Rising Fuel Demand, Indonesia Needs More Oil Refining Capacity
Fuel demand in Indonesia already reached 1.6 million barrels per day (bpd). However, oil refining capacity only stands around 1.1 million bpd, implying that 43 percent of fuel consumption in Indonesia needs to be imported from abroad. Oil refining capacity today is roughly the same as it was 15 years ago, meaning that there has been limited progress in development of Indonesia's downstream oil industry. Without adding refining capacity, Indonesia is on track to become the world's largest fuel importer within the next decade.
Indonesia currently has six oil refineries, all operated by the nation's state-owned energy company Pertamina. Pertamina CEO Dwi Soetjipto, who was recently removed, continuously emphasized the need to boost investment in Indonesia's downstream oil industry. Stagnating investment is reflected by the fact that Pertamina has not built a new oil refinery in the last quarter of a century. It is often mentioned that Indonesia should take an example of Singapore where oil refinery capacity stands at 1.5 million bpd, while domestic fuel demand is only around 150,000 bpd.
It should also make investment into Indonesia's upstream oil sector more attractive when the crude oil output can be processed domestically. The reason why Indonesia whole oil industry has more-or-less been in a state of decline over the past two decades is due to a lack of investment in oil exploration. Weak investment in this sector is generally attributed to tough bureaucracy and an unclear and uncertain regulatory and legal framework.
Provided the construction of two new oil refineries - one in Bontang (East Kalimantan) and one in Tuban (East Java) - is completed by 2023 (each good for 600,000 bpd) then Indonesia's total installed oil refining capacity will touch around 2 million bpd in the same year. However, this will most likely not be enough to meet domestic demand. Earlier, I Gusti Nyoman Wiratmaja, Director General of Oil & Gas at Indonesia's Energy and Mineral Resources Ministry, predicts that the Indonesian people will consume 2.6 million bpd of fuel by 2025. Despite the continuous need for fuel imports, the need to import crude oil (required to be processed in the refineries) remains as well, and thus will continue to put pressure on the trade balance (and rupiah exchange rate).
Meanwhile, the existing six oil refineries of Pertamina are also scheduled to get a facelift (expanding their refining capacity). However, this will require big investment and that is what makes Pertamina eager to seek foreign partners. There is, however, a big advantage for Pertamina to have a well developed downstream segment within the company's business structure as it is also eager to acquire oil fields abroad. Former Pertamina CEO Soetjipto said it makes it easier to win tenders abroad because Pertamina has plenty of refining capacity. The state-owned company plans to boost oil production to 438,000 bpd in 2017, with most of the growth expected to originate from acquisitions in Russia, Iran, and Iraq.
Pertamina's Oil Refinery Capacity:
| Refinery | Location | Capacity (1000 bpd) |
| Dumai | Riau (Sumatra) | 170.0 |
| Plaju | South Sumatra | 109.0 |
| Cilacap | Central Java | 340.0 |
| Balikpapan | East Kalimantan | 260.0 |
| Balongan | West Java | 125.0 |
| Tuban | East Java | 92.0 |
| Combined Total | 1,096.0 | |
Source: Investor Daily
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Foreign investors for refining is impossible because maintenance and operation of a refinery requires skilled labor and experience ; Indonesia does not have the people to run and repair the equipment properly.
Pertamina refineries has never joined the world rating system for refineries because they are afraid to see how their refineries compare to world standards.