Plans to double oil refining capacity by 2025 are advancing as Indonesia works to enhance security of supply, while reducing its fuel import bill. In May 2016 state oil company Pertamina signed an agreement with Russia’s Rosneft for the first of two 300,000-barrel-per-day (bpd) refineries and took a major step forward in the revamping of its Cilacap refinery with the award of a front-end engineering design (FEED) contract. Edwin Hidayat Abdullah, the deputy minister for energy, logistics, industrial zones and tourism at the Ministry of State Owned Enterprises, told OBG, “We expect to increase our total refining capacity to 2.2m bpd by the end of 2025 through upgrades to existing refineries and the construction of new facilities.”

Growing Demand 

The heightened focus on domestic refining comes in the context of rising demand for petroleum products and falling crude production. Total domestic fuel demand currently stands at around 1.6m bpd, but could rise to as much as 2.25m bpd by 2025, according to Pertamina. Petrol demand is projected to grow by about 8% per year until 2025, while diesel consumption will rise by about 5% per year. At present, Pertamina owns and operates six refineries with a nameplate capacity of 1.05m bpd, but currently refines less than 50% of national demand due to the age of its facilities, which no longer run at full capacity. As a result, the country imports around 1m bpd of fuel products from Singapore.

At the same time, domestic crude production is projected to decline, with the total state entitlement volume estimated by Pertamina at only 449,000 bpd as of 2020. Thus, the state oil firm will increasingly need to turn to imports. Given that sour crude is cheaper than the sweet crude produced domestically, Indonesia is expected to import significantly higher volumes of the former, which will require existing refineries to be reconfigured as all six were designed to process only sweet crude with a low sulphur content. To remain competitive in the changing market, these refineries will need to increase their complexity and sulphur-handling capacity, as well as adapt to more stringent product quality specifications. Abudllah told OBG, “By upgrading the refineries we can process crude with higher sulphur content, which makes more economic sense. We can then import sour crude and export our sweet crude.”

To address this situation Pertamina has sought foreign partners to assist with the upgrade of four of its existing refineries and to construct two new complexes. In support of this initiative, President Joko Widodo signed a decree in late 2015 that declared the upgrade and expansion of the country’s refining sector a top priority, with refining projects granted certain benefits, such as preferential tax rates and easy access to land.

Greenfield Projects 

The first of the new refineries is to be built in partnership with Russian oil giant Rosneft at an estimated cost of $12bn-13bn. Bloomberg reported in May 2016 that Pertamina signed a framework agreement with the Russian firm for the construction of a 300,000-bpd greenfield refinery in Tuban, East Java, with Rosneft to supply 45% of its crude feedstock. Pertamina and Rosneft plan to launch a feasibility study and set up a joint venture for the project in 2016. Basic engineering design and FEED is likely to start in 2017, followed by engineering, procurement and construction (EPC) contract awards. The project is to be completed by the end of 2021, Dwi Soetjipto, president and CEO of Pertamina, told press during the signing ceremony. The plant’s products will be 45% petrol, 30-35% diesel oil and 15-20% feedstock for petrochemicals, according to Rachmad Hardadi, Pertamina’s refineries director, who also told OBG that the plant is to be integrated with the Tuban petrochemicals plant, which is majority owned by Trans Pacific Petrochemical Indotama, a subsidiary of Tuban Petrochemical Industries. Once completed this will be the first new refinery project in Indonesia since the construction of the Balongan refinery in 1994. A second 300,000-bpd refinery is set to be built in East Kalimantan.


Additional capacity is to be achieved through upgrades to four refineries, with the aim of doubling capacity from 820,000 bpd to 1.6m bpd by 2025, as well as increasing supply flexibility to allow for sulphur handling of 2%, up from current levels of 0.2-0.4%. Pertamina also plans to improve complexity from the present average of 5 to 8-9 on the Nelson Complexity Index, and raise petroleum product quality from Euro II to Euro IV.

The first of these upgrades is to be carried out through a joint venture with Saudi Aramco at the Cilacap refinery in central Java, which is Pertamina’s biggest refinery and currently has a nameplate capacity of 348,000 bpd. Reuters reported in November 2015 that Pertamina signed an agreement with Saudi Aramco for joint ownership, operation and upgrade of the refinery, and in May 2016 awarded the engineering and project management services contract to conduct the basic engineering design study to Amec Foster Wheeler Energy. Pertamina and Saudi Aramco plan to complete the FEED phase in 2018 so that construction work can begin in 2019 for a scheduled completion by the end of 2022. The upgrade, which is estimated to cost $5bn, will bring the capacity of the crude distillation unit up to 370,000 bpd.

In addition to increased production of petrol, diesel and lubricant-base oils, the upgrade will also raise the annual petrochemicals capacity of the refinery to over 600,000 tonnes of aromatics and 160,000 tonnes of polypropylene. Output is destined solely for the domestic market. The agreement also includes a long-term supply deal with Saudi Aramco for 70% of the Cilacap refinery’s crude oil requirements. As with all its refinery projects, Pertamina has insisted on some degree of supply flexibility to strike a balance between the security of long-term contracts and being able to acquire additional supply on the spot market.

Increased Capacity 

Saudi Aramco has also been selected as a strategic partner to upgrade the 170,000-bpd Dumai refinery in Central Sumatra and the integrated 125,000-bpd Balongan refinery and petrochemicals complex in West Java. In late 2014 Saudi Aramco also signed a memorandum of understanding that gave the firm exclusivity to jointly conduct a feasibility study with Pertamina for the three refinery expansions.

Meanwhile, a consortium led by Japan’s JGC is carrying out the $392m Blue Sky project, also at Cilacap, which will double its capacity to produce 92 RON petrol to 91,000 bpd under an EPC contract awarded in November 2015. The Blue Sky project is expected to be completed in 2017 or 2018. Elsewhere, Pertamina is in the process of issuing a tender for the EPC work related to upgrades at the 260,000-bpd Balikpapan refinery in East Kalimantan. The ground-breaking ceremony for this project is expected in late 2016 or early 2017. The revamp will be carried out in two stages. Phase one, which will be completed in 2019, will increase the facility’s capacity by 100,000 bpd to 360,000 bpd, while the second phase, which is scheduled for 2020 and is expected to be completed in 2022, will expand the refinery’s flexibility, allowing it to process sour crude. Previously, Pertamina had selected JX Nippon Oil and Energy as its partner for the project; however, the firm’s estimates were considered too high and Pertamina decided to revamp the refinery on its own at a cost of $2.6bn.

Small-Scale Initiatives 

A number of private sector investments are also in the pipeline to develop small-scale oil refineries. Tri Wahana Universal (TWU) disclosed in August 2015 that it plans to build 10 “mini-refineries” each with capacity of 10,000 bpd in Sumatra and Kalimantan, on the condition that it can secure a supply of crude oil and funding for the investment, which is estimated at $1.2bn. TWU already operates two small-scale refineries in Bojonegoro, East Java, with capacities of 12,000 bpd and 6000 bpd. These refineries receive oil from the Banyu Urip field, which is operated by US-based major ExxonMobil.

Indo Kilang Prima, which is based in North Sumatra, has unveiled plans to invest $54m in the development of a mini-refinery, producing high-speed diesel, marine fuel oil, kerosene and naphtha, with a capacity of 6000 bpd. The Bojonegoro Regency government, through Bojonegoro Bangun Sarana, has also teamed up with Tierra Energi Perkasa to build a mini-refinery with capacity of 10,000 bpd of oil. The success of these projects will depend on their ability to secure stable supplies of crude.