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Asian sweet crude market may run out of Indonesian grades



2018 Oil & Gas Outlook: Asia

By Sue Koh, Gawoon Philip Vahn


Low sulfur Indonesian crude oil could become a rare commodity in the Asian spot market this year as Southeast Asia's biggest energy consumer is set to retrieve various domestic field operatorships from foreign upstream companies, signaling Jakarta's desire to digest more local oil and minimize crude imports.


Asian trade sources said availability of Indonesian light sweet crude and condensates will likely drop sharply once the state-run energy company Pertamina takes full control of the Mahakam production block from January 2018.


Among Indonesia's key export grades, Senipah condensate, Bontang condensate, Handil Mix and Attaka crude could mostly dissipate from the Asian spot market next year as majority of the output would be processed by Pertamina's domestic refineries, industry and market sources said.


Earlier in the fourth quarter of 2017, the Indonesian government appointed Pertamina to take over 100% of the stake in Mahakam once the current contract by France's Total and Japan's Inpex expire in December 2017.


In November 2017, Pertamina said in a statement that the company is ready to implement the Mahakam block management through its subsidiary Pertamina Hulu Indonesia, or PHI.


"The readiness is part of the company's strategic move to promote national energy security. At least from the Mahakam block, Pertamina will provide an additional contribution of 24% of total national oil and gas production," the state-owned company said in the statement issued November 9.


Apart from Mahakam, the Indonesian government has tasked Pertamina with developing various other blocks on which concessions are due to expire over 2017 and 2018, including Tengah and Attaka offshore East Kalimantan.


Analysis continues below...


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MORE DOMESTIC INTAKE

Indonesia's crude exports have been declining for decades and the pace of the drop continued to pick up, with the latest figures from Statistics Indonesia showing that the country has exported 10.09 million mt of crude over January to October, down 22.2% year on year.


Over the same period, condensate exports also fell 10.5% on the year to 1.27 million mt.


The downtrend in crude exports could accelerate this year as Pertamina strives to make most of the country's own production, in an effort to reduce its dependency on imported crudes amid rising international benchmark prices.


"All of Pertamina's own production and the government's share will be used by our own refineries. Most of [the foreign] contractors' share have been processed domestically, except Chevron," Pertamina's refining director Toharso said.


"We are still in talks with Chevron to buy all of its crude to be processed here," Toharso added.


Reflecting Indonesia's growing efforts to process more domestic grades, the country's crude imports over January-October subsequently fell 12.3% year on year to 12.97 million mt, Statistics Indonesia data showed.



SPOT SUPPLY DRYING UP

Pertamina's control over the Mahakam production block management could cause some headaches to several Northeast Asian end-users who regularly buy Senipah condensate and light sweet Handil Mix crude.


In a typical trading cycle, Total and Inpex each have been offering around 300,000-400,000 barrels of Senipah condensate and around 200,000 barrels of Handil crude.


Senipah condensate and Handil Mix crude are produced in the offshore Mahakam Block, off Kalimantan. Both grades load at the Senipah terminal.


Total is the current field operator with a 50% stake and Inpex holds the remaining 50% stake. However, both companies will not be renewing their production sharing contracts with the Indonesian government and the full production would fall into the hands of Pertamina this year, sources with direct knowledge of the matter told S&P Global Platts.


"Those two [Senipah and Handil] were good top-up barrels for refiners when in urgent need of naphtha making or light sweet blending stocks ... Senipah [especially] will be sorely missed," a Northeast Asian condensate trader said.


Senipah condensate has a gravity of 52.7 API with a sulfur content of 0.026%. The condensate is rich in heavy naphtha, with a yield of 47.78% at 80-150 degrees Celsius. It also yields around 19.99% of kerosene and about 14.97% of gasoil.


In addition, Indonesia's Bontang condensate would not be marketed by Inpex this year as the production sharing contract between the Japanese company and the Indonesian government would not be extended after last December, sources said.


Bontang is an ultra-light crude with an API of 77.0 and it yields around 98.9% of naphtha.


The Bontang gas and condensate field in East Kalimantan produces around 30,000-40,000 b/d of ultra-light crude every month, which has been a source of naphtha feedstock for a few Northeast Asian petrochemical makers.


Pertamina estimated that the vast majority of condensate produced from the Mahakam block this year will be used for its Trans Pacific Petrochemical Indotama petrochemical complex in Tuban.


"About 85%-90% of Mahakam's condensate will be used for TPPI and [only the small] remaining [amount] will be exported, as it is not suitable for our refineries due to high sulfur content," Toharso said.



TIGHT BANYU URIP SPOT SUPPLY

Sweet crude buyers may also struggle to find Indonesian Banyu Urip crude in the Asian spot market this year, despite the medium-heavy grade's healthy production rate of around 200,000 b/d, as field stakeholders ExxonMobil and Pertamina are expected to take all of the respective equity barrels to their own refinery systems.


Over the past couple of years, ExxonMobil has been offering via spot tender 650,000-900,000 barrels of Banyu Urip crude every trading cycle, while Pertamina has been seen selling 650,000 barrels once every three to four months.


However, trade sources indicated that the two producers have recently stopped offering the grade in the regional spot market as the fast-shrinking pool of heavy sweet crude supply in Asia may have encouraged both companies to reserve the oil for their own use.


The last time the medium-heavy grade changed hands was in August, when ExxonMobil was said to have sold a 650,000-barrel cargo of the oil for loading in first half of October to Unipec.


Since then, no Banyu Urip offers have been detected in the regional spot market.


"Banyu Urip is probably one of the biggest production grades in East Asia but what's the point if nobody is willing to sell," a sweet crude traderat a Chinese company said.


The Banyu Urip oil field is located in Bojonegoro, East Java. The crude has an API gravity of 32 degrees with a sulfur content of 0.305% by weight and pour point of 27 degrees Celsius.







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