Pertamina eyes Iranian oil for Cilacap refinery

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)