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4 April 2010

Indonesian state energy firm in $15bn new refinery project

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State oil and gas firm PT Pertamina will team up with several local and foreign petrochemical firms to build the first of three oil refineries in a massive project worth an estimated $15 billion, the Jakarta Post reported, quoting an official.

The Industry Ministry’s director for upstream chemical industries, Alexander Barus, said Indonesia would reduce its dependence on foreign refineries to produce naphtha, which is crucial as feedstock for producing high octane gasoline.

With this aim in mind, Pertamina has been instructed to team up with other companies to construct three refineries within 10 years, each estimated to cost up to $5 billion, with a total combined capacity of 900,000 barrels of naphtha per day.

The most immediate project of Pertamina and partners, Alexander said, would commence this year with the erection of a refinery in Cilegon, Banten. The other two new refineries, each with a production capacity of 300,000 barrels per day, would be built in East Kalimantan’s Bontang and East Java’s Tuban, he said.

Partners for the Cilegon refinery would include from PT Chandra Asri, the Malaysian-owned PT Titan Petrochemical, PT Trans Pacific Petrochemical Industry, PT Tri Polyta and PT Polytama Propindo.

“Right now, Chandra Asri is the [partner] that is most ready,” Alexander said.

Besides that plan, Chandra Asri — the largest domestic ethylene producer — is reportedly has a long-term plan to spend a total of $2 billion on an expansion of its oil refinery unit, including $1 billion on a naphtha cracking unit.

Meanwhile, Indonesian Olefin and Plastic Industries Association (INAplas) chairman Amir Sambodo earlier said polypropylene producer Polytama also planned to expand its production from 280,000 tons in total installed capacity to 440,000 tons, with a total investment of $20 million, by integrating its existing production facilities.

A lack of supply of naphtha, which is refined from crude oil, has made petrochemical firms unable to serve surging demand, particularly for polyethylene and polypropylene, in the domestic market.

Polyethylene and polypropylene are raw materials used to produce plastic goods such as packaging materials, electronic components, pipes, rope and tableware.

According to the INAplas, domestic supplies of polypropylene account for between 400,000 and 450,000 tons annually, while domestic demand may reach between 700,000 and 800,000 tons annually.

Shortages in polyethylene and polypropylene supplies have prompted downstream plastic manufacturers to import from other Southeast Asian countries and the Middle East, among others.

Facing pressure from the domestic upstream plastic industry, the government increased import duties on imported polyethylene and polypropylene from 10 percent to 15 percent as of Feb. 13, 2009.

Upstream plastic manufacturers argued that they were facing collapse because downstream plastic manufacturers preferred to import.


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