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News / 2020/ Indonesia: Decision to allow domestic consumption of 3.5%S marine fuel ‘makes sense’

Indonesia: Decision to allow domestic consumption of 3.5%S marine fuel ‘makes sense’

24 Jul 2019
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A decision by the Indonesian government to allow its domestic shipping industry to continue consuming 3.5% sulphur limit marine fuel post IMO 2020 “makes sense”, according to a spokesperson of shipbroking, analysis and consultancy firms AE Marine Pte Ltd and Golden Bay Chartering Pte Ltd.

Shipbroker Albert Susilo, who manages both Singapore-based companies, notes the development might seem puzzling to non-Indonesians, but explains the move has been motivated by unique operational and commercial factors currently faced by the Southeast Asian country.

“Unlike the majority of vessels plying international waters, local Indonesia-flagged ships may not be ready to switch over to consume low sulphur fuel oil (LSFO) or its similar IMO 2020 compliant variants,” he told Manifold Times.

“Most of the domestic vessels in Indonesia are generally older tonnages between 15 to 30 years old and have been running on high sulphur fuel oil (HSFO) or gasoil all the time.

“In some cases, various companies manufacturing engine and equipment used by these vessels have probably closed down; even if owners wanted to carry out a ship implementation plan for their vessels they will not know who to approach for technical assistance.”

According to Susilo, the Indonesian government in early 2019 implemented a mandate for the country’s gasoil for marine and industrial use to be blended with 20% of Biodiesel (FAME) content for consumption. To date, this move has cause various issues and complaints amongst some of the domestic vessels consuming marine gas oil (MGO) within its shipping industry.

“If there were reports of local vessels experiencing issues like filter blockages and breakdowns from just the use of this new blend of MGO, one cannot imagine the disruption it will cause for the whole Indonesian maritime sector if it switches entirely to LSFO,” he explains.

“On top of this, the Indonesia shipping industry is largely self-contained; most of the local fleet does business mainly in Indonesia and do not go out into international waters. Just on oil tankers alone, it is estimated there were about 560 actively operating within the country during 2018.”

Meanwhile, Susilo notes Indonesia has stopped imports of High Sulphur Fuel Oil (HSFO) and has refined plans to use locally manufactured oil products from Pertamina to effectively service the country’s needs.

“Indonesia has an excess of HSFO 180 centistokes (cSt) avails. At this moment the government is not issuing an import quota for HSFO 180 cSt product,” he says.

“The Pertamina Cilacap refinery traditionally produces an excess of HSFO 180 cSt which used to be exported to Singapore. Due to recent change in regulations starting early 2019 the Indonesian government has stopped the export of HSFO 180 cSt, which in turn, local importers will have to buy from Pertamina.”

Further, the country may have its own commercial plans for locally produced LSFO which are to be carried out by state-owned Pertamina.

“Honestly, Indonesia does not seem to be short of LSFO; they may just choose to export their LSFO. Two refineries, such as Plaju Refinery and Balikpapan Refinery, are such examples where their LSFO products are regularly targeted for the export market,” notes Susilo.

“It has also been widely reported that Pertamina is in the pipeline to transform Pulau Sambu (TBBM Sambu Island Fuel Terminal) into an international trading and bunker hub, and intends to use this facility to blend and market LSFO as bunkers. As such, it can be safe to assume avails from the Plaju and Balikpapan refineries are likely to head to Pulau Sambu for further blending and sale as marine fuel to the international market.”

To date, the IMO 2020 deadline of 1 January 2020 is about five months away and there is still time for rules to change, suggests Susilo.

“The Indonesian government has always been adaptive to market conditions and quick to respond to changes within the oil and shipping industry,” he concludes.

“In this case, even though its decision to allow domestic players to consume 3.5% sulphur limit marine fuel makes sense, do not be surprised if domestic legislation takes a turn in the future when subject to favourable conditions.”

Related: Indonesia: Use of 3.5% sulphur marine fuel approved for domestic trade
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Related: Pertamina to increase domestic marine fuel oil sales volume
RelatedIndonesia: Energy Minister approaches firms to use Pertamina fuel oil
Related: Indonesia: Freepoint Commodities expands regional bunker business

Published: 24 July, 2019

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