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The latest oil price rally that made Brent less appealing to international buyers has prompted Indonesian refineries to start preparing for modifications that will allow them to process more sour crude grades and reduce their input of costlier sweet crude, Platts reports.
Most refineries in the country, which consumes more than 1.6 million barrels of crude daily, are equipped to process light sweet crudes, but now that there is price pressure, the facilities will need to make some changes to allow them to take full advantage of the spread between Brent-linked sweet crudes and cheaper grades.
State-owned energy major Pertamina said the modifications will begin next year, first at three refineries, which have a combined capacity of 733,000 bpd. The company’s refining director Toharso said that "We want to upgrade all our refineries gradually to be able to process sour crude. We will not add new units in the refineries but only upgrade the existing ones."
The sweet crudes that are linked to the Brent benchmark include oil from Africa, the Mediterranean, the North Sea, the Black Sea, and Oceania. Crude grades produced in the Middle East and Russia’s Far East, on the other hand, are linked to the Dubai benchmark and tend to be more affordable.
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At the time of writing, while Brent was trading at US$63.45 a barrel, the OPEC basket comprising both Middle Eastern and Brent-linked crudes, was changing hands at almost US$2 less a barrel, at US$61.64.
Then there is the price difference between sweet and sour grades: the former are easier to process and hence more expensive, while sour crude has always been sold at a discount, sometimes a substantial one at that. Now that Brent, thanks to the OPEC cuts and the Forties outage, is trading considerably higher, it makes sense for a nation that imports 40 percent of the oil it needs to switch to cheaper grades, even this means additional costs for refinery upgrades.
Earlier this week, Pertamina’s procurement chief said that he expected the company to import some 250,000 bpd of crude next year. That’s half of the portion of domestic oil output that goes into local refineries. In total, Indonesia produces around 800,000 bpd.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.