China’s Nanshan Group plans 100,000 bpd refinery in Indonesia

[SINGAPORE/JAKARTA] China’s Shandong Nanshan Group plans to build an oil refinery on Indonesia’s Bintan island, where the privately controlled firm operates a large alumina plant, according to three Chinese sources and an Indonesian official.

Chinese firms have been looking to set up refineries in South-east Asia, where fuel demand is growing steadily while China’s domestic oil consumption peaks due to the rapid electrification of the automotive fleet.

Nanshan Group, an aluminium producer that also holds a stake in major Chinese refiner Yulong Petrochemical, plans to build a 100,000 barrels-per-day (bpd) crude refinery in the Galang Batang special economic zone on Bintan, an island about one hour by ferry from Singapore known for its holiday resorts.

Nanshan is “proceeding with refinery design” and in the process of formalising detailed investment plans, including the configuration of the petrochemical part of the complex, a senior source with direct knowledge of the project told Reuters.

The refinery would also produce petroleum coke, a heavy residue used as feedstock for the aluminium smelter Nanshan plans to build in an extension to its alumina facility in the same economic zone, the source added.

Smaller plant to ‘test the waters’

Several plans for new Indonesian refineries backed by Middle Eastern state firms, including Saudi Aramco and Kuwait Petroleum, have failed to materialise in recent years.

Nanshan’s plan for a relatively small refinery is to “test the waters” because of “uncertain market conditions and regulatory environment” in Indonesia, the source said, speaking on condition of anonymity as the plan is not yet public.

Bambang Wijanarko, a senior official at Indonesia’s National Council for Special Economic Zones, said Nanshan plans to spend up to 30 trillion rupiah (S$2.3 billion) for the first-phase investment of a refinery and petrochemical plant, with a target to spend up to 150 trillion rupiah over five years.

Nanshan is “still fulfilling the requirements” to obtain the necessary permits, Wijanarko told Reuters by text message, without elaborating.

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Neither the senior industry source nor Wijanarko gave a timeline for the start of construction.

Nanshan, however, has begun hiring engineers and managers experienced in refinery construction and operation, according to two separate industry sources with knowledge of the matter.

Shandong Nanshan Aluminium, the group’s main aluminium unit, did not respond to requests for comment.

Nanshan adding aluminium smelter at site

Nanshan last month announced plans to “initiate preparation work” to build a 250,000 tonnes per year (tpy) aluminium smelting unit in Bintan, part of a planned expansion of its four million tpy alumina facility that began operation in 2022.

Chinese firms have three refinery assets in South-east Asia: PetroChina’s stake in Singapore Refining; Hengyi Petrochemical’s Brunei plant, which announced plans last month to expand; and Shandong Hengyuan Petrochemical’s facility in Malaysia’s Port Dickson. More recent efforts by two Chinese chemical groups to build a refinery complex in Indonesia’s North Kalimantan province have yielded little progress. REUTERS