More oil refineries needed to meet increasing demand

More oil refineries needed to meet increasing demand

JAKARTA L(JP): Indonesia is in dire need of new oil refineries
to meet the growing demand for oil products, Minister of Mines
and Energy Ida Bagus Sudjana said here yesterday.

Speaking at the Indonesia Summit 1996, Sudjana noted that
domestic demand currently outstrips the supply from domestic
refineries.

"To create energy security and avoid imports of oil products,
new oil refineries need to be set up as soon as possible to meet
the high growth in domestic demand for oil products," Sudjana
said.

Sudjana said Indonesia currently still had shortfalls in oil
products, especially in avtur (a gas for aviation, kerosene,
gasoline, automotive diesel oil, industrial diesel oil and fuel
oil. However, it enjoys a surplus in avgas (another gas for
aviation).

Nearly all refining in Indonesia is carried out by state-owned
oil company Pertamina through its seven refinery facilities which
have a combined processing capacity of close to one million
barrels of crude oil per day.

Sudjana said Pertamina would consider building one more oil
refinery, which will probably have a processing capacity of
125,000 barrels of crude oil per day.

He said at least 37 private companies have applied to build
refineries.

He added that the government had approved several private oil
refinery projects, including those in Pare-Pare, South Sulawesi,
as well as Probolinggo and Gresik, both in East Java.

According to the Investment Coordinating Board, the government
last year approved seven refinery projects worth $12.7 billion.

To facilitate private investment in the country's oil refinery
industry, Sudjana said, the government is currently drafting new
oil and gas laws to replace the law number 44/1960 and law number
8/1971.

"The proposed law will basically open the downstream oil
industry to the market mechanism, allowing private parties to
enter the oil refinery, transportation, distribution and retail
business," Sudjana said.

However, the proposed law won't change the present dominance
of Pertamina in the upstream oil industry, which consists of
exploration and production.

Sudjana warned that if Indonesia could not reduce oil
consumption in the near future, Indonesia would become a net
importer of oil by the turn of the millennium.

Meanwhile, Baihaki H. Hakim, president of PT Caltex Pacific
Indonesia, the largest local oil producer here, predicted that
energy demand in Indonesia would almost double in 10 years to
about 820 million barrels of oil a year.

Barring any dramatic change in current trends, demand for oil
will increase at a phenomenal rate, with the economy growing at a
rate of over seven percent per annum and electricity consumption
growing at an annual rate of about 15 percent.

Oil currently supplies 65 percent of Indonesia's domestic
energy needs. By 1998, about 52 percent of energy will come from
oil, 17 percent from coal, 24 percent from gas, 5 percent from
hydropower and 2 percent from geothermal steam.

Indonesia currently has estimated reserves of 70 billion
barrels of oil and 200 trillion standard cubic feet of gas which
are in identified basins.

However, proven reserves stand at only 10 billion barrels of
oil and around 115 trillion standard cubic feet of gas.

Sudjana said Indonesia would need US$3.5 billion a year to
maintain the current level of reserves, of which 1.5 billion
would go towards exploration, and $2 billion towards development
and production.

Baihaki said that the growth of the upstream oil industry
would probably slow down, because large reserves are difficult to
discover, costs are relatively high due to the limited
infrastructure in remote and isolated areas, and the relatively
low level of world oil prices.

Yet Sudjana was upbeat about the prospects of the upstream oil
industry because an average of 13 exploration contracts were
singed annually.

He promised that the government would continue to improve the
investment climate in the oil upstream operations to attract more
investment in the sector.

He said that his office is considering new incentives to
attract oil investment in eastern parts of the country as oil
exploration costs in this region are considered high. (rid)

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