Analysis of Petroleum Downstream Industry Potential in Riau Province

Petroleum downstream industry in Riau Province is still not optimal. The data shows that from 98,892,755 barrels lifting oil each year only 62,050,000 barrels could be processed in refinery unit II Dumai operated by PT Pertamina. There is a potential of 35-40% of downstream industry. Indonesian Government through The Ministry of Energy and Mineral Resources declared the construction of a mini refinery to boost oil processing output in the downstream sector. A feasibility study of development plan mini refinery is needed. The study includes production capacity analysis, product analysis, development & operational refinery  analysis and economic analysis. The results obtained by the mini refinery capacity is planned to process crude oil 6000 BOPD with the products produced are gasoline, kerosene, diesel and oil. Investment cost consist of is capital cost US $ 104419784 and operating cost US $ 13766734 each year with net profit earned US $ 12330063/year and rate of return from investment 11.63%


Int r oduct i on
Riau Province is one of the biggest oil and gas producers in Indonesia. The oil and gas comes from several operational areas spread in Bengkalis Regency, Siak Regency, Pelalaw an Regency, Indragiri Hulu Regency, Kam par Regency, Rokan Hulu Regency, Rokan Hilir Regency and M eranti Islands Regency. Based on the official report released by the M inistry of Energy and M ineral Resources (lifting.migas.esdm.go.id), Riau Province's crude oil lifting for 2016 reached 98,892,755.93 barrels, this production is the highest in Indonesia. M eanw hile, nat ural gas production is estimated at 18,814,803.69 M M BTU.
The large potentials in the oil and gas sector should be developed to increase local and national revenues. Oil and gas can be used as basis for regional economic development, so that oil and gas activities can be used as a stimulus to move the local economy (M urbuni, 2001). In the upstream sector (exploitation), some fields in Riau Province have entered on tertiary recovery or enhancing oil recovery. M eanw hile, in the dow nstream sector, it can be said that it is not optimum yet because in Riau Province there is only one petroleum refinery unit II managed by PT Pertam ina in Dumai City. The refinery has an installed capacity of 170,000 barrels per day (Risdiyanta, 2015). If w e calculate a year only able to process 62.05 million barrels of oil produced from oil and gas fields in Riau. There are still 35-40% unprocessed oil production.
One of the efforts to improve performance in the dow nstream sector of oil and gas is to encourage the developm ent of industries based on the processing of oil and natural gas (Directorate General, Oil and Gas, Ministry of Energy and Mineral Resources 2015). This is stated in UU no. 3 tahun 2014 on Industry, the role of government in pushing forw ard industrial sector forw ard done in a planned and arranged systematically in a planning document.
The plan set by Indonesia Government for Riau Province in the dow nstream sector is constructing of a mini refinery w ith a capacity of less than 20,000 barrels per day. Regulation of the M inister of Energy and M ineral Resources of the Republic of Indonesia Number 22 of 2016 concerning the Implementation of Small-Scale Oil Refinery (mini refinery) w here there are tw o developm ent mini refinery plans, cluster II Selat Panjang covering EM P M elacca Strait and Petroselat and cluster III Riau covering Tonga, Siak, Langgak, West Area and Kisaran. The construction of a mini refinery has several considerations w hich are required low er cost and shorter time than building a large refinery, increasing fuel demand, close proximity to oil production w ells t hat w ill save transport shipping cost and environmentally friendly minimum w ater and solid w aste or air pollution (Sulistyaningrum, 2015). A preliminary analysis of developm ent plans is required to provide a clearer picture of the technical and economic aspects of the project. This research is also expected t o be a reference by stakeholders in taking policy. The policies are expected to increase local revenue from not optimized yet oil and gas production.

M et hodology
This study is a descriptive research, w hich w ill provide an overview of the potential of dow nstream industries in Riau province. The problem identification is view ed from the not optimal processing of petroleum production in the dow nstream sector. Currently dow nstream capacity is only capable of processing 60-65% of petroleum production through the presence of Pertam ina refinery in Dumai and review ing the plan issued by the government for the construction of a mini refinery as one of the upgrading efforts in the dow nstream industry.
Focus of the research is cluster II covering Tonga, Siak, Pendalian, Langgak, West Area and Kisaran. One of the oil sam ples taken from Siak Field, Sumatran Light Crude (SLC). Testing of distilled point is done in the Petroleum Engineering laboratory of Universitas Islam Riau.
The data used are primary data from the laboratory test result s for the distillation point and secondary data from several sources such as production data from the lifting report of the M inistry of Energy and M ineral Resources, legal products applicable in Indonesia in the form of Law s, Government Regulations and M inister Regulations. Other secondary data are obtained from a variety of sources that can be trusted for its validity.
The analysis undertaken to get conclusions are as follow s the first assessment of the ability of the supply of raw materials to determine the production capacity in the dow nstream industry. The second determination of the product type (fraction) generated through the sam ple test. The third determination of the amount of costs required in the construction of a mini refinery, the cost w ill be grouped into tw o nam ely the cost of capital and operating costs (non-capital). The calculation method for the payment of capital costs by using linear depreciation over several years of production. The fourth economic analysis of the project involves adding value from raw materials to processed products and return on investm ent.
The oil and gas sector comprises three business groups: upstream , intermediate and dow nstream . The upstream sector is getting mining permits, exploration and exploitation. Refining, processing, and marketing activities are dow nstream oil and gas industry activities (Nugroho, 2004). In this research w ill focus on the dow nstream industry of oil and gas is refining/ processing of petroleum . Processing flow in mini refinery operations has many configurations that match the needs and desired output product (M cGuire, 2012). This is an exam ple of a processing flow on a mini refinery fig. 1.
Operating processes at oil refineries can be classified into 5 stages (Risdyanta, 2015), as follow s: 1. Distillation process, is a distillation process based on t he difference of boiling point; This process takes place in t he atm ospheric distillation column and the Vacuum Distillation Column. Vacuum distillation process is a second phase of the crude oil processing (Ocic et al, 2000).
2. The Conversion Process, w hich is a process for changing the size and structure of hydrocarbon compounds. Included in this process are: a. Decomposition by thermal cracking and catalyst (thermal and catalytic cracking) b. Unification through alkylation process and Alteration polymerization through isomerization process and catalytic reforming. 3. Treatm ent process. This is int ended to prepare the hydrocarbon fractions for further processing, also to be processed into the final product. 4. Formulation and mixing (blending) process, is the process of mixing hydrocarbon fractions and addition of additive to obtain the final product w ith certain specifications. 5. Other processes include w aste treatm ent, sour-w ater stripping, sulfur recovery, heating, cooling, hydrogen-making and other supporting processes. The implementation of the economic feasibility study for modern oil and gas projects is divided into main scopes (Shaallan,   . Total production for mini cluster II refinery w ork area is 6300 BOPD. The details are Tonga 1200 BOPD, Siak 1500 BOPD, Langgak 400 BOPD, Pendalian 900 BOPD, West Area of 1000 BOPD and Kisaran estimated production w ill reach 1300 BOPD. The ability of raw material supply in the form of crude oil is a reference in the developm ent of production capacity for mini refinery developm ent in clust er III w hich is 6000 BOPD. This figure considers the condit ion in the future, w hereas principle oil production w ill decrease (decline) if special treatm ent has not done in the form of addition of production w ell, secondary and tertiary recovery. In the other side,

Refi ner y Pr oduct s Analysi s
Based on the official report released by the M inistry of Energy and M ineral Resources (2016) the type of oil produced in Riau is generally Sumatran Light Crude or SLC. One of the SLC sam ples taken directly in the field w as tested by crude oil destilation. This test aim to determine fractions generated from crude oil. How ever, limitation of the testing equipm ent it is not being used to obtain the distilled distillation result but rather the combination of all the distillates w hich are the refluxable feedst ock to obtain the fractionated fuel. The table below test result s of In this experiment to get the distillation result from crude oil, the crude oil sam ple w as heated by using electric heat er and crude oil destilator. Before getting the distillation result s, the sam ple w ill pass the bubble point . It is the temperature at w hich the gas phase begins to release from the oil, marked by appared bubble burst first time. After passing the bubble point the sam ple w ill reach the boiling point core, it is the temperature at w hich the first droplet of the distillation. After reaching the initial boiling point the sam ple w ill continue to produce the distillate until it reaches the end boiling point , it is the temperature at w hich t he sam ple no longer produces the distillate and only residual remains. Based on our experiment the bubble point temperature obtained is 180 ° C, the initial boiling point temperature obtained 185 ° C and the boiling point end temperature obtained is 250 ° C. Additional data is required for test result to be divided into distillation fractions, the data obtained from the results published by Emergency Canada, In mini refinery operations it is advisable to process petroleum into products w ith simple straightforw ard atmospheric distillation aimed at reducing costs. This simple distillation is diesel fuel and / or kerosene production w ith by-products of gasoline and naphtha. How ever, it is not possible to make a second phase vacuum distillation can filter components of fuel oil from the first atmospheric tow er into clean diesel oil and heavy residual oil.

Fig. 3. Fraction of SLC Distillation
The addition of a secondary process can provide better value and quality for the final product to be produced (Risdiyanta, 2015). The process w ill provide consequences required investm ent cost that w ill increase. These secondary processes include cracking, catalic reforming, polymerization and so on.
In future, as for the qualit y of the refined products, specifications are no longer set by customers and vehicle manufacturers only, but also by environmental regulations. To reduce emissions from automobiles, reformulated gasoline and diesel fuel, w ith low sulfur and high cetane number, have (Stanislaus, A., Qabazard, H., & Absi-Halabi, M ., 2000).

Developm ent & Oper at i onal Refi ner y Analysi s
The refinery configuration refers to a study by Jones (2004) w ho has prepared a mini refinery project plan w ith the sam e capacity of 6000 BOPD. In the refinery developm ent project the main component of cost are cash inflow and cash outflow (Shaallan, 2012). Cash inflow is derived from the proceeds from sale of product from the refinery. Cash Outflow (expenses incurred) consists of capital cost for building refineries, refinery operating cost and purchases of raw materials, state taxes to be paid on the based on agreed contacts. The cost of capital w ill include several w orking groups in construction of this mini refinery as follow s:  Fig. 4, The greatest cost is required for construction of process unit (crude unit, naphtha HDS, reformer, unicracker) of US $ 48709680 or 48% of total capital cost. Construction of site facilities have a percentage of 26% equivalent to US $ 27061760. Project w ork has aspects of uncertainty especially the price of raw materials in the market for it needs to be taken into account unexpected costs in the mini refinery w ork, the unexpected cost is the third largest cost group to be spent In capital investm ents w orth US $ 13108499 (13% of total capital cost).
The cost of mini refinery w ork is estimated to be 7% of the total capital cost or US $ 7021293. Engineering design in feasibility study w ill cost US $ 6530832, t his cost has a 6% percentage of the cost of capital. The last group is the cost of operating support facilities such as communication netw orks, security syst ems, monitoring and others costing US $ 1987720 only 2% of the cost of capi tal.  After the refinery is built, it is expensive to operated.
Fixed cost include personnel, maintenance, insurance, administration and depreciation. Variable cost include crude feedstock, chemicals and additive, catalysts, maintenance, utilities and purchased energy (such as natural gas and electricity). To be economically viable, the refinery must keep operating costs such as energy, labor and maintenance to a minimum (Canadian Fuels Association, 2013;Jones & Pujado, 2006) Table 3 and Fig. 5 show the am ount of operating costs consisting of purchasing natural gas as the main energy source, electricity, w ater, chemicals, labor and supply management needed per day. In the operation of mini refineries w ould require a considerable energy, certainly can not depend on electricity supply from PLN for it needs to be allocated gas purchase costs for the plant. Gas can come from existing fields in the operating area, the cost of w hich is set at US $ 15195 or 40% of operating costs. Electricity needs are still supported by electricity coming from PLN w here the allocation is not large, the funding for electricity originating from PLN is estimated at US $ 2702.
Labor cost is the second highest persentage of 26% or US $ 9759. Chemicals as a supporter of processing raw materials daily cost US $ 8859 (23%). M aintenance supplies and w ater are not significant at only 3% (US $ 992) and 1% for US $ 211 of operating cost on a daily basis. If the operating expenses are calculat ed w it hin a year then total operating cost is US $ 13766734.

Econom i c Analysi s
The most w idely used measure economic performance in the refining industry is return on investm ent (ROI) (Pirog, 2007). This section w ill focus on that param eter. The calculation can certainly be a consideration for investors and governments in taking policy tow ards the project. The follow ing show s the calculation results of the details of investm ent component s. Increase of product value is obtained from sale of processed products in this case gasoline, kerosene, diesel and oil w ith total sales of US $ 163834448. The production capacity of mini refinery to be built is 6000 BOPD operational time in a year 365 days then the need for raw material s is 2190000 Barrel assuming average w orld oil price of US $ 60 / Barrel then t he tot al expenditure for raw materials is US $ 131400000. Depreciation (straight line method) from mini refinery is US $ 6526236 / year, the value is the capital cost di vided by the estimate mini refinery project time, that is assumed to be 16 years (Jones, 2004).
Net profit is derived from the total value added of the product produced minus cost of raw materials, operating cost , and depreciation. The addition of the value of each barrel final product generated am ounted to US $ 15.85. The rat e of return on investm ent of 11.63%, this value is low in oil and gas projects usually set a return of investm ent of 30%. The low rate of return on this investm ent can be concluded that the construction of a mini refinery is not economical (Utami, 2013). The economic feasibility of a project is not the only factor to decide w het her to build or not but must look to local need of a region (M cGuire, 2012). During the construction, commissioning and operation of the refinery, massive labour employment, both skilled and unskilled w as generated in the market. This project also generated the secondary employment for other business like transport, manufacturing, pow er, market for the daily consumption by the labour, housing & construction in the project location (Chaudhuri & Ray, 2016) 4. Conclut i ons Based on review for , the conclusion reach as follow : 1. The production capacity of mini refinery is 6000 BOPD 2. Types of final product from mini refinery are gasoline, kerosene, diesel, and oil 3. Total capital cost of mini refinery developm ent is US $ 104419784 and annual operating cost is US $ 13766734 4. Total annual net income is US $ 12330063 and return on investm ent 11.63%