Pertamina CEO says it may invest in overseas refinery

Indonesia’s state-owned oil and gas company PT Pertamina may invest in an overseas refinery for the first time to help meet the rising fuel needs of Southeast Asia’s largest economy, its new CEO told Reuters. He said Pertamina was also studying the option of being a shareholder in an existing refinery.

The quest for oil processing capacity abroad is partly spurred by a dearth of investor interest in building refineries in Indonesia, a result of unfavourable investment conditions set by the government, said Dwi Soetjipto.

“We may acquire a refinery overseas, but its (production) would be dedicated to us,” said Soetjipto, who was appointed to his post last November.

“We will look for an opportunity now because a lot of (refineries) have been offered for acquisition,” he added.

Indonesia’s total refinery capacity was more than 1.1 million barrels per day (bpd) at nine refineries. Meanwhile, Indonesia’s petroleum consumption reached more than 1.6 million bpd.  Because of higher operating costs at its aging refineries, it is often cheaper to import finished products rather than to process crude oil locally.

Since the construction of the Balongan refinery in 1994, no refineries have been built in Indonesia. The Minister of Energy and Mineral Resources unveiled plans to build two refineries in Bontang City, in East Kalimantan, and in August 2012, Indonesia approved plans for a third refinery. Each plant is slated to have a production capacity of 300,000 bpd.

Recently, it signed agreements with several overseas firms to help upgrade its refineries, so as to double domestic fuel production by 2023.

Meanwhile, Indonesia’s domestic fuel consumption is increasing by 5% a year.

Indonesia’s move to shift the burden of fuel subsidies to Pertamina has cut into its capacity to invest, Soetjipto said. From January to February, the firm lost USD 72.5 million on lower fuel prices established by the government.

Because of these “difficult conditions,” Pertamina has reduced its investment plans this year from USD7 billion to USD 4.5 billion, Soetjipto said.