The Upstream Oil and Gas Industry is Considered Capable of Supporting Energy and Petrochemical Needs

Armfalcon.com, JAKARTA — The upstream oil and gas industry makes a major contribution to the national economy due to its mandate to meet energy needs while at the same time encouraging the growth of other industries in the vicinity, including the petrochemical industry.

This is because the upstream oil and gas industry is the main source of raw materials for petrochemical production. Where the main raw materials in petrochemical production are petroleum and natural gas found in oil and gas fields.

The upstream oil and gas industry plays a role in extracting crude oil and natural gas from below the earth’s surface and processing them into products that are ready for use. After the raw materials are extracted and processed by the upstream oil and gas industry, these raw materials are then processed into various petrochemical products such as plastics, synthetic fibers, chemicals, fertilizers, cosmetics, and various other chemicals.

Thus, the strategic value of the upstream oil and gas industry is very important in the petrochemical industry and can affect the availability and price of raw materials as well as the ability of the petrochemical industry to meet market demand.

President Joko Widodo himself has issued Presidential Regulation (Perpres) No. 74/2022 concerning the 2020-2024 National Industrial Policy, which regulates the development targets of the oil and gas industry. Through the Presidential Decree, the government aims to increase the utilization, supply and distribution of oil and gas and coal-based chemicals. Sebeb, Nafta or Naphtha, as the main raw material for the petrochemical industry, is still fully imported at 2.5 million tonnes each year.

To overcome this, the government will carry out the construction of a Naphtha and condensate refinery for processing raw materials for aromatic olefins and polyolefins, which are organic compounds consisting of one or more olefin monomer units and have elastic properties, are resistant to chemicals, light in weight, and are commonly used. in industrial and consumer goods.

The construction of the Naphtha refineries will have a capacity of 300 thousand barrels per day each to offset the increase in olefin production resulting from the process of separating petroleum or natural gas production, as well as chemical synthesis and can be used as a raw material in domestic polyolefin production.

Chairman of the Indonesian Chemical Industry Federation Suhat Miyarso said the petrochemical industry, which is included in the green industry category, plays an important role for the development of the domestic industry, because various petrochemical products require downstream sector products, from household furniture, water pipes, electrical cables, packaging food and beverages, automotive, medical equipment, agricultural equipment, to fishing equipment.

The Ministry of Industry also continues to encourage downstreaming in the petrochemical industry. This effort is considered strategic because it can produce primary raw materials to support many important downstream manufacturing industries such as textiles, automotive, machinery, electronics, and construction.

In October 2022, the export performance of the chemical industry showed a brilliant achievement of USD 18.5 billion, up 20 percent compared to the same period in the previous year, while in 2023 the target is USD 25 billion.

The current national petrochemical production capacity is around 7.1 million tons per year (2022) and imports of chemical products are still very significant, namely 4.6 million tons in 2020.

Pertamina has set a target to increase petrochemical production capacity from around 1.66 million tons in 2022 to eight million tons in 2027 through a number of projects. The government itself targets Indonesia to become the number one petrochemical producing country in Asean.

National demand for petrochemicals continues to increase in line with the growth of the manufacturing industry and the construction sector in Indonesia. Several factors such as market demand, domestic petrochemical production, raw material prices, and global competition can also affect the volume of petrochemical needs in Indonesia.

The Coordinating Minister for the Economy Airlangga Hartarto also mentioned the important role of the downstream oil and gas industry on the sidelines of an international forum in 2021. Airlangga views this sector as part of increasing the multiplier effect for downstream industries such as fertilizers and petrochemicals.

“The Ministry of Energy and Mineral Resources has provided support for gas prices for certain industries to be competitive so that many downstream sectors are able to compete and export their products. This policy needs to be appreciated and it is hoped that downstream from upstream oil and gas activities can develop so that it does not only contribute to state revenues, but also has the effect of creating jobs and driving the macro economy,” Airlangga said in The 2nd International Convention on Indonesian Upstream Oil and Gas 2021 “( IOG 2021), in Bali Nusa Dua, Tuesday (30/11/2021).

The Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas) also supports the government’s efforts to provide incentives for the petrochemical industry in gas-producing areas. This step aims to encourage monetization of natural gas potential.

SKK Migas Oil and Gas Monetization Division Head Agus Budianto gave an example of the incentives provided by the government to support gas absorption by the petrochemical industry, namely incentives for gas that is being developed by the Cooperation Contract Contractor (KKS Contractor) Genting Oil Kasuri Pte Ltd in West Papua.

With the incentives provided by the government, PSC Contractors (as producers) can adjust gas prices from US$5 per MMBTU to US$4 per MMBTU, so that it can be absorbed by fertilizer and methanol producers who will operate in the area.

The petrochemical industry cluster is indeed one of the Indonesian government’s priorities in the Industry 4.0 program. This sector also forms the foundation of the national industry as stated in Government Regulation number 14 of 2015 concerning the National Industrial Development Master Plan (RIPIN) 2015-2035.