Indonesia to switch to 0.35% sulfur gasoil in March 2007

Indonesia to switch to 0.35% sulfur gasoil in March 2007

Singapore (Platts)--7Apr2006

Indonesia plans to switch to the more environmentally friendly 3,500 ppm
(0.35%) sulfur gasoil from 5,000 ppm in March 2007, an official at the energy
and mines ministry said Friday.
The government in March this year informed oil companies about the new
specification, said processing and commerce director Erie Soedarmo. "We have
given them one year to make the transition and hope they will be ready to meet
the new specs by next March," Erie said.
Once the new specification comes into effect oil companies will not be
able to import 0.5% gasoil, he said. The new specification applies to all
companies which import and sell gasoil in Indonesia as well as to industries
using the fuel, he added.
Indonesia is a major importer of the 0.5% grade in the region. It has
been importing around 3 million barrels/month this year.
Erie said the government was looking into further lowering the gasoil
sulfur content but no timeframe had been set as yet. "We may further lower
the sulfur content in gasoil to 3,000 ppm. But we don't know when we will be
able to implement this," Erie said.

TRADERS SKEPTICAL ABOUT INDONESIAN SWITCH AMID HIGH PRICES
Asian traders were, meanwhile, skeptical about whether the new lower
sulfur specification would actually be implemented next March given the
current record-high price of 0.5% sulfur gasoil in the region.
Indonesia is already struggling with high gasoil prices and moving to a
lower sulfur gasoil grade will only further jack up import costs, a trader
said, adding that Indonesia's gasoil imports had halved from around 6 million
barrels/month since the government raised prices last October.
Singapore 0.5% sulfur gasoil prices surged $1.93/barrel to reach an
all-time high of $79.98/barrel Thursday, surpassing the previous high of
$79.25/barrel set on August 31, 2005, Platts data showed. Prices have surged
$20.57/barrel, or 35%, in the past four months, driven by higher crude
benchmarks and limited spot availability of 0.5% sulfur gasoil in the Asian
spot market.
However, should the government actually implement the new specification
it would have big implications for Asian refiners and for swaps trading in the
region, another trader said.
Indonesia and Vietnam are the two main gasoil importers in Asia. In a
surprise move, the Vietnamese government last month announced that it would
switch from 0.5% to 0.05% gasoil in April this year. It was not immediately
clear when exactly the new specification would go into effect as companies had
not been given enough time to make the transition.
But even if the new specification goes into effect next January, as has
been requested by Vietnam National Petroleum Import-Export Corp., refiners in
Singapore, South Korea and Taiwan would need to start preparing to produce
more lower sulfur gasoil to meet an anticipated rise in spot demand, the
trader said.
Also, all Singapore gasoil swaps trades are currently based on 0.5%
sulfur gasoil. If physical 0.5% sulfur gasoil cargoes start losing liquidity
to lower sulfur gasoil, traders might need to migrate to trading lower sulfur
gasoil swaps. He added: "0.5% sulfur gasoil will 'struggle for relevance' in
such a scenario."
--Choonyee Choong, choonyee_choong@platts.com
--Anita Nugraha, newsdesk@platts.com

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