Pertamina eyes Iranian oil for Cilacap refinery

JAKARTA (JP): State oil and gas company Pertamina said on Wednesday it planned to import Iranian crude oil to supply its Cilacap refinery, in a move that could lead to the replacement of Saudi Arabia's more expensive crude.

Pertamina president Baihaki Hakim said the company might switch its crude supplier for the Cilacap refinery from Saudi Arabia to Iran, because of the latter's cheaper product.

Arabia's state oil company ARAMCO, he said, supplies Cilacap with crude under a long term contract of six months.

"As of now, we're still in negotiation with ARAMCO and the Iranian Oil Company," he told reporters at the sidelines of a hearing before the House of Representatives Commission VIII for environmental, science and technology affairs.

The hearing was held to discuss details of the new oil and gas bill with Pertamina and the Ministry of Energy and Mineral Resources.

Baihaki said that a deal with Iran would require Pertamina to purchase at least between four and six cargoes of crude. One cargo consists of some 1.8 million barrels of oil, he explained.

He said that ARAMCO supplies Cilacap with some 120,000 barrels of oil per day (bpd), which is 3.6 million barrels per month.

"So a purchase of 7.2 million barrels of oil (four cargoes) should be good enough for a couple of months," he said.

According to him, a deal with Iran could be expected by the fourth quarter of this year at the earliest.

Asked whether Pertamina sought to replace all of ARAMCO's crude supply to Cilacap, he said "not just yet, finding oil out there isn't easy."

"We'll have to talk this over with ARAMCO, they have been our partners all this time. Yes, some people say their oil is too expensive, but that's negotiable," he went on.

He added that the cheaper Iranian oil doesn't necessarily mean it meets Cilacap's requirement.

"Cilacap's design spec (specification) is for Arabian light oil, so we must be careful," he warned.

Baihaki explained that the crude from ARAMCO supplied to Cilacap produces the right proportions of fuel products like kerosene, premium gasoline and diesel oil for Indonesia's needs.

Changing the type of crude oil could cause the proportions of these to alter, he said.

"Indonesia needs premium gasoline, solar and kerosene. That's our priority; if we lack these we must make up for the shortfall through imports," he said.

The Cilacap refinery has two distillation units which have a combined monthly production capacity of 1.7 million barrels of premium gasoline and 1.98 million barrels of automotive diesel fuel.

Pertamina, Baihaki said, was studying the possibility of Iranian crude replacing Arabian light crude at Cilacap.

The company had also sent a delegation to Iran for further talks on this matter with its national oil company.

He said that earlier, the Iranian government had offered Indonesia the opportunity to purchase its oil directly from the country.

The idea to purchase crude from Iran resurfaced after Baihaki was informed about a local company proposing to arrange a deal with Iran.

The company, whom Baihaki identified as Setco Group, controlled by businessman Setiawan Djodi, charged a service fee of 10 U.S. cents per barrel on top of the oil's market price.

He explained that such oil brokerages were normal in dealing with Middle East oil producers, where a direct approach was sometimes ineffective.

But Baihaki said he rejected the proposal, as Iran had already offered to sell its oil directly, without an intermediary.

"If we can buy the oil directly and more cheaply, why should we waste our money on third parties?" he said.

Nonetheless, he said, the proposal reminded him to ask whether Iran's offer was still valid, upon which Iranian officials said they had not backtracked on their offer.

Apart from importing fuel to cover shortfalls in supplying the market directly, Pertamina also relies on imported crude oil to feed its refineries.

Fuel output from Pertamina's refineries averages some 880,000 bpd, as against national consumption of 1.08 million bpd. To make up for the shortfall, Pertamina imports fuel at a cost of around $1.75 billion per year.(bkm)