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Indonesia's fuel self-sufficiency to weigh on regional fundamentals

Singapore — Indonesia -- a key importer of oil products and the region's largest buyer of gasoline -- is staying focused on aiming for fuel self-sufficiency, despite the recent fall out between the country's state-owned Pertamina and Saudi Aramco over the Cilacap Refinery Development Master Plan.

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The Cilacap RDMP project aims to expand the capacity of the plant to 370,000 b/d, from the current 348,000 b/d, as well as boost gasoline and diesel output to 138,000 b/d and 137,000 b/d, respectively. Currently, Cilacap produces 59,000 b/d of gasoline and 82,000 b/d of diesel.

In an official statement released end-April, Pertamina's vice president of corporate communications, Fajriyah Usman said the company was conducting "another strategic partner search", ending a near four-year long discussion with Aramco, which began with both signing a memorandum of understanding in May 2016.

Usman also stressed that Pertamina is determined to "independently develop the Cilacap RDMP", even without Aramco.

Aside from the Cilacap RDMP, Pertamina's other strategic project, the Balikpapan RDMP, remains on track. As of late-May, progress of the Balikpapan RDMP had reached 16.32%, and upon completion in 2026, will see the refinery's capacity increase to 360,000 b/d, from 260,000 b/d currently.

A SELF-SUFFICIENT INDONESIA

While Indonesia's self-sufficiency goal is beneficial, it does not bode well for regional markets, which have long looked to the country to soak up supplies of motor fuels.

Indonesia is Southeast Asia's largest buyer of gasoline, importing an average of around 10 million barrels of gasoline a month in 2019, up from 9.8 million barrels/month the year before.

"If Indonesia cuts its requirements, the [Asian] gasoline market is in for trouble. One thing that is providing comfort is that Indonesia's shift will most likely be gradual," a second gasoline market source said.

The impact of Indonesia's demand for gasoline can be clearly seen during the Muslim fasting month of Ramadan, with activity peaking during the Eid al-Fitr festivities.

In April 2019, the country's gasoline imports surged 27.56% on the month to 12.236 million barrels, Statistics Indonesia's data showed, which was reflected in the strength of the region's gasoline complex. The benchmark FOB Singapore 92 RON gasoline crack spread against front-month ICE Brent crude futures averaged $7.25/b in April 2019, up from $5.79/b in March 2019, S&P Global Platts data showed. However, April 2020 bucked the trend as government mandated movement restrictions muted demand.

In September 2018, Indonesia shifted to a mandatory B20 program, which called for 20% of biodiesel to be blended with gasoil for use as motor fuel diesel. Its biodiesel policy has remained on track since then, operating under a multi-year road map that calls for increasingly higher amounts of biodiesel to be blended into gasoil.

Indonesia transitioned to the B30 program at the start of this year, with the government already having announced it is targeting to introduce a B50 program by 2021.

This push has led to a steady decline in Indonesia's gasoil imports, with traders saying that the inevitable drop over the next few years will have a bearish impact on the gasoil market.

Industry sources also drew comparisons with the country adhering strictly to the jet fuel/kerosene import ban policy that was set in place by President Joko Widodo's administration in April 2019. The move saw zero jet fuel/kerosene imports from Indonesia for 11 straight months until March 2020, data from Statistics Indonesia showed

Indonesia imported 11,680 mt of jet fuel in March, spurred by production cuts at local refineries and plunging regional jet fuel prices, industry sources said.

A CHALLENGING ENVIRONMENT

Nevertheless, the challenge brought about by the coronavirus pandemic has been massive, with Pertamina being dealt a double whammy on both the domestic and regional fronts.

The government's movement restrictions have curtailed Pertamina's fuel sales and revenue, which was evidenced during the peak Eid al-Fitr festivities when its gasoline and gasoil sales averaged around 77,140 kiloliters and 11,656 kl, respectively, an 18% and 71.8% decline compared with overall sales over January to February, the company said in a separate statement at end-April

Meanwhile, severe demand destruction in the region, forced Pertamina to lower crude and natural gas output. Indonesia's combined crude oil and gas production reached 1.75 million b/d of oil equivalent over January-March, comprising 701,600 b/d of crude and 5.9 Bcf/d of natural gas, down 10% from the 1.95 million boe/d target, Platts previously reported.

"With [Pertamina's] revenue expected to be lower this year due to COVID-19, Pertamina will naturally be more cautious in its expenditure, much like other oil and gas companies across the world," one Singapore-based source also said.