Mahakam Block - Photo by Special Task Force for Upstream Oil and Gas

JAKARTA (TheInsiderStories)–Deputy Energy and Mineral Resources Minister (MEMR) Arcandra Tahar said the oil & gas producer PT Chevron Pacific Indonesia cut the investment estimates for Indonesia Deepwater Development (IDD) to US$6 billion from initially $12.8 billion.

It is in line with the Minister of Energy and Mineral Resources request as the main condition of the approval of the plan of development (POD). The ministry expects Chevron to submit the POD proposal no later than June 28, 2018.

Lower investment estimates of Gendalo-Gehem field development is the result of government evaluation of the investment cost submitted by the Chevron. The government even conducted cost-cutting talks with a team from Chevron headquarters in Houston, United States.

The main factor of investment cut is the adoption of the more efficient technology. Despite the significant investment cuts, Tahar ensures the gas production from the Gendalo-Gehem field will not be affected. In the initial study, Gendalo field is estimated to have a production of around 500 MMSCFD, while Gehem field has a production of 420 MMSCFD.

The second phase of the PoD IDD has been approved by the government in 2008 with a total investment of $6.9 billion to $7 billion. Chevron revised the investment in 2013 to $12 billion after the company conducted front-end engineering design and the soaring of oil price.

In 2014, Chevron submitted a PoD proposal with a total investment of US$12.8 billion, which was rejected by the government. At the end of 2015, Chevron again proposed a revision with an investment value of $9 billion. The investment figure assumes an investment credit incentive above of 240 per cent, significantly higher than the maximum limit investment credit of 100 per cent.

The proposal was rejected by the MEMR. The government also rejected a proposal submitted by the Chevron in 2016 with a total investment of $9 billion.

IDD project located in Makassar Strait was planned to start gas production in 2016. According to the PoD in 2008, the 75 per cent of gas production will be allocated for export and 25 per cent for domestic needs. The allocation was assumed domestic need growth for the fuel conversion to gas.

Indonesia is currently facing a widening gap between fuel consumption and production, raising concerns that if this condition persists and there are no breakthrough policies to narrow the gap, Indonesia will always be vulnerable to external shocks in years ahead, especially if there is a spike in oil and gas prices.

At present Indonesia consumed about 1.6 million barrels per day, while domestic production reached only around 800,000 bpd, therefore Indonesia has to import to cover the shortfall. The oil production is declining and will only accelerate if there is no major investment to carry out new explorations to add reserves.

Natural gas production also takes on the similar path. Currently, the natural gas production tends to stagnate, while demand is on the upward trend. As a result, Indonesia may be forced to import liquid natural gas or LNG in the next few years. One global research agency, BMI Research, projected Indonesia could start importing LNG in 2021, as LNG production fails to keep up the pace with demand.