Companies evaluating major investments in refining and petrochemicals in Indonesia

News reports indicate that companies are evaluating major investments in refining and petrochemicals, as per ICIS. Indonesia needs more capacities, as local PP capacity is able to meet only half of the country's demand of about 800,000 tpa. The interest in Indonesia comes amidst strong demand growth in the country and the constraints faced by Taiwanese majors in executing large refinery and cracker investments in China. Though Mainland China remains a preferred investment destination for Taiwanese companies, government restrictions on both sides prohibits this. Despite a patient wait for relaxation in the rules, the petrochem majors seem to be weighing other options. Taiwan's Chinese Petroleum Corp (CPC) is said to be planning a US$2.8 bln petrochemical complex at Kalimantan in Indonesia, chosen because of the availability of raw materials. CPC plans to team up with a local partner, either a private company or a state-owned enterprise such as oil and gas major PT Pertamina. A co-operation with Pertamina would ensure feedstock supply to the project. Actual execution of the project by CPC remains uncertain, given a previous history when it had considered similar investment in Indonesia in 1996 but abandoned the plan after the economic crisis. The second project is co-operation between Chandra Asri, the country's sole cracker operator, and Pertamina for a refinery project. Pertamina has received a government directive to team up with other companies to build three refineries, each at a cost up to US$5 bln within 10 years, which would reduce the country's dependence on imported naphtha. Shortage of local naphtha has affected ability of local producers to compete with other regional players and made expansion projects unviable. Other Indonesia petrochemical producers, such as Titan Petrochemical, Trans Pacific Petrochemical Industry, Tri Polyta and Polytama Propindo, are also said to looking at investments. However, it is uncertain is whether there is sufficient commitment and if smaller players have the money. Many of the petrochemical producers have other long-standing projects. For instance, Chandra Asri has been talking of a cracker expansion and an aromatics unit. Polytama is said to be looking at the expanding its polypropylene (PP) capacity from 280,000 tpa to to 440,000 tpa.
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