Indonesia plans quick-to-build oil refineries for US crude, doubts persist - report

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Indonesia plans to build a network of small modular refineries to process U.S. and domestic oil, aiming to reduce gasoline imports, but analysts, according to _Reuters_, warn that the switch in strategy from large-scale refineries could prove uneconomical.

The prefabricated refinery units, which can be constructed faster and more cost-effectively than traditional plants, will help Asia's largest gasoline importer meet its domestic demand and fulfill its commitment to increase U.S. imports. [https://seekingalpha.com/news/4467524-trump-announces-trade-deal-with-indonesia]

_Reuters_ reported last month that Indonesian sovereign wealth fund Danantara planned to sign an $8 billion contract with U.S. engineering firm KBR (KBR [https://seekingalpha.com/symbol/KBR]) for 17 modular refineries.

"Building the 17 refineries seems quite ambitious considering that RDMP plans are also under way," said Pankaj Srivastava, senior vice president at Rystad Energy.

Simple refineries can be completed in less than half the time of larger complexes and cost less, providing a "quick fix" and easing Indonesia's reliance on refined oil imports, but will not help the country achieve its goal to expand its petrochemical capacity, he said.

Additionally, the projects, with a smaller feedstock requirement and terminal restrictions, will likely require the use of smaller vessels to import crude, raising costs significantly, said Sparta Commodities' senior analyst June Goh.

She also warned that the arbitrage may not always be economical for U.S. West Texas Intermediate crude (CL1:COM [https://seekingalpha.com/symbol/CL1:COM]).

"If there is no crude flexibility in-built into the modular refinery projects, then Indonesia will be very exposed to the prices of U.S. crude delivered into the country," she said.

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