Indonesia's oil giants switch to pharmaceuticals due to sluggish fuel demand

As the market demand for fossil fuels declined during the epidemic blockade, Indonesia’s state-owned oil and gas giant Pertamina plans to explore opportunities in the pharmaceutical industry while expanding its hospital business.

At present, the National Petroleum Corporation of Indonesia is negotiating with the state-owned pharmaceutical company Kimia Farma and plans to supply the latter with specific petrochemical products for pharmaceutical production. The oil giant also plans to acquire dozens of new hospitals during the year through a hospital subsidiary.

Nicke Widyawati, President and Director of the National Petroleum Corporation of Indonesia, said: "We saw an opportunity. What business can survive or even grow in the crisis? Of course it is medicine."

Due to the outbreak of the epidemic, Indonesia implemented a home order in some areas, resulting in a sudden drop in the market demand for fuel. The consumption in April fell by 35% from the daily average in January and February to 65.678 million liters per day.

Fajriyah Usman, a spokesman for the Indonesian National Petroleum Corporation, said the company will prepare the basic raw materials needed for pharmaceutical production. "Then Kimia Farma will process the raw materials into medicines individually or in conjunction with National Petroleum Corporation."

Gia Winarno, Corporate Secretary of Kimia Farma, said: "We are still discussing the details."

Darryl Xu, chief analyst of energy consulting firm Wood Mackenzie, pointed out that expanding into the petrochemical sector is a common strategy for oil refining companies to weather the crisis of fluctuating fuel demand. However, the global pharmaceutical market is much smaller than the petrochemical market.

Based on 2019 estimates, taking the phenol used to produce the analgesic paracetamol as an example, its own market size is more than 60 times larger than paracetamol.