T

he government is set to start stockpiling crude oil this year as it finalizes the legal basis to stipulate the provision of an oil reserve in anticipation of any energy crisis.

A fund of Rp 800 billion (US$61 million) has been allocated in this year’s revised state budget for the reserve, with the government prioritizing the stockpiling of crude oil over refined fuels due to the former’s longer shelf life.

“The purchase of crude will be funded entirely by the state budget and it is a priority because crude can be stored for six to eight years before it has to be processed. Meanwhile, refined fuels constitute a dynamic stock and have to be sold every seven to eight days,” Energy Security Board (DEN) member Andang Bachtiar told reporters on Thursday.

The DEN is a government-sanctioned body tasked with designing the country’s energy strategy. It is formally chaired by the President and co-managed by representatives of relevant ministries with the energy and mineral resources minister serving as executive chairman.

The government is planning to take advantage of the current global oil prices, which have risen since the beginning of the year but have yet to reach the $60 per barrel mark. On Thursday, West Texas Intermediate (WTI) traded at $45.77 per barrel, while fellow benchmark Brent traded at $47.15 per barrel, according to Bloomberg.

The Energy and Mineral Resources Ministry’s director general for oil and gas, IGN Wiratmaja Puja, said that the allocated funds would allow for the purchase of around 1.2 million barrels of crude, or the equivalent of one day of national demand, with an assumed crude price of $50 per barrel.

Eventually, the government hopes to have a 30-day reserve, which would require a budget of Rp 8 trillion to Rp 9 trillion annually for the next five years.

He added that the stockpiled crude, purchased from abroad, would be stored in idle tanks, which were deemed to be still suitable for storage.

“We have found that there are storage tanks with an equivalent volume of 4.5 million barrels that are still suitable for storing crude. As we build up our stocks, we may have to rent out tanks currently being used by oil and gas companies. The most important issue is to make sure the tanks are near refineries,” Wiratmaja said, declining to disclose the locations of the available storage tanks.

Many countries have a crude and refined fuel reserve set aside for emergency situations. For example, the US has a fuel reserve of seven months, while Japan has one of six months. Neighboring Southeast Asian country Myanmar has a reserve of four months, while Thailand has a reserve of 80 days.

Indonesia currently only has an operational oil reserve under state-owned oil and gas company Pertamina, of approximately 23 days. However, Indonesia does not have a national crude and refined fuel buffer.

Wiratmaja added that in addition to a reserve the Energy and Mineral Resources Ministry will soon issue a regulation calling on all oil and gas companies operating in the country to start building up their own operational oil reserves.

“We are still composing the ministerial regulation but companies will be asked to build up their operational reserves gradually. First for five days, then for 10 days and later 15 days,” he said.

Indonesia recently gained associate membership of the International Energy Agency (IEA), allowing it to create stronger links with oil producers outside of OPEC. IEA executive director Fatih Birol recently said that he was willing to help connect Indonesia with other oil producers in order to buy cheaper supplies while the prices remained low.

The government may have to move quickly if it hopes to take advantage of the low prices. The IEA has predicted a drastic cut in production by non-OPEC producers by almost 1 million barrels of oil per day, which may force crude prices to rise.

“Oil is perhaps the most strategic commodity in any country for its daily economic life. Just think, if there was a disruption of oil supplies, the entire transportation system and mobility would come to a stop. Therefore, it is important for the country to have a stockpile for a rainy day,” he said.