By Gawoon Philip Vahn, Eesha Muneeb and Anita Nugraha |
— Indonesia recently decided to source all of its heavy crude oil requirements from domestic field operators as Jakarta continues to find ways to cut its hefty energy import bills — a move that could put an end to the country’s dependency on African and South American supplies.
Indonesia imported around 25 million barrels of crude over January-April, almost 50% lower than 48 million barrels received during the same period a year earlier, as the country sharply increased the use of domestic heavy sweet crude, a senior official at state-run Pertamina said.
As Southeast Asia’s biggest economy battles against lofty current account and trade deficits, Pertamina agreed late last month to buy 137,000 b/d of domestic crude from 32 oil and gas upstream companies operating in Indonesia, including Energi Mega Persada, PetroChina, Saka Energi and Petronas.
The most significant purchase agreement was the deal with Chevron Pacific Indonesia, which will regularly supply domestic heavy sweet grades including Duri and Minas for the rest of the year, Pertamina’s Vice President Corporate Communication Fajriyah Usman said.
The latest deal was an extension to the crude purchase agreement signed earlier for the first half of 2019. Pertamina had initially agreed to buy Chevron’s equity barrels from its Rokan block in Central Sumatra at an estimated volume of 2.5 million barrels/month over January-June.
Indonesia could save $1.4 billion in energy import bills this year by sourcing heavy crude from domestic field operators rather than external suppliers, Usman added.
Indonesia’s self-sufficiency in heavy sweet crude will likely raise alarm bells among South American and African suppliers as Pertamina has been importing fuel oil-rich grades from South Sudan, Brazil, Argentina and Gabon.
Pertamina issues at least one spot tender every month, seeking various light sweet and heavy crude grades for delivery into the Cilacap, Balikapapan and Balongan refineries.
The state-run oil and gas company typically seeks heavy crude grades including South Sudan’s Nile Blend and Dar Blend, Gabon’s Rabi Export Blend, Brazil’s Lula and Sapinhoa, and Argentina’s Escalante to feed its Balongan refinery complex, according to official tender notices seen by Platts over the past few years.
However, Pertamina is unlikely to invite African and South American heavy sweet crude suppliers in future spot tenders, industry and Asian trade sources said.
“Pertamina will no longer need to import heavy and super heavy crudes,” Usman said. “Pertamina would be able to cut its overall crude imports by at least 3 million barrels/month this year.”
Lofty Heavy Crude Price Differentials
Price differentials for low sulfur heavy crudes across Africa and South America have been trending sharply higher so far this year, further supporting Indonesia’s decision to make the most out of domestic heavy crude production.
For instance, the price differential for Sudanese Nile Blend crude rose to an average of minus $3.30/b against Platts Dated Brent in Q1 from an average of minus $3.96/b for Q4 2018 and minus $4.49/b in Q3 last year.
The heavy sweet African blend is frequently delivered to Southeast Asian refiners by crude oil traders as an arbitrage substitute for regional heavy sweet grades.
Argentina’s Escalante was assessed at a discount of 20 cents/b to Platts ICE Brent Futures strip Wednesday, the highest differential since Platts launched the assessment of the heavy sweet grade in Q1 2013.
Market sources in South America attribute Escalante’s strength on stronger interest for heavy sweet grades of crude ahead of the international marine fuel sulfur limit regulation in 2020, requiring increased consumption of lower sulfur refinery feedstocks.
However, industry sources and market analysts said there is a limit to how much Indonesia could save on its overall energy import bills by slashing crude purchases as the country continues to depend heavily on oil products, as well as light crude and condensate shipments from overseas.
Indonesia’s auto fuel imports have been trending higher as Pertamina is only able to produce 700,000 b/d equivalent of fuel that is insufficient to meet domestic oil products demand of 1.4 million b/d.
In addition, Indonesia regularly imports around 1 million-2 million barrels/month of condensate to feed the Trans Pacific Petrochemical Indotama aromatics complex at Tuban in East Java as the country does not produce enough ultra-light crude suitable for TPPI’s condensate splitter.
“We remain open to importing light and medium crude,” Usman said.
Indonesia’s current account deficit increased to $9.1 billion in the fourth quarter of 2018, from a deficit of $8.6 billion in Q3, Bank Indonesia said in a quarterly report.
Despite the ongoing efforts to slash crude imports, Jakarta still recorded a trade deficit of $190 million in Q1 this year, according to data from Statistics Indonesia.
Written and reported by Gawoon Philip Vahn, Eesha Muneeb and Anita Nugraha
