Fuel price hike: Time to address wider energy management options

Hanan Nugroho ,  Jakarta   |  Fri, 06/27/2008 10:06 AM  |  Opinion

The energy and mineral resources minister was recently blamed for his failure to meet domestic oil production targets. The failure, with a growing demands on fuel supplies, was believed to have increased Indonesia's oil imports. Combined with skyrocketing oil prices, this failure also added to the government's oil subsidy bill.

The increased price of fuels, which comes alongside a shortage of energy supplies, resulted in protests around the country.

Was this simply a problem with domestic oil production?

It is not that our supply shortage has increased the burden of energy subsidies, nor that our energy security is getting worse. It is not just oil production levels, but a wider sphere of energy management options which need to be addressed.

Indonesian oil production has been decreasing gradually from 1,434 barrels per day (bpd) in 1995 to 833 bpd in 2007 (OPEC statistics). This trend actually began in 1977, when Indonesia produced a total 1,686 bpd.

Many believed Indonesia's oil, which was first exploited in 1893, had achieved its "Hubert production peak" by that year, 1977.

This means that without any extraordinary efforts employing advanced recovery technologies, deep sea exploitation or exploration of "new oils" (heavy oil, gas to liquid, coal to liquid, etc) -- which would all require huge investment and take time to deliver -- the country's oil production will never return to its 1977 level.

Unfortunately, the country is far from the luxury of having such investments and technology resources, in addition to a strong political will needed to produce more oil.

Nevertheless, there is the potential that more oil fields could still be found in Indonesia, while finding new oil reserves is getting tougher elsewhere. Indonesia's past and present oil production comes from just 16 sediment basins among 60. Only 38 of these basins have been drilled so far, resulting in 23 basins discovered with oil. The remaining 22 basins have not yet been explored.

However, when it comes to producing more oil, the problems are not just below ground. It is not just geological, but political and economic obstacles which have prevented oil production from increasing, particularly over the past decade.

Regulatory frameworks have changed substantially and the decentralization euphoria has confused investors. Despite the new areas that have remained on offer from the government, uncertainties have led to a decrease in exploration (seismic, exploration drilling, discoveries, etc) and production activity.

Moreover, during a period when oil prices have been on an upward path for more than six years (we are currently experiencing the longest period of sustained increase in world oil prices), many other oil producing nations have offered better terms and conditions, meaning oil companies have paid less attention to oil production in Indonesia.

Managing domestic demand for oil, rather than trying to increase production, now seems more like a sensible option. Even though our energy consumption per capita is low, the potential for energy conservation in this country is comparatively large, ranging from 15-30 percent according to different studies.

Reducing domestic fuel consumption by just 10 percent -- which could be achieved through better management of the transport sector -- would "produce" the equivalent of around 150,000 bpd. In terms of crude production, an equivalent figure would require massive investment.

Energy conservation is a pillar of national energy management, but we often forget about this pillar when oil prices were low.

The application of energy conservation technologies could be widespread; energy-saving light bulbs in households, energy efficient buildings, energy efficient engines in manufacturers, using a mass rapid transit system rather than depending on passenger cars, etc. Compared to production, a lot of energy conservation approaches can be implemented with lesser or with no costs at all.

However, when it comes to building a culture of energy conservation, we need more than just knowledge of energy conservation technologies -- we also need an institution which leads and manages those conservation activities.

The success story of the Japanese Center for Energy Conservation is a good example. The center promotes conservation as a "smart lifestyle", trains energy managers (under the Japanese Energy Conservation law every large company must employ staff in this area), manages an energy efficiency labeling system, develops energy efficient technology, provides consultation, audits energy use and offers credit for energy efficient equipment.

The Energy Conservation law mandates the government to provide fiscal incentives for auditing business energy consumption and energy saving equipment, promoting the development of ESCO (Energy Service Company), and campaigning for energy conservation. As a result, since the establishment of the Center 3 decades ago, Japan is now recognized as the world's most energy efficient country.

Institutions dealing with energy conservation in Indonesia are still weak. National energy management puts heavy emphasis on supply and production, but largely ignores the question of how to consume energy wisely.

Clearly, the publication of a Presidential Instruction (for example Number 10, 2005 on Energy Saving) is not enough to meet the challenges of conserving energy in this country, where energy consumption is still widely regarded as outside the responsibility of any government institution.

The establishment of an Energy Conservation Center which could serve as leader and coordinator of energy conservation activities among different consuming sectors (industry, transportation, households, buildings, etc) would potentially improve our non-productive energy consumption habits.

In the procurement of oil, a greater degree of transparency and efficiency might also be promoted, especially by the current monopolist. So far, it is not clear to the public how much we spend on importing crude oil and oil products, or refining and distributing oil in the domestic market.

Where does the oil come from, who organizes the procurement, and are we efficient enough compared to others? Answering these questions and analyzing the results could improve our oil procurement system, a factor adding to the incredible oil subsidy.

The writer is a lecturer in energy and natural gas economics for the Graduate Program in Natural Gas Technology and Management, University of Indonesia. He can be reached at hanan_nugroho@yahoo.com

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