Indonesia's plan to import more fuel from the US, and sidelining Singapore, raises questions over costs.

Straits Times

16-05-2025

More than half of Indonesian fuel imports are currently from its neighbour Singapore. PHOTO: AFP
Indonesia's plan to shift fuel imports from US instead of Singapore, raises questions over costs
JAKARTA - A plan by the Indonesian government to import significantly more fuel from the United States, while reducing purchases from Singapore, has raised concerns over the higher transport and insurance costs that would be incurred due to the longer sailing time and through possibly treacherous waters.
The move is driven by ongoing negotiations with the US over the 32 per cent tariff the Trump administration has imposed on Indonesian goods, in response to Indonesia's trade surplus with the US.
More than half of Indonesian fuel imports are currently from its neighbour Singapore, which refines crude oil from the Middle East, Australia and Malaysia .
The US, on the other hand, accounts for less than 0.1 per cent of Indonesia's fuel imports in 2024.
Energy and Mineral Resources Minister Bahlil Lahadalia said on May 9 that the shift away from Singapore for some fuel imports would happen gradually.
Professor Iwa Garniwa, an energy analyst at the University of Indonesia, told The Straits Times: 'The government must study such a plan carefully, taking into account the logistics factor.'
Importing fuel from the US would require some of the cargo to transit through the Suez Canal, said Professor Marsuki of the Hasanuddin University in South Sulawesi.
The area has only recently recovered from security incidents such as missile attacks in the Red Sea and southern Yemen by Yemen's Houthi rebels.
'The risk arises from logistics costs due to the longer journeys and factors caused by the global geopolitics recently being less conducive to stable security. This gives a prospect of uncertainty going forward,' Prof Marsuki, who goes by one name , told ST.
Ships plying the Red Sea route faced a doubling of their marine insurance premiums due to the rising level of insecurity off the coast of Yemen. War risk premiums rose to 0.7 per cent of the value of a ship in February for some voyage rates, from 0.5 per cent in January, Reuters reported in March.
The premium eased in January compared with December 2024, as the Iran-aligned Houthis said they would halt attacks on US- and UK-linked shipping, in tandem with a ceasefire between Israel and Palestinian militant group Hamas.
Reuters also cited industry sources saying that for some US- and UK-linked ships, voyage rates were quoted up to 2 per cent higher in recent weeks for those still willing to sail through the waterway.
Among the companies tasked to import fuel for Indonesia are state-owned energy firm Pertamina Patra Niaga, which has said that it will follow the government's directive to shift its supply sources from Singapore, towards other countries.
Pertamina's corporate secretary, Ms Heppy Wulansari, told ST that it is awaiting further clarity from Mr Bahlil's ministry before implementing the policy.
Indonesia consumes 1.6 million barrels of oil per day, while only producing between 500,000 and 600,000 barrels per day, making it a net oil importing country, said Mr Komaidi Notonegoro, executive director of energy research group ReforMiner Institute.
Most of the imported fuel is used to supply to the pump stations that then sell to land-based vehicle customers; to industries for production activities; and for generating electricity in power plants.
In 2024, Indonesia imported petroleum worth US$11.4 billion, or 53 per cent of its total petroleum imports, from Singapore, while only US$19 million worth of the commodity came from the US, or less than 0.1 per cent of the total petroleum imports, according to government data.
Most of the remaining 47 per cent of fuel imports in 2024 were from Malaysia (valued at US$4.5 billion), China (US$1 billion) and Saudi Arabia (US$825 million).
The Indonesian government has said it plans to raise energy imports from the US by about $10 billion, including products like refined fuel and liquefied natural gas.
Indonesia in 2024 ran a US$18 billion (S$23.3 billion) trade surplus with the US. The US has imposed a 32 per cent tariff on Indonesian goods, but its implementation has been paused until July to make room for negotiations.
Indonesia, South-east Asia's largest economy, has committed to a series of strategic measures to balance trade with Washington, that includes removing non-tariff barriers such as a requirement to have locally made parts in foreign products, such as Apple's iPhones.
Referring to additional costs of shipping fuel from the US, a former Pertamina senior officer told ST that some of the petroleum would likely be transported using very large crude carriers (VLCCs) that would not be able to use the shorter Suez Canal route. The VLCCs must instead use a much longer route by sailing around South Africa.
But the officer, who declined to be identified, also noted that Singapore is a regional oil refining and trading hub that takes crude oil from various parties before turning it into fuel and shipping it to buyers.
'You can shift to buying from traders from any country, but the fuel would likely get shipped from Singapore because the refinery facilities are in Singapore,' the officer added, by way of explaining there is a possibility that US fuel could come via Singapore.
Apart from costs, there is also bilateral ties to look at, said Mr Komaidi . He noted that 70 per cent of Indonesia's total fuel imports are from Singapore and Malaysia, a reflection of Indonesia's good relations with these neighbours.
'The relations built with Singapore and Malaysia, and other countries in the Asean region have been around since a very long time ago. We also must take this into consideration,' said Mr Komaidi.
He added that the move to source more energy imports from the US should only be done if it will not affect Indonesia's neighbourly relations .
On the other hand, there could be upsides to buying US natural gas , said Mr Komaidi.
The economies of scale and mature infrastructure of the US energy market allows gas prices to be very competitive, at only between US$3 to US$4 per MMBTU (million British thermal unit). The price in Indonesia is at between US$7 to US$9 per MMBTU, he said.
'Add that with transport and insurance costs, the gas from the US would be around the same price when it arrives here,' Mr Komaidi said.
Prices could possibly be lower, he noted, but not by much.
Wahyudi Soeriaatmadja has been Indonesia correspondent at The Straits Times since 2008, and is based in Jakarta.
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