The revival of Indonesia’s petrochemical industry

Indonesia’s petrochemical industri is reviving and looks to bounce back strongly over the next decade after long decades of under-development. This reflects in the amount of investment spent to build new petrochemical plants over the past few years, the entry of new players along with new investments as well as major investment plans to be spent over the next few years.

The government’s plan to build at least three oil refineries is likely to further boost Indonesia’s petrochemical industry, as the petrochemical players would rely more on domestic raw material and reduce dependency on imports.

Chairman of the Indonesian Olefin & Plastic Industry Association (Inaplast) Amir Sambodo said the amount of investment poured in to develop new petrochemical plants or expand existing plants have reached between US$8-10 billion. He said a number of petrochemical plants have decided to expand their plant capacity or building new petrochemical plant. Sambodo expects new investment to further rise by US$7 billion by 2017 either to expand existing plant capacity or build new petrochemical plant.

Indonesia’s petrochemical industry has been left behind since 1995 as there were no major investments since then, said Deputy Chairman of (Inaplast) Suhat Miyarso on Tuesday.

Based on the data of Inplast, the capacity of Indonesia’s petrochemical industry at present reached 3.9 million tons per annum, compared to 4 million tons in Malaysia, 9.8 million tons in Singapore and 12.1 million tons per annum in Thailand.

The upstream petrochemical industry offers thin margin and requires huge investment and advanced technology. “Therefore, there are limited new investments, unless the government offer favorable fiscal incentives and infrastructure, said Miyarso.

He said Singapore’s petrochemical industry has developed well as its petrochemical industry is supported by the Singapore government, which set aside land, electricity and gas for investors. Investors only need to come and build petrochemical plants. The petrochemical industry is also well integrated.

Miyarso added that the government’s plan to build at least three oil refineries with a capacity of around 300,000 barrels per day would certainly benefit the country’s petrochemical industry. If this plan goes ahead, petrochemical industry’s crude imports would be slashed and ultimately help ease burden of the country’s trade balance.

He said Inaplast recorded that Indonesia imported raw material used by petrochemical industry around US$8 billion in 2013.

Senior Vice President Petrochemical Product and Marketing of Pertamina, Taryono, added that domestic capacity to produce olefin, a main raw material used by petrochemical plants, is still limited. He noted production capacity of PT Chandra Asri Petrochemical Tbk and PT Pertamina reached 2 million tons per annum. However, the demand for raw material from the two companies alone reached 3.4 million tons per annum. (RK)