A massive fire has been extinguished at one of Indonesia’s biggest oil refineries operated by national oil company Pertamina. However, near-term supply risks remain, but the national refining expansion plan remains intact, reported Fitch Solutions Country Risk & Industry Research.
The reasons behind the sudden fire, which started early morning on 29 March, is still unknown. Although unconfirmed reports have started circulating that suggest a leak could have been hit by lightning. The fire at the 125,000 barrels per day (b/d) Balongan refinery in West Java was finally stopped on the afternoon 31 March.
The fire appeared to mainly affect the plant’s storage site, with four out of 72 storage tanks, or equivalent to about 6% of total storage capacity, believed to have been affected, while the refinery’s processing lines were left intact.
Fitch said it remained unclear how long production activities at Balongan would take to be restored. “The duration a refinery takes to return from such an incident appears to be highly case-specific. Fire-related outages across Malaysia, Pakistan, Singapore, South Korea and Thailand have required days weeks and in certain limited instances, years, to resolve,” said Fitch in a report.
“Balongan has a capacity of 125,000b/d equivalent to 11.3% of Indonesia’s total domestic capacity. The deficit resulting from its outage is likely to result in lowered refining output and a ramp-up in near-term fuel imports although there is also the option to raise output at nearby refineries such as the Cilacap and PT Trans-Pacific Petrochemical Indotama (TPPI)’s petrochemicals facility in East Java to compensate for the shortfall,” added Fitch.
“In addition, depending on how long the recovery from the fire takes, the incident risks negatively affecting the expansion plans for Balongan. The refinery is slated to undergo a three-phase expansion over the coming years, with Phase I and II involving the addition of 25,000b/d of new capacity set to be undertaken by Pertamina alone through to 2025, and Phase III involving a further 90,000b/d to feature a partnership with Taiwan’s CPC for a 2027 finish,” said Fitch.
WHAT IS NEXT?
“In spite of the lack of clarity around the timeline of Balongan’s restoration, the incident is unlikely to deter the Indonesian government and Pertamina from forging ahead with their ambitious downstream expansion goals. Fuel self-sufficiency, or reducing dependence on imports at least, has been and continues to be one of Indonesia’s top energy sector goals, and is among the main factors underlying its massive refining capacity construction programme under the 2014 Refinery Development Master Plan (RDMP) and the plan for New Grass Root Refineries (NGRR). The list of planned, proposed projects is robust, even without Balongan’s six different projects, totalling a combined 1mn b/d of new refining capacity to be brought online before 2028. These projects are likely to progress as planned, although risks are weighted to the downside due to issues stemming from budget, regulatory hold-ups and Indonesia’s chequered history of collaborating with foreign partners in the downstream space, with Saudi Aramco’s decision to exit the Cilacap venture in June 2020 a case in point,” said Fitch.