Indonesia Expects Lower Investment in Mining, Oil & Gas Sectors

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

JAKARTA (TheInsiderStories)—The government revised down its investment target from the mining, and oil and gas sectors by 25.7 per cent to US$37.2 billion this year amid weak investors appetite to participate. The initial target was $50.12 billion.

The Deputy Minister of Energy and Mineral Resources Arcandra Tahar said unveiled that the government expects a lower investment in oil and gas sector, of which it now is targeting US$16.8 billion, instead of US$17.04 billion. In the power sector, investment is targeted to decline to $24.88 billion from US$12.2 billion due to the revision in the power supply business plan.

However, the government did not revise down the investment target in the mineral sector and renewable energy to US$6.2 billion and US$2 billion respectively.


“If this target achieved, it would be the highest investment [compared to the investment realization in the past years],” he said in the seminar “Energy Policy: Disruption Approach to Improve the Friendly Investment Climate” hosted by The Insider Stories on Thursday (19/04).

This revision in line with the low investment realization in the energy sectors. In 2017, the investment in the energy sectors only reached US$26.7 billion, it shrunk by 10% from the 2016 investment of US$29.7 billion. It also lower than investment in the 2014 and 2015 that reached US$33.5 billion and US$32.3 billion respectively.

The trend continued in the first quarter of this year. It only reached 14 per cent of the total target or US$2.4 billion from the original target of US$17.04 billion. Whereas the oil & gas sector contributed a large portion to the total energy investment. If this sector target achieved at least 25 per cent in the first quarter, probably the government will confident to stick with the original target.

The investment in the first quarter of 2018 was dominated by the production of 69 per cent (US$1.65 billion), while the oil and gas development reached 11 per cent (US$264 million). The exploration activities only recorded small investment of US$480 million including general administration activities.

The low investment in the exploration is quite worrying because this activity will secure the future production. The investment in exploration activities was low because the oil and gas companies have the poor financial condition due to oil price dropped.

The investment revision potentially reduces the state revenue from the energy sectors that already declined by the 13 per cent annually over the five past years. Last year, the non-tax revenue of energy sector declined to Rp129.07 trillion.

In addition, the investment target revision, especially in the oil and gas sector, also lead to the low production that potentially harm the energy security. Indonesia’s oil production only reach 750,000 barrel per day or 94 per cent of the state budget. The gas production only reached 1.139.000 barrel oil equivalent per day (boepd) or 95 per cent of state budget target of 1.200.000 boepd.

This figure was extremely low compared to production in 1960s-1990s when oil and gas contribute significantly to the state revenue. Oil production reached 1.38 million bpd in the period with the peaked production was recorded at 1.65 million bpd in 1977.

Indonesia currently imports half of its fuel demand. The country’s fuel need reach 1.6 million barrel per day while the national refinery only produces 800,000 barrel per day.