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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