T

he Energy and Mineral Resources Ministry is planning to develop small-scale refineries to process crude oil from marginal wells into fuel products for domestic consumption.

The ministry'€™s director for oil and gas, Agus Cahyono Adi, said the plan foresaw the construction of eight mini refineries.

'€œThe mini refineries will be located near marginal fields, so that transportation costs will be lower and the product can be sold directly to consumers in the areas. They will only be able to produce diesel fuel,'€ Agus said.

He added that the mini refineries would also be able to help mature fields, which are usually located in remote areas and only produce low volumes, continue production despite the current low price of oil and derivative products.

Developers of the mini refineries, which are expected to have a capacity of around 10,000 barrels per day each, will be selected by open tender.

'€œWe will offer the opportunity to develop [the refineries] to both state-owned and private enterprises, as long as they have the licenses to process fuel. The mini refineries are also expected to help the country improve its oil and gas lifting,'€ Agus added. The refineries are expected to absorb crude oil belonging to the government and the respective fields'€™ contractors.

Under the existing production-sharing contract system applied in the country, oil and gas output is shared to agreed parts between the government and the private firms operating the blocks.

To date, the country has six main refineries operated by state-owned Pertamina, namely Balikpapan in Kalimantan, Balongan in West Java, Dumai in Riau, Cilacap in Central Java, Plaju in South Sumatra and Kasim in West Papua. The refineries process both crude oil produced by domestic fields and imported crude.

Indonesia, which recently re-activated its membership at the Organization of Petroleum Exporting Countries (OPEC), has been struggling to meet oil production targets amid declining production as fields have matured or become depleted.

To satisfy rising domestic demand, the country is forced to import huge amounts of crude oil and petroleum products.

Figures from the Upstream Oil and Gas Regulatory Task Force (SKKMigas) show that oil lifting reached 777,560 barrels per day (bopd) in 2015, lower than the target of 825,000 bpd stipulated in the state budget.

This year, the target is set at 830,000 bpd and has yet to be revised, although worries are growing that lower investment due to the price plunge will affect output.

Pertamina welcomed the mini refineries plan, but said it expected the products to be fully absorbed by consumers near the fields, so that transportation costs would not jeopardize the projects'€™ financial viability.

'€œMoreover, the refineries will need wax reduction facilities, so that the diesel fuel can be used and won'€™t clog up vehicles'€™ fuel systems, as occurred in the TWU [Tri Wahana Universal] refinery,'€ Pertamina marketing director Ahmad Bambang said.