Synergy Downstream's Jeff Wilson explains how cross government ministry regulatory reforms and private sector investment will enable Indonesia to secure downstream energy security in the national interest
Apart from growing domestic energy demands, Indonesia has the potential to become a major fuels storage and trading hub.
Despite growing imports of crude oil, oil fuels and LPG demand, which are projected to account for 80% of total demand by 2025, the repeated failures by consecutive governments to fully implement oil and gas laws and regulatory reforms, combined with gross long term under-investment, means that a growing downstream energy security crisis is unfolding.
To put the situation into perspective, Indonesia currently has no mandatory crude oil, oil fuels or LPG operational reserves or emergency reserves at all. Fortunately this situation is now changing - creating significant private sector investment opportunities in storage and distribution infrastructure and reserves.
Jeff Wilson, managing director at Synergy Downstream, explains that until recently there have been many barriers to level playing field competition, which have maintained the national oil and gas company's de-facto monopoly across several large volume downstream market sectors.
These barriers have increasingly manifested themselves through continued underinvestment, supply shortages, declining fuel stocks, substandard products and product pricing abuses. Fortunately these problems are now being addressed.
He says: 'It has been accepted by key stakeholders that downstream energy security cannot be achieved on time by maintaining Pertamina's (national oil and gas company) de-facto monopoly, expanding its storage capacity and product reserves or by addressing the monumental challenges within government budget constraints and competing priorities.
'Security requires multiple supply chains and infrastructure solutions that can only be effectively realised by a combination of regulatory reforms, significant private sector investment and level playing field competition.'
Despite any or all proposed or planned refinery projects becoming operational, more than 80% of Indonesia's oil fuels and crude oil requirement will need to come from imports – strengthening the need for more storage and logistics infrastructure.
Wilson explains: 'Domestic oil fuels and LPG demand is growing at a rate of 4% to 5% per year. For Indonesia to realise the government's energy security targets of 30 days operational reserves and 30 days emergency reserves an additional 19,000,000 KL of oil fuel and crude oil storage and 1,500,000 tons of refrigerated LPG storage must be constructed, commissioned and stocked by year 2025.
This means that Indonesia needs to quadruple all existing storage infrastructure by 2025.
A package of regulatory reforms that ensure a transparent level paying field competitive market is needed, along with regulatory oversight, enforcement and significant private sector investment.
In fact, Wilson estimates that $82 billion (including refineries) must be invested in Indonesia's downstream sector in the next eight years to realise the government's energy security objectives.
Five consecutive downstream energy security projects, financed in part by the British Government, sponsored by the National Energy Council (DEN), championed by the Ministry of Energy and Mineral Resources (ESDM) and supported by the Downstream Oil and Gas Regulator (BPH Migas) have been executed by Synergy Downstream Solutions. The reports, conclusions and recommendations have been endorsed and some recommendations have been implemented with others moving forward.
Wilson adds: 'Given both the government and Pertamina's long term financial constraints, key project recommendations focus on delivering downstream energy security at no cost to the government through level playing field competition and private sector investment.'
Wilson will be speaking on the first morning of the Tank Storage Asia conference on September 27 & 28 at the Marina Bay Sands, Singapore. For more information visit www.tankstorageasia.com.
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