TRANSMITTAL OF MATERIAL

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A001700130001-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 12, 2016
• Document Release Date: March 21, 2002
• Sequence Number: 1
• Publication Date: August 21, 1963
• Content Type: MF

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SECRET
Current Support Brief
POSSIBLE SALE OF INDONESIAN OIL
TO COMMUNIST CHINA IN 1964
CIA/RR CB 6 3-68
19 August 1963
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
SECRET
GROUP 1
Excluded from automatic
downgrading and
declassification
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WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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POSSIBLE SALE OF INDONESIAN OIL
TO COMMUNIST CHINA IN 1964
The Indonesian Minister of Basic Industries and Mining, Chaerul
Saleh, recently announced that at the end of 1963 the government of
Indonesia would exercise its option to take up to 20 percent of the pay-
ment due it from foreign oil companies in the form of crude oil. Saleh
also stated that Indonesia reserves the right to determine to whom its
oil shall be sold. These two statements, particularly in the light of
the worsening Sino-Soviet relations, have given rise to renewed specu-
lation that some Indonesian oil may be destined for Communist China.
At the present time, the possibility of such a deal continues to appear
unlikely. Except for negligible quantities received from Albania,
Communist China has imported no crude oil since 1960, and it is esti-
mated that current domestic production of crude oil is adequate to
employ fully the existing Chinese refining capacity. Chinese imports
of petroleum products, which averaged about 37, 000 barrels per day (bpd)
in 1962, are supplied almost entirely from the Bloc (principally the
USSR), and existing trade agreements with the Bloc are assumed to
cover anticipated requirements in 1963. Although total exports of pe-
troleum from Indonesia in 1962 amounted to about 251, 000 bpd of crude
oil and 124, 000 bpd of products, the government of Indonesia itself ex-
ported only about 20, 000 bpd of crude and had no products for export.
The possibility of the sale of Indonesian crude oil and/or petroleum
products to Communist China in 1964, however, cannot be discounted,
although such a sale would be contingent on an increase in existing re-
fining capacity in China and/or the commandeering by the Indonesian
government of products from refineries owned by foreign oil companies.
1. Availability of Petroleum to Indonesia
In 1962, production of crude oil in Indonesia amounted to about
458, 000 bpd, of which about 412, 000 bpd was produced by three foreign
companies -- Caltex (229, 000 bpd), Shell (112, 000 bpd), and Stanvac
(71, 000 bpd). Both Shell and Stanvac have refining facilities in Indo-
nesia, and, except for about 10,000 bpd exported by Stanvac in 1962,
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the entire output of these two companies was refined locally. Caltex,
on the other hand, has no local refining facilities and exports virtually
all of its production, except for small quantities refined in Stanvac's
facilities. On the basis of 1962 production, the government could ac-
quire as much as 80, 000 bpd of crude for disposal through its own
channels in 1964, but it is estimated that the actual quantity involved,
if Indonesia carries out its plan, would be about 40, 000 to 45, 000 bpd,
roughly equivalent to 20 percent of Caltex's production. Both Shell and
Stanvac export petroleum products, and the government probably would
be reluctant to reduce its earnings from this source. Moreover, much
of Indonesia's crude is extremely waxy and presents serious problems
in handling and processing, and it is unlikely that Indonesia would be
able to undertake marketing of this crude. If, however, Indonesia were
to require payment in kind from Caltex alone, as much as 45, 000 bpd
could be supplied entirely in Dun i crude or in a combination of Dun i and
Minas crude, both produced by Caltex, which Indonesia could handle
with little or no difficulty.
2. Likely Markets
With respect to the possible sale of this amount of crude oil by
the government of Indonesia in 1964, three likely customers within the
economic marketing area would appear to be Communist China, Burma,
and Japan. There is evidence from a variety of sources that the Chinese
are expanding the Lan-chou refinery, and it is estimated that this ex-
pansion would be from the current capacity of 1.0 million metric tons
(20, 000 bpd) to 2. 0 million metric tons (40, 000 bpd) planned when the
refinery was originally built. It is possible that prior to the with-
drawal of Soviet technicians in mid-1960 the USSR had provided some
of the equipment necessary for the expansion. If the Chinese can com-
plete the expansion by the end of 1963, they could then provide a market
for as much as 20, 000 bpd of Indonesian crude at coastal refineries by
diverting the crude presently supplied to these refineries to Lan-chou.
Although the capacity of China's coastal refineries is estimated to be
about 30, 000 bpd, China's increasing domestic production of crude and
possible technical difficulties in processing Indonesian crude suggest
that the market in China would not exceed 20, 000 bpd. Another possible
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market for Indonesian crude would be the refinery at Syriam in Burma.
Expansion of this plant (to be completed in the fall of 1963) would pro-
vide a market for about 10, 000 bpd of crude; moreover, a mixture of
Minas crude (Caltex) and Rantau crude (Permina, a Government of
Indonesia company) would be an ideal feed stock for Burma's require-
ments. Caltex expects to provide its crude, but, as yet, the contract
has not been signed. Although Japan's production of crude oil in the
Middle East is expanding rapidly, Permina currently is exporting about
24, 000 bpd to Japan, and it is possible that this market might be ex-
panded.
3. Evaluation of Market Prospects in Communist China
The sale of Indonesian petroleum products to Communist China in
1964 seems unlikely in spite of probable Chinese interest in such prod-
ucts, either as part of a barter deal or with payment in hard currency
if necessary. There are many indications that China is seeking to
relieve its almost total dependence on the USSR for imports of products,
and in 1962 the volume of Indonesian exports of products (most of which
were exported by Shell) was more than three times as large as China's
imports in that year. With respect to quantity, therefore, Indonesia
would have no difficulty in providing the total amount required by China,
but the specific types of product required probably would not be available.
Indonesia already faces a problem with respect to the supply of kerosine
for domestic consumption, and the quality of domestic crude precludes
any significant increase in production of kerosine with existing refining
facilities. China's imports in 1962 included an estimated 19, 000 bpd
of kerosine and jet fuel (about 51 percent of total imports), and it is
unlikely that Indonesia would be able to meet this demand. In addition
to the problem of providing necessary amounts of specific products is
the question of how Indonesia would acquire products for sale abroad.
The government has some simple refining capacity (about 10, 000 bpd),
but products from these refineries would not be suitable for foreign
marketing. The proposed refinery with a capacity of 15, 000 bpd to be
constructed by Rumania is still in the planning stage. Indonesia could,
of course, direct the foreign companies to provide products for sale to
Communist China, but, even for Indonesia, this would appear to be a
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most unlikely decision. Product exports (which are more profitable
than exports of crude) are currently going to Free World markets, and
to divert these products to Communist China would generate no addi-
tional foreign exchange. In fact, if a barter deal were involved, such
a diversion probably would represent a loss of foreign exchange. One
possible means for Indonesia to acquire products would be to levy on
Caltex for crude oil to be processed by the refineries owned by Shell
and Stanvac. It is estimated that these refineries have excess capacity
of about 30, 000 bpd. In January 1963, Caltex made an oral commitment
to Indonesia to provide crude for this purpose, but the intention of the
government at that time was to market the products domestically, using
the distribution facilities of Caltex as necessary.
Although it is most unlikely that Indonesia could or would under-
take to replace the USSR as a source of petroleum products for Com-
munist China, there is a possibility that Indonesia might supply a
small quantity of the products to be imported by Communist China in
1964. From the Indonesian point of view, a decision to supply petro-
leum products to Communist China would appear to be based on political
rather than economic considerations.
Analysts:
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