The Indonesian state oil firm now has its third CEO in two years, as Nicke Widyawati was confirmed as the new CEO and President Director of the company last week. Widyawati – the second female head of Pertamina after Karen Agustiawan – replaces Elia Massa Manik, who himself replaced Dwi Soetjipto in February 2017. In ascending to the top post, Widyawati is an example of female empowerment in Indonesia, but the position itself is a bit of a poisoned chalice. How long will she last?
Widyawati’s predecessor Manik came in with the best of intentions – promoting transparency and promising to overhaul Pertamina’s creaking upstream and downstream operations. He mostly failed, perhaps not through a lack of willpower but political reality, where the government is caught between a quixotic need to promote a nationalistic policy on resources yet in dire need of foreign investment. Worse, the state has no patience, demanding immediate results. An energy industry in terminal decline requires a long time to turnaround, and balancing that with the government’s demands will be Widyawati’s greatest challenge.
What has Pertamina achieved over the past week years? Well, there is some sign of progress – after repeatedly reaching out and rebuffing investors over refining downstream investments aimed to reducing a chronic dependence on fuel imports, some small steps forward seem to be emerging in the Bontang, Cilacap and Tuban projects, partnering with Saudi Aramco, Rosneft, Oman Oil and Cosmo Oil. That isn’t enough to please the government, though, which is dealing with a downward spiral of the Indonesian rupiah that has prompted several dramatic measures – including the immediate adoption of a hard B20 biodiesel mandate to reduce imports of gasoil and boost consumption of domestic palm oil.
In upstream, however, the trajectory is definitely backwards. Indonesia is moving in an alarming direction of resource nationalisation, scuppering plans to make its upstream sector friendlier to foreigners. Since 2015, any PSC involving international companies have been handed back to Pertamina, or at the very least seen Pertamina’s share increased. The government believes that by increasing Pertamina’s share, more crude will be made available for domestic refining. That logic works in the short term, but in the long term is scaring off firms like Total, Chevron and ExxonMobil, who not only contribute valuable capital, but also the technical know-how that Pertamina lacks.
The Rokan and Mahakam blocks have already been handed back to Pertamina and last week, the state announced that all oil contractors must sell their entire crude output to Pertamina, effectively blocking them from exporting any oil. The aim is to support the weakening rupiah and reduce imports, but the longer term damage to the confidence and health of the industry could be affected badly. Nicke Widyawati may be proving that the Indonesian glass ceiling has been smashed through, but expectations are high and demands unrealistic. Don’t be surprised if Pertamina receives another CEO next year.
A recent timeline of Pertamina CEOs:
- September 2014: Karen Agustiawan resigns as CEO
- November 2014: Dwi Soetjipto appointed CEO for the period 2014-2019
- February 2017: Dwi Soetjipto fired as CEO, Elia Massa Manik appointed interim CEO
- Marchj 2017: Elia Massa Manik confirmed as CEO
- April 2018: Elia Massa Manik sacked, Nicke Widyawati appointed interim CEO
- August 2018: Nicke Widyawati confirmed as CEO
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When it was first announced in 2012, there was scepticism about whether or not Petronas’ RAPID refinery in Johor was destined for reality or cancellation. It came at a time when the refining industry saw multiple ambitious, sometimes unpractical, projects announced. At that point, Petronas – though one of the most respected state oil firms – was still seen as more of an upstream player internationally. Its downstream forays were largely confined to its home base Malaysia and specialty chemicals, as well as a surprising venture into South African through Engen. Its refineries, too, were relatively small. So the announcement that Petronas was planning essentially, its own Jamnagar, promoted some pessimism. Could it succeed?
It has. The RAPID refinery – part of a larger plan to turn the Pengerang district in southern Johor into an oil refining and storage hub capitalising on linkages with Singapore – received its first cargo of crude oil for testing in September 2018. Mechanical completion was achieved on November 29 and all critical units have begun commissioning ahead of the expected firing up of RAPID’s 300 kb/d CDU later this month. A second cargo of 2 million barrels of Saudi crude arrived at RAPID last week. It seems like it’s all systems go for RAPID. But it wasn’t always so clear cut. Financing difficulties – and the 2015 crude oil price crash – put the US$27 billion project on shaky ground for a while, and it was only when Saudi Aramco swooped in to purchase a US$7 billion stake in the project that it started coalescing. Petronas had been courting Aramco since the start of the project, mainly as a crude provider, but having the Saudi giant on board was the final step towards FID. It guaranteed a stable supply of crude for Petronas; and for Aramco, RAPID gave it a foothold in a major global refining hub area as part of its strategy to expand downstream.
But RAPID will be entering into a market quite different than when it was first announced. In 2012, demand for fuel products was concentrated on light distillates; in 2019, that focus has changed. Impending new International Maritime Organisation (IMO) regulations are requiring shippers to switch from burning cheap (and dirty) fuel oil to using cleaner middle distillate gasoils. This plays well into complex refineries like RAPID, specialising in cracking heavy and medium Arabian crude into valuable products. But the issue is that Asia and the rest of the world is currently swamped with gasoline. A whole host of new Asian refineries – the latest being the 200 kb/d Nghi Son in Vietnam – have contributed to growing volumes of gasoline with no home in Asia. Gasoline refining margins in Singapore have taken a hit, falling into negative territory for the first time in seven years. Adding RAPID to the equation places more pressure on gasoline margins, even though margins for middle distillates are still very healthy. And with three other large Asian refinery projects scheduled to come online in 2019 – one in Brunei and two in China – that glut will only grow.
The safety valve for RAPID (and indeed the other refineries due this year) is that they have been planned with deep petrochemicals integration, using naphtha produced from the refinery portion. RAPID itself is planned to have capacity of 3 million tpa of ethylene, propylene and other olefins – still a lucrative market that justifies the mega-investment. But it will be at least two years before RAPID’s petrochemicals portion will be ready to start up, and when it does, it’ll face the same set of challenging circumstances as refineries like Hengli’s 400 kb/d Dalian Changxing plant also bring online their petchem operations. But that is a problem for the future and for now, RAPID is first out of the gate into reality. It won’t be entering in a bonanza fuels market as predicted in 2012, but there is still space in the market for RAPID – and a few other like in – at least for now.
RAPID Refinery Factsheet:
Tyre market in Bangladesh is forecasted to grow at over 9% until 2020 on the back of growth in automobile sales, advancements in public infrastructure, and development-seeking government policies.
The government has emphasized on the road infrastructure of the country, which has been instrumental in driving vehicle sales in the country.
The tyre market reached Tk 4,750 crore last year, up from about Tk 4,000 crore in 2017, according to market insiders.
The commercial vehicle tyre segment dominates this industry with around 80% of the market share. At least 1.5 lakh pieces of tyres in the segment were sold in 2018.
In the commercial vehicle tyre segment, the MRF's market share is 30%. Apollo controls 5% of the segment, Birla 10%, CEAT 3%, and Hankook 1%. The rest 51% is controlled by non-branded Chinese tyres.
However, Bangladesh mostly lacks in tyre manufacturing setups, which leads to tyre imports from other countries as the only feasible option to meet the demand. The company largely imports tyre from China, India, Indonesia, Thailand and Japan.
Automobile and tyre sales in Bangladesh are expected to grow with the rising in purchasing power of people as well as growing investments and joint ventures of foreign market players. The country might become the exporting destination for global tyre manufacturers.
Several global tyre giants have also expressed interest in making significant investments by setting up their manufacturing units in the country.
This reflects an opportunity for local companies to set up an indigenous manufacturing base in Bangladesh and also enables foreign players to set up their localized production facilities to capture a significant market.
It can be said that, the rise in automobile sales, improvement in public infrastructure, and growth in purchasing power to drive the tyre market over the next five years.
Headline crude prices for the week beginning 14 January 2019 – Brent: US$61/b; WTI: US$51/b
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