Future Indonesia’s Upstream Oil And Gas Project

Muhammad Rizki Kresnawan
Nov 7 · 4 min read
Credit: Oil and Gas IQ

Indonesia oil and gas sector has far-reaching been a significant pillar of the country economy. Before the drop in oil prices in 2013, the industry conceives $28 billion a year in foreign revenue, provided 20% of the government revenues, and supported 280,000 jobs. Nevertheless, the combination of strong national economic growth (projected at 5.2 per cent per year through 2025) and declining production of oil and gas from mature fields is forcing Indonesia to demand more resources than it generates.

Less than half of consumption was covered by domestic production in 2015. Supply and demand’s gap predicted to increase significantly of the trend from 2010 to 2015, just before oil and gas production reduced by around 3.5% per year, while domestic demand soared by 1.1%. Indonesia could delay this development dramatically, and probably reverse it, thus massively improving its GDP in the process. While doing so, coordinated action will take place in six areas.

Indonesia has proven and expected fossil fuel energy reserves of more than 7 trillion barrels of oil and about 150 trillion cubic meters of gas. There are also unconventional reserves of 450 trillion cubic feet of methane and 575 trillion cubic feet of shale gasses in this state. (Indonesia potential petroleum resources total 150 billion barrels of oil and 490 trillion cubic feet of gas.) In 2015, however, Indonesia wanted imports to cover over 50% of domestic demand. The deficit was due to several factors.

The most significant is the maturity of established oil and gas fields. Besides, Indonesia intends to take a variety of actions, including extracting more from proven reserves, discovering and developing new reserves, and using modern extraction technologies such as enhanced oil recovery (EOR) to delay or offset production drops in mature sites. All these moves require money, technology and expertise. Too many hurdles and disincentives, though, are now standing in the way of corporations that own such properties.

There are lengthy processes for permitting new development and sophisticated locally and nationally reviews. Current policies do not support local industrial sector cooperation with more specialised companies. As a consequence, foreign companies remain deterred from investing in Indonesia’s energy business, which ensures that demand continues to decline and the transition of knowledge and technology that could stimulate the growth of Indonesian business skills and talent has slowed down.

It too often sees Indonesia as non-competitive in the global oil and gas sector, especially given the current prices of oil and natural gas. As the population and economy expand, this issue would intensify the difference between supply and demand. The study predicts current trends will continue, the deficit will hit 2,3 million barrels of oil equivalent per day by 2026, and Indonesia will have to import 2,5 times its production, placing considerable pressure on the country’s currency and energy security.

Indonesia has a choice. It does not have to pay such a heavy price, and it can generate substantial revenues for itself. Indonesia oil and gas sector can overcome the barriers to investment in and expansion, and the solutions are within the government, and the local industry, control. Not only will it have an immediate impact to achieve increased production in the best resources market, but the follow-up gains would spread through the economy as a whole. Indonesia will improve local manufacturing and create jobs. Reducing reliance on imported crude would stimulate development, sustain fiscal sustainability, and enhance national security. Continuing production levels in 2016 can unleash up to $120 billion of increased GDP equal to an estimated 1.4 per cent average GDP growth over the next decade.

Enhance production capabilities for existing fields. Indonesia existing oil and gas fields are ageing. Over 60% of oil production and 30% of gas production come from resources in the late-life cycle. EOR methods may improve the performance of older fields substantially and increase the amount of extracted oil and gas. In other countries, EOR has improved the recovery of the initial oil among position to 35% to 60% in older areas. However, EOR requires the considerable expenditure in resources, as well as innovative technologies and skills not locally available. Also, current regulations in Indonesia do not encourage partnerships with international EOR service providers, which could facilitate the outside-in transfer of technology and knowledge.

As the production from maturing fields decreases, it becomes essential to explore undeveloped reserves. Many reservoirs are challenging to access, such as those in deep water. Investors need appropriate incentives to engage with the expenses and obstacles of this type of discovery, typically requiring advanced technology and versatile financial mechanisms. More versatile approaches to the profit share among contracting company and government and also the Domestic Market Obligation share and the price could lead to widened operator profits, more exploration and production incentive programs, and more government revenues.

Under a newly formed gross split production-sharing scheme, most of these steps have recently taken. The effect also needs to be seen. Regardless it will be a great success or completely fail, there still much rooms to be explored by the Government of Indonesia. Especially for the tricky, low-profit projects (such as mature fields, deepwater areas, or unconventional resources) that hard to be maximised.


By Muhammad Rizki Kresnawan

ASEAN Centre for Energy

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