Indonesia looks downstream for way out

JAKARTA, November 5, 2015 – Indonesia’s Pertmina plans to refine more of its domestic oil output, the state-owned integrated energy company said on Thursday. The move is seen as a part of an effort to combat declining revenues caused by dwindling oil production.

Pertamina said it intends to have a sales tax waived that would allow it to increase oil purchases from local producers by around 200,000 barrels per day in 2016. The company will also continue to expand its foreign assets and plans to develop oil and gasfields in Algeria over the next year.

Indonesia currently processes around one half of its domestic crude production, but still has to rely on imports to plug supply gaps in products such as diesel – something Pertamina plans to directly address by expanding the use of biofuels and LPG.

The increase in domestic processing would not only help offset Indonesia’s reliance on expensive imports, but also the enhanced focus on higher-margin refined products could balance out diminishing crude export revenues caused by declining production.

Indonesia’s production peaked in 1981 at around 1.6 million barrels of oil equivalent per day (boepd), and by 2011 had fallen to fell below 1 million boepd. It is projected to continue decreasing to 600,000 boepd by 2020. In the same announcement, Pertamina said each decline of 10,000 boepd costs Indonesia around $73 million in lost revenue.

Furthermore, the country’s current reserves are estimated to last only an additional 13 years, with many of the major oil and gasfields matured and new exploration unlikely in current market conditions.

Pertamina operates all six of the country’s refineries, which have a combined capacity of around 1 million barrels per day. In late 2014, Pertamina unveiled an estimated $25-billion 10-year refinery upgrade plan that is designed to increase capacity to 1.68 million barrels per day.

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