INDONESIA’S CLEAN PETROL HEADACHE
Pertamina may struggle to comply with Jokowi’s plan to reduce air pollution
PRESIDENT Joko Widodo is pushing ahead a plan to reduce air pollution, and his nation’s state fuel maker is struggling to keep up. While the administration run by Joko, also known as Jokowi, plans to adopt stricter emissions standards for new vehicles in October next year, the refiner that supplies 90 per cent of the retail fuel market is unlikely to finish upgrading its plants so they can process the cleaner fuel by that time.
That means Indonesia will need to boost imports of so-called Euro IV-compliant petrol next year, according to industry consultant Energy Aspects Ltd and BMI Research.
Meeting domestic demand for the cleaner petrol through its own production by next year would be difficult for Indonesia, said Peter Lee, oil and gas analyst at BMI Research in Singapore. “This means that a significant portion of its annual petrol consumption will need to be met through imports.”
Asia’s third-most populous country is the latest among regional nations including China and India to combat air pollution. Their efforts are sending ripples across the region’s energy landscape, with drivers resistant to change striking in the Philippines to South Korean refiners fearing competition will heat up.
The financial impact on PT Pertamina, Indonesia’s state oil processor, is still unclear and may rest on its negotiations with the government, which sets domestic fuel prices.
Indonesia imported 285,000 barrels per day of Euro-II petrol last year, said Nevyn Nah, an oil products analyst at Energy Aspects in Singapore. Overseas purchases would rise to 320,000 barrels per day of Euro-IV petrol next year, he said.
Pertamina was still in the middle of upgrading units and wouldn’t be able to supply the high-quality fuel for at least another four years, said BMI Research’s Lee.
He estimates that the country’s annual petrol consumption would average about 670,000 barrels a day over the next five years. Oil products imports had fallen to 23.9 million tonnes last year from 29.6 million tonnes in 2013, according to government data.
Pertamina aims to complete an upgrade of its Balikpapan refinery in 2019 and its Cilacap refinery in Central Java in 2021, after which both refineries will be able to produce fuels up to the Euro-V standard.
Until then, Pertamina would import cleaner petrol, said Gigih Wahyu Irianto, the company’s senior vice-president for fuel marketing and distribution.
The impact on Pertamina’s balance sheet remains unclear as the refinery and gas station operator is owned by the government, which regulates domestic fuel prices.
If half of Indonesia’s drivers were to buy new Euro-IV compliant vehicles next year, it would have to import 200,000 barrels a day of the petrol, said BMI Research’s Lee.
“We’re still studying the regulation,” said Daniel Purba, senior vice-president at Pertamina’s Integrated Supply Chain unit, which handles the company’s crude and fuel imports.
Still, some are optimistic Indonesia’s refineries can beat their own schedules.
Pertamina might speed up its refinery upgrades to limit fuel imports, said Josua Pardede, an economist at PT Bank Permata.
“If Pertamina can’t speed up the refinery upgrade, the government will need to import such fuel possibly until 2021 or even later through 2025,” said Josua. “That won’t look good on the country’s trade balance.” Bloomberg
Bottles of petrol for sale at a street stall in Jakarta. Overseas purchases of the cleaner Euro-IV petrol by Indonesia may rise to 320,000 barrels per day next year.