Strong domestic demand growth, ample feedstock, proximity to markets, to drive investment in Indonesia’s petrochem sector

Indonesia's strong long-term domestic demand growth, ample raw material resources and proximity to Chinese and ASEAN markets will drive investment in the petrochemicals sector in coming years, according to Business Monitor International's Indonesia Petrochemicals Report. In response to the lingering problem of a lack of local petrochemicals capacities, the government has redirected state-owned oil refiner Pertamina to build three refineries each costing US$5 bln by 2020. This would reduce the Indonesian petrochemicals industry's reliance on imported naphtha, which has hampered the expansion of the sector. In February 2010, Chandra Asri, Dow Chemicals, Pertamina, Polytama and Try Polyta announced plans to invest US$1.12 bln in 2010. According to reports, the projects planned by the five Indonesian petrochemical companies will reduce the deficit in the supplies of petrochemical products. However, Indonesian petrochemicals producers are too small to stump up the necessary investment to take advantage of the additional feedstock and would need foreign partners. This looks an increasing likelihood. Indonesia is becoming increasingly attractive as an investment destination for petrochemicals producers, particularly from Taiwan. The country is unable to meet its needs in polymer resins, but at the same time Taiwanese majors are facing constraints in building large refinery and cracker investments in China and are seeking locations with a high availability of raw materials. Taiwan’s Chinese Petroleum Corp (CPC) is planning a US$2.8 bln petrochemical complex at Kalimantan which will involve the relocation of a refinery with 100,000-200,000 bpd of refined product and a naphtha cracker with 730,000 tpa of ethylene production capacity as well as downstream PE, styrene monomer and acrylonitrile facilities. However, it is unclear when the project would come onstream. Indonesia’s current sole producer of ethylene, Chandra Asri, is working with Pertamina on a refinery project. Chandra Asri is planning two projects, including the country’s first butadiene unit with an investment of US$100 mln and a US$70 mln BTX extraction plant. Dow Chemicals plans to spend US$500 mln on a petrochemical project, while PT Pertamina is to invest US$200mn in a PE project in Balongan, West Java. Pertamina is also building a new 250,000tpa PP plant at its Balongan complex. Meanwhile, Polytama is looking at the expanding its PP capacity from 280,000 tpa to 440,000 tpa. The project is expected to be completed by 2011 and will cost up to US$300mn. The expansion of Tripolyta’s PP plant in Merak to 480,000 tpa in 2011 will provide an extra 120,000 tpa of PP capacity in Indonesia. With domestic PP demand due to reach 1.1 mln tpa in 2011, the expansion of capacity at both Merak and Balongan will not be enough to reduce Indonesia’s dependency on imported PP. BMI cautions that greater PP self-sufficiency cannot be achieved if the country does not sustain an adequate local supply of propylene, which as mentioned has been problematic.
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