The American Petroleum Institute reportedly an increase in crude oil stockpiles of 10.5 million barrels - Photo: Special

JAKARTA (TheInsiderStories) – The 1970-1990 period was the wealth of Indonesia’ oil and gas sector, where this sector contributed up to 63 percent to the State revenues. But since the 1990s the country’ crude oil production has experienced a continuing downward trend due to a lack of exploration and investment and has hampered Gross Domestic Product (GDP) growth.

The decline in oil production caused by several factors, such as lack of exploration, limited investments, weak government’ program, excessive bureaucracy, unclear regulatory frameworks, and legal ambiguity regarding contracts. This situation created an unattractive investment climate for investors, especially if it involves expensive long-term investments.

This downward trend is not comparable with increasing domestic demand which eventually forced Indonesia to become an oil importer since 2014. Moreover, Indonesia had to stop its long-term membership (1962-2008) in Organization of Petroleum Exporting Countries (OPEC) despite re-joining in December 2015.

Most of Indonesia’s oil production processes are concentrated in existing basins in the western region. However, at present the government has encouraged efforts to downstream the industry to the eastern region. Even so, oil reserves have dropped rapidly.

Meanwhile, Indonesia’ oil consumption shows a steady upward trend. This is due to the growing population, increasing middle class population, and economic growth; demand for fuel continues to increase.

For domestic production un-equivalent with domestic demand, Indonesia is forced to import around 350,000 to 500,000 barrels of fuel per day from several countries in the past 10 years (2005-2015).

In 1991, Indonesia had 5.9 billion barrels of oil reserves, but this number had dropped to 3.7 billion barrels by the end of 2014. About 60 percent of Indonesia’s new oil field potential is located in the deep sea which requires advanced technology and big capital investment to start production.

At least three issues that pose challenges to the achievement of Indonesia’ oil and gas production. First, the development of information technology to the latest developments in operational technology and the right business model for the upstream oil and gas sector. Second, efficiency when facing a crisis. Third, a map of global oil and gas industry investment competition.

Now, the government has high hopes to restore the strength of the oil sector because the country still has large oil reserves, and oil demand (especially domestic). Although oil prices have declined since 2015, this industry remains profitable as evidenced by state-owned energy producer PT Pertamina’ net profit.

The government continues to be optimistic with the takeover of 60 percent of Rokan Block by Pertamina in 2021. Even so, serious efforts will be needed from all stakeholders to return a production quantity of more than one million barrels according to the government’ ambitions.

To achieve these targets requires large-scale investments and is supported by a transparent and definite regulatory framework. Lack of investment in new oil exploration has caused a decline in oil production levels over the past two decades due to the aging of oil fields.

In addition, the government needs to reduce production costs to be more competitive and oil and gas management can be blocked by national contractors. So far, this sectors has been controlled by local players. Other key sector that the government can develop is renewable energy.

Indonesia aimed to reached 23 percent of the national energy mix by 2025. Until now, Indonesia’ renewable energy has only reached 8 percent with low growth over the past three years.

The country has a lot potential to diverse fossil energy to renewable energy by develop include water, wind, geothermal energy, solar power to biomass and ocean waves.

In 2018, the Government announced oil and gas revenues to reach Rp228 trillion (US$16.28 billion) consisting of non-tax revenues of Rp163.4 trillion or 72 percent and Rp64.7 trillion or 28 percent are income tax. This figure exceeds the 2019′ State Budget target of Rp125 trillion.

Written by Daniel Deha, Email: daniel@theinsiderstories.com