This was usual busy past week, except the big event - as of Saturday 22 June 2013, the price of
Indonesia's subsidized fuel has finally been raised by 44% for gasoline and 22%
for diesel.
This lead to numerous speculations about the consequences and of
course great level of dissatisfaction of population. It is the result of tremendous
strain on the country’s budget due to oil imports, as well due to the pressure
form international institutions (World Bank and IMF) requesting to cut down fuel
subsidies. The goal of the Government is to reduce oil imports and oil
consumption. Many analysts note that currently Indonesia is in a very embarrassing
situation. The Fraser Institute noted in 2012 that the oil and gas law has led
to the governance of oil and gas in Indonesia being the worst in Asia Oceania. Thus
– exploration investment is going down, no major new discoveries are made. Interesting
situation exists with Pertamina - one of the only government-designated
operator, so by Law, it is required to get maximum profit – hence Pertamina is
not interested in going into low margin business of building of new refineries.
This issue was
raised by Liputan6 daily on Wednesday, when it published an interview
with Executive Director of the Indonesian Resources Studies (IRESS) Coal Marwan.
It seems very strange that since 1994 Indonesia did not build new refineries,
and currently Pertamina owns 6 only: the total capacity of the refineries - capable
of producing as much as 700,000-800,000 bpd. Meanwhile, the Indonesian
fuel consumption has reached 1.5 million-1, 6 million bpd. Japan, Iran, Saudi
Arabia and Kuwait are contemplating to build a refinery in the country, but
nothing happens. Everyone is also watching how the things will progress with
recent announcement that Azerbaijan wants to start refinery project with OSO
Group. One of the other reasons of slowness, according to Mr. Marwan, is that some
foreign companies, including Shell, are not interested in Indonesian refineries,
as they are importing a lot into the country.
There were a number of developments
with Pertamina this week:
- On Monday Jakarta Post published
a big material that claims that Pertamina is vigorously campaigning to acquire oil and gas assets
overseas, at the cost of its own dormant blocks at home. This
was revealed by Rudi Rubiandini,
the head of SKKMigas. Despite of grated privileges to form partnerships with third parties to
develop those neglected fields, Pertamina did nothing. Those oil and gas fields
are mostly located in Sumatra (Tanjung Tiga Barat field, Limau Barat field,
Belimbing field, Limau Tengah field), in Riau (Lirik field, North Pulai field,
Sago field). However, according to Muhammad
Husein, Pertamina Upstream Director, there
would be 24 oil and gas fields that the firm would offer to major oil field
service companies such as UK-based Petrofac and China-based Daqing Oilfield
Company Ltd.
- After the Business Forum in Jakarta
(with Prime Minister of Papua New Guinea participating) PT Pertamina and oil companies from Papua New Guinea, the
National Petroleum Company of PNG (Kroton) Limited (NPCP), signed a memorandum
of understanding to explore the possibility of joint business in the oil and
gas sector in both countries. In particular, liquefied natural gas (LNG)
will be suoolied to Indonesia through three liquefied natural gas receiving
facilities (FSRU Teluk Jakarta, Central Java FSRU, Regasification Facility
Arun). However, gas supply may come in 6-8 years only, as many of the gas
fields in in Papua New Guinea are still in the exploratory stage.
- The
Government has turned on the green light to the state-owned national
oil and gas Pertamina to replace Total E & P Indonesia in the Mahakam block;
contract is expiring in 2017
This week, in anticipation of fuel hike, there was a discussion about
foreign companies operating in Indonesia. Merdeka
Daily made this:
Chevron
and Exxon control national oil and gas activities. Concern
is raised that foreign companies (85% of crude oil production) control oil and
gas in the country. Chevron controls 47% of national oil and gas production. Pertamina
controls only 16%. Suara
Karya published Oil Bargaining discussing probability that foreign companies will move out of Indonesia.
According to the paper, this is a threat in anticipation of expiration of PSC in 2-3 years. In the next 8 years,
there are about 29 oil and gas fields will be out of contract.
It
was reported that Indonesia
plans to offer fewer oil and gas blocks for exploration in a bid to get
investors who will be able to better meet their commitments. Indonesia may be
able to offer only about 20 oil and gas blocks a year over the next five years.
This compares with a total 42 blocks it offered in 2012, of which only six were
awarded to foreign companies including Premier Oil, a consortium of Japan's
Inpex and the UAE's Mubadala, Cooper Energy, Salamander Energy and Conrad
Petroleum.
ExxonMobil
Oil Indonesia will return two
oil and gas exploration blocks to the government for failing to find oil and
gas in the second field. These are: Block
Surumana and Mandar block in the Makassar Strait – the company has spent $ 302
million. According to SKK Oil, four other foreign companies are planning to
return to the government to the oil and gas blocks.
Reduction of red tape in Oil & Gas. At the beginning of June SKKMigas Chief Rudi
Rubiandini in his interview to TV-1 (which, BTW
clearly outlines current SKK Migas strategy), mentioned his meeting with
President of Indonesia and the raised issue of cutting down red tape. This week
it
was reported about the meeting between SKK Migas and Pertamina with participation
of Minister of State Owned Enterprises (SOEs) Dahlan Iskan. As the result a working
group was formed that will look into issues of increase of production and
cutting red tape. It was noted, that current situation is bad: to increase oil
production the company needs to get from Ministry of Transportation more than
20 licenses. Total number of permits for oil and gas business is 270 from
12 ministries.
A lot of attention was devoted this week to Eastern
Indonesia.
The Role of Geosciences for Oil and Gas Discovery Seminar was held in Jakarta on June 19, and the
issue of Eastern Indonesia was widely discussed. It was noted that the geosciences data is available, it is not disseminated widely and openly; there is lack
of integration between the data owned by each agency, for example between Director
General of Oil, Gas SKK. Head of the Ministry of Energy Geology, Sukhyar, noted
that in 2023 there would be a peak national gas production in the
region. Airborne geophysical mapping during 2010-2012 in the region, found
a potential 174 trillion cubic feet of gas and 86 billion barrels of oil.
It was announced that Ministry of Energy and Mineral Resources and the House of
Representatives shall make investor-friendly regulations that are specific to
the Eastern part of Indonesia. The reason is that this area
is completely different for the Western part. Some of things under discussions
are tax holidays, import duty exemption for exploration, and suggestion to
impose special taxes for deep-water operations, similar to Malaysia.
Discovery of oil and Gas in Eastern Indonesia are
illustrated by this graph
- High cost of shale gas
exploitation due to Geographical conditions in Indonesia
- Cost of drilling per well
for shale gas in Indonesia is estimated at $8 million (as compared to $2-$3
million per well in North America)
- No Government incentives for
companies
- Lack of infrastructure: natural
gas must be transported by pipeline -- combined length of the pipeline network
under Pertamina and Perusahaan Gas Negara is around 5,000 kilometers (as compared to 4
million kilometers of gas pipes in the United States).
Despite
of all this, the government opened
a tender for two areas of work (WK) shale gas through a direct offer
(direct offer). These are Non-Conventional
Oil and Gas Blocks (MNK) West Cape, Central Kalimantan, and Block MNK range,
North Sumatra. Ministry of Energy and Mineral Resources received 70
proposals to develop shale gas and five of them have completed the preliminary studies. Meanwhile,
Advisor to the Minister of Institutional Affairs and the Ministry of Energy and
Mineral Resources Strategic Planning Wiratmaja
Puja stated that “We hope for the next year's massive shale gas
exploration", citing the boom in the United States with shale gas.
Lion Energy (ASX: LIO) aims
to be a key player in the emerging West Indonesia gas market. The company
wants to introduce modern techniques to access unconventional tight gas and
shale gas and shale oil Sumatra Basin
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