Indonesia's state-owned oil and gas firm Pertamina and Saudi Aramco's subsidiary, Saudi Aramco Asia Company (SAAC), has signed a memorandum of understanding (MOU) to set up an oil refinery in Tuban, East Java.

The refinery is expected to have a production capacity of 300,000 barrels per day.

The companies will jointly conduct feasibility study of the project, which would later be integrated with a petrochemical plant in Indonesia.

Pertamina investment planning and risk management director M Afdal Bahaudin said, "The investment cooperation with Saudi Aramco is very useful for Pertamina and Indonesia to strengthen gasoline and petrochemical supply to meet huge domestic and regional demand."

Saudi Aramco marketing, supply and joint venture coordination vice president Dawood M Dawood said the MOU is a part of its strategy to increase downstream business and also deepen relations with Pertamina.

"We are committed to mutually beneficial investment that will benefit both parties and contribute to economic and development growth," Dawood said.

Crude oil for the refinery will be supplied by Saudi Aramco, while the facility will be used to produce different petrochemical products and high quality gasoline products, to meet the growing demand for such products in Indonesia and Southeast Asian region.