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tate-owned oil and gas giant Pertamina plans to scale down the operation of some of its oil refineries as part of a program to cut the operating costs of its crude-oil processing facilities.

Pertamina president director Dwi Soetjipto said on Monday that existing oil refineries would be operated only to process crude from nearby oil fields. As a result, the Plaju oil refinery in South Sumatra would, for example, be operated at only half of its production capacity, he said.

The cost-cutting measure was taken because costs for crude-oil procurement were the biggest factor in the facilities'€™ operations.

'€œWe are optimizing the refineries'€™ operation, not by closing them down but by focusing them on processing crude from nearby fields. For example, the Plaju refinery will process crude [from] near the Plaju area,'€ Dwi said.

He added that the Plaju refinery had been receiving crude oil from nearby fields, however, the volume had continued to decline as resources have been depleted. Consequently, the refinery started to receive and process crude oil from other sources, making it inefficient in terms of procurement costs.

Half of the crude processed at Plaju comes from fields near the area, while the remainder comes from other areas or is imported, according to Dwi.

The Plaju refinery has an effective capacity of processing 90,000 barrels of oil per day (bopd), according to figures from Pertamina'€™s road map of refinery development.

Beside running Plaju at half capacity with local crude-oil supplies, Pertamina is also assessing the possibility of renegotiating the price of crude oil supplied to the Kasim refinery in Papua. The Kasim refinery is considered as inefficient in terms of cost due to its distant location from the oil-resources area.

The country has six refineries operated by Pertamina with a combined capacity of over 1 million barrels. However, due to the age of the refineries, they are running below capacity. The refineries are located in Cilacap, Central Java; Balongan, West Java; Balikpapan, East Kalimantan; Dumai, Riau; Kasim, West Papua; and Plaju, South Sumatra.

Indonesia, a former member of the Organization of Petroleum Exporting Countries (OPEC), has been struggling with declining oil production as domestic fields have been depleted due to exploitation in the past. Amid declines in production, consumption of energy continues to grow and has forced the country to import significant amounts of the commodity and petroleum-based products. Growing imports, as a consequence, have contributed to widening current account deficit.

Lower production from Plaju would likely make the country import more fuel products. However, the impact of the partial operation is expected to be low because Pertamina has seen a trend of slowing fuel consumption, according to the company'€™s vice president for fuel retail, Muhammad Iskandar.

He cited that current daily consumption of subsidized diesel fuel was around 37,000 kiloliters per day, declining from more than 43,000 kiloliters per day on average last year. Meanwhile, consumption of Premium gasoline was 77,000 kiloliters per day, also declining from around 83,000 kiloliters per day on average last year.

While Iskandar addressed the declining consumption of Premium branded gasoline, whose specification is RON 88, because some consumers have changed to the higher-specification gasoline branded as Pertamax, the declining diesel-fuel consumption was partly due to the slowing economy.

'€œParticularly in the mining sector, the usage [of diesel fuel] declined and some mining firms have closed down their businesses,'€ he said, referring to the mining industry'€™s struggles over low commodity prices.

'€œBecause consumption weakens, we still have many stocks. Moreover, we made no imports of diesel fuel in the last two months due to the stocks,'€ Iskandar said.
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Beside running Plaju at half capacity with local crude-oil supplies, Pertamina is also assessing the possibility of renegotiating the price of crude oil supplied to the Kasim refinery in Papua.