.
He said investment in acetic acid in Indonesia had great prospects because Indonesia so far imported most of the raw materials for garment, food and rubber industry.
Wahab said KMI would produce 660,000 tons of methanol a year starting December this year, 60 percent for export and the remaining 40 percent or about 260,000 tons for the local market.
KMI is 70 percent owned by the Humpuss Group controlled by President Soeharto's son Hutomo Mandala Putra and 30 percent by Japan's trading house Nissho Iwai Corporation.
He said the methanol plant on Bunyu island, which is currently operated by the Medco group in joint cooperation with the state- owned oil and gas company Pertamina -- the owner of the plant -- has a production capacity of 300,000 tons of methanol a year, which is sold on the local market.
The methanol plant in Bunyu was built in 1985, but faced production problems for 10 years because of natural gas supply shortages.
Medco has established infrastructure to supply gas from the nearby Tarakan.
Wahab was confident KMI could control the largest portion of the local market because it had long formed business partnerships with local buyers through its sister company Humpuss Trading.
Humpuss Trading was the sole distributor of methanol produced on Bunyu Island before Medco stopped its monopoly early this year.
"Although our competitor offers lower prices, we believe our former buyers will not leave us because we now have our own new manufacturing plant which guarantees the continuity of supply from us," he said, adding buyers' continuity of supply was more important than price.
KMI would also have no difficulty finding an overseas market in case the 250,000 tons of methanol it had allocated for the local market could not be absorbed.
According to the joint venture agreement between Humpuss and Nissho Iwai, the Japanese company will handle the sale of KMI's methanol outside Indonesia.
"The market in Asia is very big. So far, we believe we can compete with the North American and Arabian suppliers on the regional market because we pay a lower freight cost," said Wahab.
He said there were only three methanol plants in Asia -- KMI's plant in Bontang, Pertamina's plant in Bunyu and the plant in Sabah owned by Malaysia's Petronas -- which had the combined production of 1.62 million tons a year, compared with Asia's demand which reached three million tons a year.
Industrial analysts speculated that the estimated oversupply of methanol might prompt Humpuss to develop an acetic acid plant in the near future.
Wahab neither confirmed nor denied such a speculation.
In yesterday's ceremony, Wahab presented the contractor of KMI's methanol plant, Lurgi, with the certificate stating KMI accepted the mechanical completion of the plant.
Lurgi, based in Frankfurt, Germany, is one of the world's biggest hydrocarbon engineering companies.
Wahab said the plant would conduct trial operations for three months before commercial production starts in December.
"The plant has finished ahead of schedule and the cost of construction might be less than the US$350 million budget we allocated," he said.