Pertamina to Upgrade Balongan Refinery without Partner

Reuters, January 30, 2017

Indonesian energy company Pertamina will proceed with an upgrade of its Balongan refinery without a partner, company officials said on Monday The decision to go it alone on the project, which is on the north coast of Java, comes after the November expiration of an initial agreement with Saudi Aramco from 2015 on upgrades of the Balongan and Dumai refineries. The state-owned Saudi oil company had expressed an interest in the project as recently as December.

"The process of forming a partnership was taking a long time," Pertamina CEO Dwi Soetjipto told Reuters, when asked why the state-controlled Pertamina had decided against working with Aramco on Balongan. "This is really needed," he said referring to the upgrade.

Soetjipto said the decision would ensure that Pertamina could avoid importing low sulphur waxy residue that would be in short supply without the upgrade. Pertamina's investment in Balongan, however, would be "less than initially planned," Soetjipto said. He said that the expansion at the refinery would be "linked to Pertamina's financial condition." The company's petrochemicals and megaprojects director Rachmad Hardadi, speaking at a briefing on Pertamina's refinery projects, said Aramco had "already accepted," Pertamina's decision. "(Aramco) have committed to speed up work on Cilacap," Hardadi said, referring to Indonesia's biggest refinery, which Pertamina is upgrading in partnership with Aramco and aims to complete this in 2021.

The upgrade of the Balongan refinery, which will be completed in two stages, will roughly double its crude capacity to 240,000 barrels per day (bpd) from around 125,000 bpd at present, Hardadi said, and completion is due in 2020. The $1.2 billion first stage of the upgrade aims to enable Pertamina to process medium crude at the plant with a sulphur content of 0.4 to 0.5 percent, Hardadi said.

"In the second stage we will make improvements so it can process sour crude and be more competitive on costs," he said.

Pertamina is still considering whether to partner with Aramco in the second stage of the upgrade, Soetjipto said. The company is also still considering whether to find a partner for an upgrade at the Dumai refinery, he said, noting that this was not a top priority and was not expected to be completed until 2024.

"It's also related to financial issues," he said.

Pertamina expects to decide in April on a partner to take up to a 90 percent stake in the Bontang grassroots refinery and petrochemical plant project, which it estimates to be worth $8 billion. The company is aiming to complete this project in 2023.

(Reporting by Wilda Asmarini; Writing by Fergus Jensen; Editing by Tom Hogue and Jane Merriman)

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