The Jakarta Post
As part of an attempt to boost the country's energy security, state-owned oil and gas giant Pertamina will team up with three global oil refinery operators ' Saudi Arabia's Saudi Aramco, Japan's JX Nippon Oil & Energy and China's Petroleum & Chemical Corporation (Sinopec) ' to upgrade its existing oil refineries.
The memorandums of understanding (MoUs) for the partnership in the US$25 billion upgrading of projects was signed in Jakarta on Wednesday.
Under the partnership plans, Saudi Aramco will help Pertamina upgrade three refineries, namely the Dumai refinery in Riau, the Cilacap refinery in Central Java and the Balongan refinery in West Java.
Meanwhile, the partnership with Sinopec will cover the upgrade of the Plaju refinery in South Sumatra, whereas cooperation with JX Nippon will include work for the Balikpapan refinery in East Kalimantan.
Pertamina president director Dwi Soetjipto said the upgrade work would more than double Pertamina's refinery capacity to 1.68 million barrels per day (bpd) from the current capacity of 820,000 bpd.
'We hope that the upgrades will be able to fill the production shortage,' Dwi said after the MoUs signing ceremony. To meet a continued increase in future demand, Pertamina will also build new refineries, in addition to the upgrading of existing plants.
Following the MoUs signing, Pertamina and its partners will work on the projects' feasibility studies, which are expected to be completed within six months and to be followed by reviews in financing and business structures.
A principle agreement for the cooperation and the front end engineering design (FEED) are targeted to be completed by 2016, when the construction of the projects will follow, according to Pertamina senior vice president for refinery business development Iriawan Yulianto.
'The upgrades are targeted to be completed in three to four years. By 2018, we will be able to see that the upgrades have been completed one by one,' Iriawan said.
The Cilacap, Balongan and Balikpapan refineries are expected to be upgraded earlier than the other two refineries.
Indonesia, a former member of the Organization of Petroleum Exporting Countries (OPEC), currently has six refineries operated by Pertamina. Pertamina will also upgrade its Kasim refinery in Papua.
The existing refineries are now running at below optimum capacity due to age and a limited ability to process complex crude oil, forcing the country to import a huge amount of oil-based fuels and its related products.
Under the upgrading plans, Pertamina aims to increase the refineries' Nelson Complexity Index (NCI) ' which measures the conversion capacity of a refinery to its distillation capacity ' to between 8 and 9 from the current level of 5.
It also aims to increase the refineries' sulfur handling limit to around 2 percent from the current 0.4 percent, meaning that the refineries will be able to process sour crude oil.
Due to Indonesia's oil specifications, existing refineries ' except Balongan refinery ' are designed to process sweet crude oil. Declining production in domestic fields has made Pertamina consider processing sour crude.
Following the upgrades, Pertamina estimates that gasoline production will increase by 3.3 times to 630,000 bpd from 190,000 bpd, diesel production by 2.4 times to 770,000 bpd from 320,000 bpd and avtur (aircraft fuel) output of 120,000 bpd from 50,000 bpd.
The upgrades are estimated to cost $25 billion in total investment, according to finance director Arief Budiman.
Regarding oil supply to feed the upgraded refineries, Dwi said Pertamina had decided to separate the upgrade work from attempts to secure crude supply. Indonesia's oil output is currently below 800,000 bpd.
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