A very important issue was raised by Metronews on
Thursday: National Security is at a vulnerable point. This opinion was voiced
by Chairman of the Association of Drilling for Oil, Gas and Geothermal
Indonesia (Aspermigas) Sirajuddin Effendi. He cited that
currently of the total 1.4 million bpd of oil consumed, Indonesia is importing
1.1 million barrels bpd – most of it come from Middle East – an area prone to
conflict. Of 800,000 bpd produced – 500,000 bpd are processed at six refineries
owned by Pertamina; all other is processed in Singapore. The issue was
discussed on Friday at public dialogue "Fuel Subsidy and Crime
Constitution" in Hall Kartini, Jakarta. Former Chief of Staff of the Army Gen. Retired Ryamizard Ryacudu noted that the country’s natural
resources are run 75-80% by foreigners and 2/3 of the fuel consumed in come
from imports. Pertamina’s representative told the audience that oil
reserves will be finished in 11 years, provided that the current fuel
consumption grows at 5% per annum. The only way is to build new refineries – and the Government should
better work with investors providing more incentives. In my previous post
I provided some data on the state of
refineries in Indonesia and existing problems. This was widely discussed this week.
Kuwait, Saudi Arabia versus Government Financed Project
- Director of Investment
Planning and Risk Management for Pertamina Afdal Bahauddin supports the idea of Government financing. This can be done through integration in
downstream oil industry. Currently, refinery industry margin relatively low
compared to other sectors of Oil and Gas. For refinery with a capacity of
200,000-300,000 bpd internal rate of return (IRR) is 6% - 8%. However, when integrating IRR may be
more than 12%. This well pronounced in published this week Pertamina’s 2012 Annual
Report: “It is recommended to speed up
the proposal and implementation of new refinery constructions through the
synergy between Pertamina and the government.”
- Ministry of Energy and
Mineral Resources (ESDM) official confirmed that no progress has been made with both countries and suggested that
Pertamina should conduct a worldwide tender to build refinery in Indonesia.
- Pertamina and Iraq executed MOU
between the Ministry of Energy and Mineral Resources Minister of Iraq for oil
refinery to be built in Indonesia
with a capacity of 300,000 bpd. The feasibility study should be finished by the
end of the year and the final decision will be made, including on the location.
This would be partially funded from the State Budget - Rp 90 trillion. It
is planned to practically discuss the issue by two sides in July nest
year.
Further discussion was going on about Indonesian Shale’s potential
As I reported in my previous News Post, Indonesia is still far away from full
utilization of shale gas reserves. Business Times, Malaysia, notes that the rate of depletion in other energy
sources means Indonesia would have to look to its shale gas. But at this time
only one contract has been awarded to explore 16.3 trillion cubic meters of
potential shale gas reserves. TIME Magazine published a big article Indonesia Embraces Shale Fracking
— but at What Cost? “Exploiting cheap and plentiful shale reserves is therefore very
attractive — and not just for Pertamina. Chevron Pacific Indonesia already uses
fracking in Duri, Sumatra — the country’s largest oil field — while Australia’s
NuEnergy Gas has just begun hydraulic-fracturing operations at five new
untested coal beds in West Java, and expects gas sales by the end of the year.” Environmental concerns, restrictive
legislation, poor local governance, a lack of financial incentives for
investors and inadequate infrastructure – these are major challenges in
Indonesia.
Energy Tribune in its publication points to the fact that there are huge
discrepancies in the announced volumes of shale gas: in 2012 Energy and
Minerals Resources Ministry announced that Indonesia has estimated 574 Tcf of
shale gas resources; on June 13 Edy Hermantoro, an upstream oil and gas
distributor at the Energy and Minerals Resources Ministry said that the country
had 1,000 Tcf; a new EIA report released June 10 doesn’t rank Indonesia in the
top ten countries with technically recoverable shale gas.
Red Tape Problems
In my last News Update I mentioned the Red Tape problems. This past week there was a definite
movement in this direction. A special meeting was held at the office of the
Coordinating Ministry for Economic Affairs in Jakarta on Thursday. As an
example, there are 284 permits from the ministry of Economy, 40 from Minster of
Mineral Resources, 51 from Ministry of Transportation, and 53 from local
Government. SKKMigas
revealed explained at the meeting that in one year they receive about
60,000 letters related to licensing of PSC.; also existence of 270 permits was explained.
It was reported that some specific
suggestions were discussed
- Licenses from Ministries of Energy, Mineral Resources and Ministry of Public Works can be issued in one place
- Streamline permit process for investors from the usual 2 years to just a few days.
Projections for Indonesian Oil & Gas
"Indonesia
Oil & Gas Report Q3 2013" from Business Monitor International make these observations:
-
Oil and gas reserves will most likely be on a downward trend in the coming decade: oil reserves are expected to decrease from an estimate of 4.1bn barrels (bbl) of oil at the beginning of 2013 to 3.8bn bbl in 2017, falling further still to 3.6bn bbl by 2022. For gas, we expect reserves levels to be stagnant.
- Indonesia is a country where much potential continues to exist. If the country relaxes its nationalist stance on resources, there is considerable upside potential for both oil and gas reserves - greater drilling of its unexplored deepwater areas and its unconventional resources - coal-bed methane and shale gas.
- We expect total liquids production to rise to 914,970b/d in 2014 and 921,690b/d in 2015; in the longer term we see oil output trending downwards to 870,540b/d in 2017 and hitting a low of 788,100b/d by 2022.
- Supported by strong economic growth and artificially propped by fuel subsidies in the short-term, demand is set to increase from an estimate of 1.41mn b/d in 2012 to 1.60mn b/d in 2017, rising further still to 1.81mn b/d by 2021. With demand outstripping supply, the country's import requirement will continue to rise, from 455,200b/d in 2012 to 731,610b/d to 2017 and could further soar to 1.02mn b/d in 2021.
Aulia Karsani, Senior Vice
President of Samudra Energy (one of the operators of Madura PSC) in his interview
to InilahREVIEW
notes that Indonesia still has around 75% of untapped oil reserves. He claims
that currently Indonesia produces 20% -25% of what is in the earth; this may be
increased to 45% -50% with Enhanced Oil Recovery (EOR) in existing wells. As an
example he cites that in 90-ies Duri Field production jumped to 70% with EOR.
Meanwhile, this week the working
meeting at Commission VII of the House of Representatives was
held in attendance of representatives of Ministry of Energy and Mineral
Resources (ESDM), SKK Migas, Regulatory Agency for Upstream Oil and Gas (BPH
Migas) and PT Pertamina. The subject was discussion of the macroeconomic
assumptions of oil and gas sector on the 2014 draft State Budget. The Budget
assumption is U.S. $ 100-US $ 115 for oil price. Lifting of oil is
projected at 860-900 thousand bpd, and natural gas is projected at 1.23 to 1.25
million barrels of oil equivalent per day. It was also mentioned
that the pace of EOR applications should increase - oil lifting of 870,000 bpd can be boosted to
900,000 bpd by the end of this year.
Problems with Local Administrations
As an example the paper quotes
that in May, PetroChina Int. Jabung Ltd., entered in a dispute with officials
from East Tanjung Jabung Regency in Jambi, Sumatra (that sealed-off access to
26 of 140 oil and gas). The administration wanted the company to make financial donations. As the
result, the loss of crude oil production was of 433bpd per day and gas output
of 11.011 mmscfd. There is a need for the government same action. It
was reported earlier that Rudi Rubiandini, Head of Oil and Gas SKK, in a
rather strong manner warned local governments not to disrupt oil and gas operations.
Pertamina's Picture
“As a country with the 16th
largest economy in the world, Indonesia has the potential to rank 7th largest
in the world in the year 2030. In line with the increase of GDP per capita, in
the next 20 years, Indonesia’s economy is expected to enter the stage of resource-intensive
development. Energy security will be an issue of highly importance for
Indonesia due to the increasing energy needs of approximately 5% per annum in
the last 15 years”.
While this 600+ pagers document has a lot of interesting information,
I will pinpoint some of it:
The report notes:
- Actual realized investments in 2012 amounted to US$3.13 billion or 128.28% compared to the amount in 2011 of US$2.44 billion
- Taxes and dividends paid by the company to the Government increased – in 2012 to Rp58.37 trillion, from Rp55.76 trillion in 2011
- In 2012, the Company posted its highest net profit in its history: US$ 2.76 billion, an increase compared to the year 2011 of US$ 2.41 billion
- Total crude oil production amounted to 71.76 MMBO in 2012, compared to 70.63 MMBO in 2011
- Total natural gas production amounted to 563.15 BSCF in 2012, compared to 558.60 BSCF in 2011
- Steam energy product actualization from the operation of geothermal business sector amounted to 67.72 million tons, equivalent to 9,298 GWh of electricity
- Findings of oil and condensate reserves of 108.70 MMBO, while new natural gas reserves amounted to 964.1 BSCFG
- Pertamina refineries processed 308.12 million barrels of crude oil in 2012, compared to 308.80 million barrels in 2011
- Total refinery output reached 238.76 million barrels of petroleum products as well as 23.56 million barrels of nonfuel products
- Gas sales reached 23,070 BBTU in 2012, compared to 10,337 in 2011 BBTU
- PSO (Public Service Obligation) fuel and non-PSO fuel distribution were recorded at 44.96 million KL and 19.92 million KL respectively
- Total non-fuel product sales amounted to 7.38 million Metric Tons.
-
In Upstream: to increase production and reserves of oil and gas with intensification of the development of internal potentials (domestic) and external aggressive expansion (regional and global)
- In Downstream: to focus on improving operational performance and refinery margins as well as the implementation of a comprehensive marketing strategy through the implementation of cost leadership and product differentiation as well as shipping fleet rejuvenation and enhancement.
As many companies in the world
have it, Pertamina is employing The
Whistle Blowing System (WBS) - for
the reporting of violations related to practices of Corruption, Collusion and Nepotism
((KKN) and other unethical behavior. Here it is how it works:
