Photo by ExxonMobil

JAKARTA (TheInsiderStories) – 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 (bpd), 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.

It is not only oil that is alarming, natural gas production is also on the same 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 natural gas or LNG in the next years. One global research agency, BMI Research, projected Indonesia could start importing LNG in 2021, as LNG production fails to keep up pace with demand.

Thus, Indonesia is in dire need of more investment.

Source: International Energy Agency (IEA)

Based on the Energy and Mineral Resources Ministry’s (EMR Ministry) data, investment in oil and gas reached U$20.72 billion in 2014. The investment then declined to $17.38 billion in 2015, fell further to $12.74 billion in 2016 and $10.18 billion in 2017.

Of the investment in 2017, only $180 million was invested to conduct explorations and $9.33 billion for maintaining production.

The main reason behind the declining was the plunge of oil price four-five years ago to below $50 per barrel. This has triggered major oil and gas players in the world to downsize operations, divest assets and lay-off jobs to stay afloat. This was also happening in the country.

In Indonesia, the problem was exacerbated by the business uncertainties, including the dismissal of the Upstream Oil and Gas Authority, which triggered the government to change it into Special Task Force for Upstream Oil and Gas and positions it under the EMR Ministry as well as the planned amendment of the 2001 Oil and Gas Law, which is still yet to be realized.

Most observers and major industry players blamed the lengthy process of the Revision of the Oil and Gas Law for the low investment as the delayed revision has created uncertainty in the sector. Oil and gas majors are reluctant to make a major investment in the risky business of explorations. Explorations require huge investments, especially if the exploration is conducted in offshore and deepwater.

In the past, most major oil and gas players focused in the western and central parts of the country, while the eastern part of the country is still not fully explored. However, the investment needed is higher as most of the untapped potential resources are located in offshore and in some cases located in deepwater. This requires major oil and gas players with in-depth experiences to take part in the offshore oil and gas development.

During the past few years, Indonesia has witnessed a number of global players left the country such as Canadian-based oil and gas player Niko Resources, Hess of U.S. and few other players. Some major players decided to divest their assets such as Chevron Corp., by offloading its geothermal assets in West Java.

However, there are good signs on the horizon. The price of oil is picking up and now hovering at around $60 per barrel, raising new hopes for a recovery of the oil and gas industry. This should become a good momentum for the Indonesian government and industry players to revive the sector’s growth, by luring more investments, both in the exploration and production sectors.

New projects that are still pending such as the Masela Block project and the giant Indonesia Deepwater Development (IDD) project in Makassar Strait need to be accelerated. The Masela block project located in the Arafura sea has been delayed for years.

The project, developed by Japan’s Inpex Corp, was supposed to come onstream in 2019, but now it looks to come onstream in around 2022 after the government disapproved Inpex proposal to build an offshore processing facility, Floating LNG, and instead requiring the company build an onshore plant.

Another major project that has been delayed is the IDD, which encompasses the joint development of the Bankang Project and the Gendalo-Gehem Project. The second phase development of the IDD project is being put on hold by the operator, Chevron, as the company is recalculating the development costs.

The EMR Ministry has set an investment target of $17.04 billion in the oil and gas sector this year, consisting of $14.44 billion in the upstream oil and gas and $2.59 billion in the downstream sector. The question is can the government achieve the target?

One step needed to help revive the investment is finalizing the amendment of the Oil and Gas Law. This is now the third year, the planned amendment of the Oil and Gas Law is included in the National Legislation Program for the period of 2004-2019.

The need to amend the oil and gas law was triggered by the decision of the Constitution Court in 2003, which canceled a number of articles in the existing law. Six years after the verdict, the court ordered the dismissal of BP Migas.

Former president director of state-owned energy producer PT Pertamina Ari Soemarno has voiced his concerns over lack of investment in the oil and gas sector in particular in the upstream as well as the decline production of oil and gas. This, he said, could put Indonesia in an energy crisis in the future.

Deputy Chairman of the House of Representative Commission VII which oversees energy sector, Satya W. Yudha, said efforts to revive investment in the sector must come from both sides – the government as regulator and oil and gas industry players, by way of improving their competitiveness and efficiency.

The recent decision undertaken by the EMR Ministry to revoke a number of regulations, permits, and recommendations is one positive move by the government. However, that is not enough. Continuous efforts to improve the overall investment climate is truly needed, including speeding up the amendment of the Oil and Gas Law.

The Parliament members should realize that amending the law is a must because it is in the best interest of the nation in years to come, whoever leads the country. They should not be just pre-occupied with political agenda, in particular, the regional elections and warming-up for the Presidential Election next year. The nation’s interest should be the top priority.

Written by Roffie Kurniawan, email: roffien@theinsiderstories.com

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