Indonesia Plans More Refineries as Oil Supply Gap Keeps Imports High

A Million Barrels a Day Between Production and Demand

Indonesia produces around 600,000 barrels of crude oil a day but consumes roughly 1.6 million barrels a day. As of October 15, 2025, that gap leaves the country buying a mix of crude and finished fuels from abroad, often totaling about 1 million barrels a day, despite its substantial hydrocarbon resources.

Jakarta is responding with plans for several new refineries across multiple islands, targeting a combined 1 million barrels a day of additional processing capacity. That doubles an earlier target of 500,000 barrels a day. Officials are also pursuing smaller modular plants, more storage, higher biofuel blends and a wider choice of overseas suppliers.

Indonesia faces two connected problems. Its oil fields produce much less crude than they once did, while its aging refineries supply only about 60 percent of national fuel demand. A refinery turns crude into usable products such as gasoline, diesel and jet fuel. Building more plants can reduce purchases of finished fuel, but those plants still need crude, including imported crude when domestic production falls short.

Private operators including Shell and BP reported fuel shortages in October 2025. Disagreements over gasoline ethanol content and sourcing from state owned Pertamina complicated procurement, showing how supply arrangements and fuel specifications can affect deliveries alongside the country's production gap.

Households and small businesses are among the first to feel shortages or higher pump prices. Fuel subsidies help protect affordability, especially for consumers on lower incomes, but transfer part of the cost to the state budget when international prices rise. Indonesia's investment push therefore reaches beyond refineries: it concerns reliable transport, industrial activity and the public money needed to keep fuel affordable.

How Output Fell Behind Consumption

Indonesia's crude production has fallen from peaks of around 1.6 million barrels a day in the middle of the 1990s to roughly 600,000 barrels a day. Mature fields are declining, and investment cycles have lagged. Meanwhile, population growth, rising vehicle ownership and steady industrial activity have increased fuel demand.

Consumption has grown by about 4 to 5 percent annually at times, with transport and logistics leading the increase. Indonesia has not brought a new large refinery online since the middle of the 1990s. Proposed projects have been delayed, reduced in scope or left unrealized as consumption moved ahead.

The main dates and targets show how long the mismatch has developed:

• 1970s to 1990s: Much of Indonesia's existing refining system was built.
• Middle of the 1990s: Crude production peaked at around 1.6 million barrels a day, and Indonesia last brought a new large refinery online.
• October 2025: Shell and BP reported shortages as procurement and specification disagreements complicated supply.
• 2029: Officials aim to raise oil production toward 900,000 to 1 million barrels a day.
• 2060: Indonesia aims to reach net zero emissions, with green refineries among the projects supporting that pledge.

The production strategy includes reviving older fields, reactivating thousands of idle wells and developing smaller discoveries. Those efforts require time and capital. Authorities are also exploring the redirection of millions of barrels initially intended for export toward domestic refineries, allowing more Indonesian crude to be processed at home.

What Existing Refineries Can Deliver

Pertamina's six main refineries can process roughly 1.06 million to 1.15 million barrels a day, depending on maintenance cycles. Their capacity to process crude and their ability to supply the particular fuels consumers need are different measures. Plant design, maintenance and the mix of products produced all affect usable output.

Upgrades have taken place in stages, but capacity and product quality still fall short of growing demand. Older facilities face difficulties meeting cleaner fuel standards, while complex processing equipment that increases the output of valuable fuels has not kept pace.

Balongan has completed a first phase upgrade. The flagship Balikpapan Refinery Development Master Plan seeks to raise capacity from about 260,000 to 360,000 barrels a day and improve fuel quality to Euro 5 standards. A separate refinery planned at Tuban, with capacity of 300,000 barrels a day and a foreign partner, has faced setbacks as sanctions complicated financing and access to technology.

Why Indonesia Wants to Buy Less Through Singapore

More than half of Indonesia's imported fuel has been sourced through Singapore. Its nearby refineries, extensive storage and shipping network make deliveries fast and flexible, helping Indonesia fill shortages in domestic supply.

Indonesian officials have become frustrated with pricing and dependence on a single trading hub. The government has signaled plans to reduce purchases from Singapore over the coming months and diversify toward the United States and the Middle East.

Energy and Mineral Resources Minister Bahlil Lahadalia described the proposed shift as a way to strengthen Indonesia's bargaining position and balance its international relationships:

It is not only a matter of price but also geopolitical issues. We need to have a balance with other countries... Singapore does not have oil, but we buy from there. Of the total production, 34 percent of the market is in Indonesia, yet the price is the same as the Middle East. I say this is a shameful strategy.

Authorities say imports could be redirected at scale in the near term. More suppliers would spread purchasing risk, although longer voyages and different crude and product grades would change delivery arrangements. Shipping schedules, storage and blending specifications would need to match the new supply routes.

Indonesia is also considering discounted Russian cargoes where viable. Decisions across all suppliers must balance purchase prices, freight, sanctions risk and whether local refineries can process the crude efficiently.

The Scale of the New Refinery Plans

The proposed addition of 1 million barrels a day of refining capacity forms part of a wider group of 21 downstream projects worth about $40 billion. Downstream projects process or handle resources after extraction. The program includes coal gasification, oil storage and related infrastructure.

One proposed anchor refinery would process about 531,500 barrels a day at an estimated cost of $12.5 billion. It is designed for both domestic and imported crude. Project sponsors point to savings on fuel imports, wider economic activity and tens of thousands of direct and indirect jobs during construction and operations.

Pertamina is also seeking a larger petrochemical business alongside fuel production. Petrochemicals supply materials used by manufacturers, giving large refinery complexes another domestic market beyond transport fuels.

Balikpapan and the Financing Challenge

Balikpapan is central to the effort to produce more cleaner fuel and reduce exposure to imports. Pertamina has been urged to accelerate the project after years of setbacks, and its leadership says it is responding to pressure from policy makers.

Simon Aloysius Mantiri, President Director of Pertamina, described criticism from the finance minister as useful guidance:

The feedback from the Minister of Finance about the lack of new refineries is valuable input. Our focus is to accelerate refinery development and improve performance to deliver higher quality fuels and greater energy resilience.

Pertamina has faced the loss or renegotiation of several planned partnerships, leaving the company to carry more expansion risk on its own balance sheet. That means more of the financial exposure rests with Pertamina while it continues to pursue a larger refining and petrochemical footprint.

Subsidized fuel adds another complication to investment decisions. It supports affordability but also encourages consumption and makes the relationship between market prices, public spending and commercial returns harder to manage. New capacity must operate within that pricing system.

Can Smaller Refineries Fill Local Gaps?

Indonesia is exploring as many as 17 prefabricated modular refineries alongside its large projects. These plants use units manufactured before installation and can be built faster, with lower initial spending, than traditional giant complexes. Typical units range from 50,000 to 150,000 barrels a day.

Officials are considering sites near oil producing regions to shorten supply lines and match plants to available crude. Some units could be configured for grades imported from the United States.

Rosan Roeslani, head of the sovereign energy investment authority Danantara, explained the connection between crude purchases and refinery design:

Indonesia will import crude oil into the country, and that will require refineries that match the characteristics of U.S. crude, so investments will be made accordingly.

Deputy Energy Minister Yuliot Tanjung described the location strategy:

There are plans to locate the refineries close to oil production sites.

Smaller plants have limits. They often lack advanced upgrading equipment, reducing gasoline and diesel yields and the range of crude they can process. Smaller cargoes can also increase freight costs. Heavy dependence on one imported crude type creates exposure when the price advantage of buying and shipping that grade narrows.

Modular plants could therefore fill selected gaps while larger complexes provide scale, flexibility between crude grades and competitive petrochemical production. The proposed network is unlikely to replace the need for at least one or two large complex refineries.

Danantara is expected to coordinate financing and partnerships, including a trade arrangement pairing increased purchases of U.S. energy products with improved market access for Indonesian goods. Modular plants suited to light sweet crude, oil with relatively low density and sulfur content, could support that strategy where commercial terms are workable.

Biofuels Aim to Replace Part of Diesel Imports

Indonesia is pushing B50 biodiesel, a blend containing 50 percent biodiesel derived largely from palm oil. The aim is to reduce diesel imports and support farm incomes. The policy builds on earlier B20 and B30 mandates as engines and distribution systems adapt to higher biodiesel content.

Higher blends can reduce the import bill and greenhouse gas emissions compared with fossil diesel. Palm oil's connection to land use has also drawn international scrutiny. Trade partners have challenged sustainability claims and land use impacts at the World Trade Organization, while Indonesian officials say traceability and better plantation practices will address concerns.

Fuel quality remains a practical task, particularly in colder highland areas and heavy equipment. Producers and engine makers have made progress with additives and logistics to keep fuel flowing reliably as blends increase.

Green refineries are another part of the plan. They are designed to process biological feedstocks into renewable diesel and sustainable aviation fuel. Officials see them as supporting Indonesia's pledge to reach net zero emissions by 2060 while building industrial capacity for products facing rising global demand.

Coal, Gas and Household Fuel

For cooking fuel, the government promotes dimethyl ether, or DME, made from coal as a substitute for imported liquefied petroleum gas, or LPG. Production in Sumatra or Kalimantan could reduce reliance on LPG cargoes and ease subsidy costs.

The policy seeks to use domestic resources while preparing for a future in which cleaner fuels and electrification supply a larger share of cooking and transport needs. DME addresses household fuel imports, while refinery expansion and biodiesel focus on other parts of the energy bill.

Gas development offers another route to reducing oil use. The Masela project in the Arafura Sea and fields in the Natuna area remain opportunities for the longer term. They could supply industry and electricity generation, allowing diesel generators to be replaced in parts of the grid and on islands.

Investment in these gas projects could also support engineering skills, supply chains and the tax base that helps fund downstream development. Their contribution would come through a different part of the energy system from refineries producing gasoline or jet fuel.

Storage, Fuel Standards and Safety Matter Too

Indonesia's geography makes distribution a major part of energy security. Limited pipelines and storage across the archipelago increase transport costs and the risk of local shortages. Fuel must reach the right island and terminal in time, even when national supplies appear adequate.

Officials plan a storage facility holding 1 million barrels on Pulau Nipah near Batam. That provides limited coverage by global standards but adds a strategic supply point. More storage near refineries and major consumption centers could shorten delivery times when weather or shipping disruptions occur.

October's shortages at private stations also exposed friction over specifications. Ethanol is used in many countries as an oxygenate in gasoline and to manage octane ratings. Its blending level must fit local standards, procurement arrangements and storage practices. Consistent specifications and adequate reserve stocks at terminals can help keep sourcing disputes from becoming shortages at pumps.

Pertamina facilities, including refineries and fuel depots, have suffered several fires in recent years. The incidents disrupted deliveries and prompted broader reviews of risk management. Higher output from new units will require investment in maintenance, fire prevention and safety systems to keep operations reliable.

What Would Count as Progress?

Indonesia's refinery push can be assessed through concrete results: lower imports of finished fuel, higher refinery utilization and smoother deliveries between islands. Another measure is whether plants can process a wider range of crude, including Indonesian grades previously sent abroad.

Consumers would benefit from more reliable supplies and pump prices that react less sharply to global price spikes. Public finances could gain as domestic fuel production grows and biofuels replace part of the diesel supply, easing the subsidy burden.

Large complexes and selected modular units could serve different needs. The larger plants offer economies of scale and petrochemicals for manufacturing; smaller units could supply producing regions or nearby demand centers. Both require credible schedules, transparent contracts and strong safety standards.

As of October 15, 2025, no full commissioning timetable was given for the proposed refinery network. Indonesia's challenge is to turn capacity targets into dependable production while aligning crude purchases, storage, distribution and fuel quality with what households and businesses use every day.

What to Know

• Indonesia produces about 600,000 barrels of crude a day and consumes roughly 1.6 million barrels a day.
• Domestic refineries meet about 60 percent of national fuel demand, while crude and finished fuel imports often total about 1 million barrels a day.
• Officials plan 1 million barrels a day of additional refining capacity, up from an earlier target of 500,000.
• A proposed anchor refinery would process about 531,500 barrels a day and cost an estimated $12.5 billion.
• Balikpapan's upgrade aims to raise capacity from about 260,000 to 360,000 barrels a day and produce fuel meeting Euro 5 standards.
• Indonesia wants to reduce purchases through Singapore and diversify supplies toward the United States and the Middle East.
• As many as 17 modular refineries are under consideration, alongside larger complexes.
• B50 biodiesel, DME, gas development and green refineries address different parts of Indonesia's reliance on imported energy.
• Storage, safe operations, consistent fuel specifications and reliable distribution remain essential to preventing shortages.