The Indonesian Refining Sector Is Still In Need Of Expansion.

Crude oil required for Indonesia's consumption of petroleum products exceeds 1.2m b/d, while the country's eight refineries have a capacity of 992,745 b/d and this requires the country to import both crude oil and products to meet the short-fall. There are several new refining projects proposed as private ventures. The eight existing refineries are run by the state-owned Pertamina.

In August 2006, Pertamina said it would boost its oil refining capacity 20% by 2012, spending $11 bn on the sector in a move to cut costly imports. Indonesia is Asia's top diesel and gasoline importer, floating a tender each month for large spot volumes which can drive up benchmark regional prices. Indonesia was to import 10.9m barrels of oil products in December 2006, up 4.6% from November. Pertamina said it was in late 2006 to import 3.82m barrels of gasoline, down 19.1% from November's 15-month high and consistent with average monthly volumes.

Liberalisation of Indonesia's downstream petroleum sector has been under discussion for several years. Pertamina maintained its retail and distribution monopoly for petroleum products until July 2004, when the first licences for retail sale of petroleum products were granted to BP and Petronas of Malaysia. However, Pertamina maintains a dominant position in Indonesia's downstream.

Pertamina markets its fuel products throughout Indonesia. Pertamina Lubricants has lube oil blending plants (LOBP) in Jakarta, Surabaya and Cilacap with total capacity of around 573,000 kilolitres/year (2 shift/day). Pertamina is the market leader of Indonesian lubricants.

Apart from its eight refineries, Pertamina operates two LPG plants and two LNG/LPG plants. Some refineries also process non-fuels and petrochemicals. Pertamina has a sea transportation fleet to carry crude oil, fuels, LPG and LNG, as well as facilities to distribute fuel, non-fuel, and petrochemicals for domestic and export markets. These are conducted using owned and chartered tankers. The other activities are brokerage, ship agency, crewing, etc. Its marketing activities cover businesses in fuel, lube oil, LPG, LNG, aviation, petrochemicals, and other non-fuel products for domestic market. Exports and imports are done by Pertamina's trading units.

The LPG business in Indinesia has good prospects in the future because market growth and demand are relatively high. It has not given profit contribution because the market price has not reached the economical level. Pertamina in April 2006 raised the price of LPG for industrial use in a bid to cut shortage. The company's spokesman Muchamad Harun then said the hike ranged from 6,000 to 7,000 rupee (about 70 US cents) per kilo, from 4,250 rupee per kilo.

Pertamina was then buying LPG from the international market at a price of $700/ton. Harun then said: "one kilogram [of the imported LPG] is about 70 cent, or about 6,000 to 7,000 rupee". He said LPG for industry then accounted for about 30% of the country's demand for the propane/butane mix.

Rapid development of air transport is stimulating growth in the aviation business. Pertamina has the resources for the aviation business in all airports in Indonesia. Its products meet international standards.

In distributing fuel, non-fuel, LPG, and petrochemicals for the domestic market, Pertamina operates eight marketing units. Pertamina storage facilities consist of 24 onshore units, 97 sea-fed units, and 53 units for aviation. Pertamina has 1,308 tanks (maximum storage capacity reaches 13.6m kilolitres) and 1,051 kilometres of fuels pipelines.

The company has land, sea and air distribution channels. To expand its distribution network for fuels, Pertamina and partners have developed a range of supporting facilities.

Pertamina has many units and JVs operating in various industries such as hotel, upstream and downstream petroleum business support services, shipping, airlines, a dockyard, a hospital, oil drilling services, management services, contracting, supply, insurance, manufacturing, etc.

The government is still promising to open the downstream sector to full competition, although progress has been slow to date.

Indonesia historically has maintained consumption subsidies for domestic retail fuel consumers, with products being sold at a discount from world market prices. After a series of modest increases in fuel prices over the past few years, President Susilo Bambang Yudhoyono announced a sharp rollback of subsidies in September 2005.

Prices of retail gasoline and diesel rose by an average of 125% as a result. Despite this one-time move, fuel consumption subsidies still take up a sizeable portion of government expenditures. In 2006, Indonesia's oil consumption reached 1.2m b/d.