INDONESIA - Indonesian Oil Imports & Regional Processing.

Pertamina imports crude oils from the Middle East - mainly from Iran, Saudi Arabia and Yemen - and from neighbouring Malaysia and Australia. Some of the grades being purchased have high distillate yields.

An important part of the crudes are being processed in the refineries of neighbouring Singapore and Malaysia for Pertamina (see background in Vol. 56, No. 11). Pertamina imports oil products from Kuwait (KPC), other Gulf refiners and the spot market.

Pertamina is the sole company purchasing crude oils and products on behalf of the state. Its trading unit, Pertamina Energy Services (Petral), does the buying from the spot market. Petral imports gasoline and gasoil mainly from Singapore, China and South Korea. But Pertamina will soon lose its monopoly over the import of crude oil and petroleum products as the domestic market will be deregulated. Pertamina, created in the late 1960s, will function as a limited liability company from next month - when its restructuring will be completed. It will be privatised as from 2005, when the local downstream sector will have been made open to foreign investment and competition. Pertamina is planning to have its initial public offering (IPO) in 2005.

In early 2003, President Megawati Sukarnoputri signed a decree setting up an agency to regulate the domestic oil market. Pertamina will retain its distribution and marketing role until fuel subsidies are removed in 2005.

Pertamina has negotiated with Iraq's State Oil Marketing Organisation (SOMO) a term deal to buy Basra Light required by its Cilacap refinery in Java. It is not clear whether such a deal has been signed and is now in effect. In April 2002 Pertamina got an E&P block in Iraq's western desert (see OMT 10).

Exports, Marketing & Pricing: Most of Indonesia's oil and condensate exports go to Japan and other Far Eastern markets. Exports to the US West Coast have declined from 62,000 b/d in 1995 to a negligible volume.

Crude oils and condensates are marketed by both Pertamina and the production sharing (PSC) operators like ChevronTexaco, Total/Inpex, PetroChina, CNOOC, Unocal, BP, ConocoPhillips and ExxonMobil. Indonesia's crude oils also trade freely on the spot market.

Pertamina issues the official Indonesian Crude Price (ICP) on monthly basis and in agreement with the producing PSC companies. The ICP is issued retroactively at the end of the month.

Most of Indonesia's refineries process local heavy/sweet crudes, like Duri and Widuri, which are waxy and have a high yield of low sulphur waxy residue (LSWR). But they are poor in middle distillates.

Indonesia cannot use most of its LSWR. It exports the residue to power plants in Japan, South Korea, Italy, etc. But markets in Japan and South Korea are shrinking, due to deregulation and Japan's lingering recession. LSWR exports should decline if new refineries in Indonesia can crack the residue. The country is importing more Middle Eastern crude oils, like low sulphur Yemeni Marib Light. It is also importing heavier crudes with a high yield of residual fuel which catalytic facilities, such as the one in Cilacap, crack into value-added gasoil and jet kerosine.

Regional Trade & Processing/Storage Role: Provided that Indonesia will not be broken up into chaotic entities in the years ahead, this country could become a more important player on the market between the Middle East and the oil consumers east of the Malacca Straits. Two major oil storage and processing projects for this have been affected by the Asian economic crisis, however.

Central factors are: the Sijori Triangle of rapid business growth, between Singapore, Riau province (Indonesia) and Johor (Malaysia), agreed on in 1992; and the Indonesia-Malaysia-Thailand Growth Triangle - IMT-GT, set up in 1994 involving North Sumatra, Malaysia's Penang and Kedah, and Thailand's southern provinces of Satun, Songkha, Yala, Narathiwat and Pattani. The two alliances, now dormant, would be revived after the region resumes rapid economic growth.

Investment from these areas and other ASEAN states would concentrate on the following: energy and industry, with emphasis on processing facilities which will be badly needed in the area when high growth rates occur; communications and transport, with the ASEAN region to need at least 100m new cars by 2010 if rapid economic growth rates resume from 2004; tourism, agriculture and fisheries, to become high-growth sectors; and free trade, with Indonesia, Malaysia, Thailand and the other ASEAN states committee to execute the Asian Free Trade Area Agreement.

In the first triangle Indonesia, Singapore and Malaysia have agreed to build a crude oil blending, storage and terminal centre on a Riau island off Central Sumatra. The Trans-Malay Peninsula Crude Oil Transaction is another dormant project (see Vol. 56, No. 11).