Indonesia's Pertamina sets 2022 upstream production target above 1 million boe/d

Indonesia's Pertamina aims to boost its oil and gas production to more than 1 million b/d of oil equivalent in 2022, as Southeast Asia's biggest economy aims to capitalize on high commodity and energy prices to expand the country's current account surplus, according to management sources at the company.

The tide has turned heavily in favor of upstream projects compared to a couple of years ago when oil prices crashed along with demand destruction brought by the outbreak of the COVID-19 pandemic.

Pertamina aims to take full advantage of the current high price environment to achieve multiple purposes, including improving Indonesia's balance of payments, cutting the country's oil import bills and providing solutions for Asia's supply shortage, crude trading and upstream project management sources at the company told S&P Global Commodity Insights over April 11-13.

Indonesia posted a $3.3 billion current account surplus in 2021, data from Bank Indonesia showed. It marked the country's first current account surplus since 2011 as rising energy and commodity prices in the fourth quarter last year boosted the balance of payments, the central bank data showed.

The company's upstream unit PT Pertamina Hulu Energi indicated that with the performance of oil and gas production in 2021 reaching 897,000 boe/d, the output target has been increased to 1.047 million boe/d for this year as the exploration division continues to make various efforts to achieve Pertamina's vision and mission.

For 2022, exploration drilling target is 29 wells and the development drilling target is 813 wells, Director of Strategic Planning & Business Development of Pertamina's upstream unit, Danar Dojoadhi, said.

Unlike coal, Indonesia is a net importer of crude and transportation fuels, which means rising oil prices would eat into the country's trade surplus, the Pertamina crude trading and upstream management sources said.

It's crucial for the country to continue reviving its domestic upstream output to cut oil import bills, especially due to domestic refineries' heavy reliance on expensive sweet crudes, the sources added.

Pertamina's key refineries in Cilacap, Balongan and Balikpapan primarily feed on domestic sweet crudes and imported barrels from West Africa, the Mediterranean, Australia and Malaysia that are priced against Dated Brent.

Considering the high Brent-Dubai price spread in recent months, Pertamina is practically disadvantaged as highly sophisticated refineries in Northeast Asia run on much cheaper sour crudes priced against the Middle Eastern benchmark.

Brent/Dubai Exchange of Futures for Swaps was assessed at an average premium of $7.50/b so far this year, more than double the 2021 average premium of $3.20/b, S&P Global data showed.

A widening EFS spread makes crude priced against Dubai more economically attractive for Asian refiners compared to Brent-linked ones.

Crude exports

While Indonesia continues to focus on boosting domestic upstream output and making full use of domestic crude supply, Pertamina also aims to take advantage of high prices to generate solid export sales revenue.

With Pertamina's ambitious goals to ramp up crude production from Indonesia's Sumatra region, the state-run entity is poised to see its crude export earnings to rise in tandem with international benchmark oil price rally.

In 2022, the Sumatra region is targeted to produce 225,000 b/d of crude oil, Pertamina Hulu Energi's President Director Jaffee Suardin said in January.

Although Indonesia had stopped exporting ultra-light crude in 2021 as Jakarta aimed to prioritize the use of local upstream output for domestic refineries, there are many medium and heavy sweet Indonesian grades that continues to attract buyers across Asia, the Pertamina crude trading sources said.

Pertamina can still deliver several medium and heavy sweet crude cargoes per month for Northeast Asian refiners seeking to buy top-up barrels from the Southeast Asian spot market amid tight global supply, the trading sources said.

The Southeast Asian producer actively offers spot cargoes of medium and heavy sweet grades including Cinta, Duri, Banyu Urip and Minas that are quite popular among major Northeast Asian refiners, according to feedstock managers at Chinese and South Korean refiners.

Indonesia exported 6.02 million mt of crude oil in 2021, up 37% from the 4.4 million mt sold in 2020, data from Statistics Indonesia showed.