Many are Glad if our Refineries are Broken

Oleh Ari H. Soemarno 1 November 2015

Indonesia should have storage capacity for oil reserve that last for 60 days. So, if there are any disruptions in the supply, like if the ships sunk or wrecked, we still have time to get extra supply.

Ari Soemarno
Unduh Infografik

KATADATA - PT Pertamina (Persero) is planning to build storage tanks in order to increase the operational reserve of fuel from the current 18 days to become 30 days worth of reserve. With the investment of US$ 1.2 billion, this state-owned firm will build storage tanks that are able to hold 7.02 million kiloliter of fuel in 2025.

But, Pertamina’s plan to do it is being criticized by Coordinating Maritime and Resources Affairs Minister Rizal Ramli. He considers that the plan to build storage tanks is not efficient because all this time the state mostly import the fuel from abroad. Besides, storage tanks development will need a large fund.

But, former president director of Pertamina for 2006-2009 period, Ari Hernanto Soemarno, supports this plan. “Indonesia should have a storage capacity for oil reserve that can last for 60 days,” said the 67 years old man to Katadata during an exclusive interview in Jakarta, last early October. On the contrary, the man that is very active in being a consultant for many oil and gas companies, and is a Senior Project Coordinator for Terminal LNG Bojonegara that belongs to Kalla Group, considers Pertamina’s plan to build oil refineries is not an urgent matter these days.

Ari, who also had once been the Pokja Chief for chosen president’s, Joko Widodo, Transition Team, is also monitoring the government’s plan to build strategic petroleum reserve and the concept of national energy sustainability. Here is the result of the interview.

What do you think about Pertamina’s plan to build storage tanks?

We need the storage tanks to store crude oil and fuel, because the existing one can only store oil for 7 to 17 days. The capacity is small because it was designed to manage the oil from within the country, short distance management. But now, we need large storage tanks because we import a lot of crude oil. If we import oil from Nigeria, West Africa, North Africa, or Saudi Arabia, then it will take 30 days of shipments to Indonesia. And so, if the ships are from Indonesia, the time needed for the shipments will be 60 days.

What is the ideal capacity amount for storage tanks?

Indonesia should have storage tanks that can last for 60 days. So that if there are any disruptions in the supply, like for example if the ships sunk or wrecked, we can still have time to look for extra supply. The same also goes for fuel. Since a long time ago we are always have a problem. We are the largest buyer, but we are being determined by the market. It should be us who determine things. But it is going this way because we don’t have enough storage tanks in Indonesia, which causes us not being able to schedule the purchase in a better way. If there’s one part of the cracking refinery that went off or wrecked, then Singaporean market will immediately react. And they will say: in a moment Indonesia will need oil and the price will increase.

Why would the Singaporean market immediately react?

They know that Indonesia will have to import because we don’t have good reserve. The price will obviously increase. There are many sides that are happy and glad with the condition. But it will be different if we have storage tanks, it will be safer. For example, if our refineries are down, we still have oil reserve that can last up to 30 days. Other than that, we can schedule the purchase. When the price is cheap, we buy it. If it’s expensive, we don’t buy it. For example, India already has Strategic Petroleum Reserve (SPR). With the current condition, when the oil price is low, they purchase plenty of oil.

What did you do when you were in Pertamina?

When I was the president director [of Pertamina], I tried to build the storage tanks in Balongan and Tuban. But, it took time. I only had the chance to build storage tanks with capacity of six million barrels; even though my target was 20 million barrels. And so, if there were unplanned shut down of any refineries, we can still have supply for 7 to 14 days.

Can we be like India and China that purchase plenty of oil in these days?

We cannot be like them yet. Other than India, China has also build large storage tanks. Initially they were to build storage tanks within six years of time to have strategic reserve that initially would last three months to last for two years. And because oil price is cheap now, they are accelerating the project.

So, Indonesia needs to build operational and strategic reserves?

Before we reach to strategic reserve, there is operational reserve. It’s better that we talk about the operational reserve first. Pertamina needs to decide the what are the things needed for the operational reserve development. Let’s not mix this with the strategic reserve. Strategic reserve takes serious money. Just like what it’s called, strategic, so it’s definitely just for strategic situation. In America, SPR is like a corporation. When the price is increasing, the reserve is let loose. And when the price is low, they purchase the oil. In China and India, it’s different. The SPR is being facilitated by the government.

How about Indonesia?

If Indonesia wants to build SPR, then who will bear the burden? It will take US$ 100 million just to build storage tanks that can hold two million barrels. If it were according to me, I would say that we should concentrate with the operational reserve first. The ones that can have the luxury of SPR are developed countries, which have strategic importance and war strategy; like China that has strategic policy to keep her economy, and also like America. It is different with Germany and England, where things are peaceful. They don’t have SPR.

If there were no strategic reserve, how would the energy sustainability be realized?

We should not talk about the energy sustainability, but the energy security, which secures all energy chains; starting from production, transportation, refining, and distribution. Don’t make the SPR with emotions so that we calm down a bit. We need to start with the operational supply, and after that, we can start to build the SPR. And just like what I have suggested when I was still a member of the transition team [when Joko Widodo became the chosen president], we need to start by building storage tanks. Second, we need to upgrade the existing oil refineries. And just then, we can build new refineries because the cost is expensive, around US$ 7 billion.

And so we don’t need to build refineries now?

Right now it’s not so urgent because the market is flooded with oil. And so, fuel price abroad is also low. A prediction says that there will be too much of an oversupply. But, we still need to build the refineries in order to substitute import. We have energy sources like crude oil, but it is not ready to be used yet. For crude oil to become fuel, there is a long process, which requires us to have production and distribution infrastructures like refineries. With increasing number of good production and distribution infrastructures, then it will be more secure. And so, the refineries development should be seen from the security perspective, and not to save up forex reserve since the fuel price can be a lot cheaper.

What needs to be monitored closely in order to build refineries?

Based on history, we need to build refineries close to the resources. Just like in Balikpapan, Dumai, and Plaju refineries. The second consideration is it needs to be close with the consumers, like the ones in Cilacap and Balongan. Arun can be an option for refinery development, since its location is close to the market, the ground is much more flat, and the infrastructures are available and good.

After the transition team was dismissed, do you still give suggestions to President Jokowi?

I still help, and Sudirman Said [Energy and Mineral Resources Minister] sometimes also ask me for suggestion. And it’s also the same with Pertamina. Whether my suggestion will be executed or not, it’s not my concern. But one thing for sure, their considerations must be many and well thought of. 

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