Opinion

Expanding deep-water exploration

Deep water or offshore drilling often receives a bad press for causing environmental problems. However there are benefits to offshore drilling. Offshore rigs help the local economy, create jobs and surprisingly also create homes for marine life.

In addition, the majority of oil spills occur during the transportation of oil not during the drilling, although there are obvious exceptions. We shall examine the environmental costs later.

Offshore oil rigs provide a lot of primary, secondary and tertiary jobs. Primary workers are those who work on the rig itself and include specialized technicians, laborers, cooks, doctors, scientists and a number of other specialized workers. Secondary jobs are those that support the rig: caterers who bring in supplies and parts manufacturers who help set up the rig itself.

Tertiary jobs are found among those who transport the oil to refining stations and work onshore in labs and refining stations. Offshore oil rigs keep many people working and help support local economies.

All potential investments in the upstream and downstream oil and gas sector are an opportunity for the business of supporting oil and gas, both for the oil and gas industry and supporting services.

Investment opportunities in the upstream and downstream oil and gas sectors in Indonesia are still very promising at present and in the future.

Geologically, Indonesia still has the potential availability of large hydrocarbon reserves. Government plans to maintain oil production at a rate of 1 million barrels per day (bpd) will provide huge investment opportunities until 2025.

Recent reports say oil reserves in this country stand at 4.2 billion barrels, while production in 2012 amounted to 870,000 bpd instead of 930,000 bpd as had been expected.

In the mean time, the success ratio for exploration activities in Indonesia is at an average of 57 percent, higher than other countries at 20 percent.

Potential national oil and gas resources are still quite large, accumulated in 60 sediment basins scattered over almost all parts of Indonesia. Out of 60 basins, 38 basins have been explored and 16 basins have produced hydrocarbons.

Reports indicate that of 307 contractors operating in Indonesia, the work plans and budgeting of 274 have been approved by upstream oil and gas special task force SKK Migas for 2012.

Based on current regulations, they have to develop work areas within six years. Otherwise the contract agreement will be reviewed or reoffered to other investors which are seriously willing to do business in this industry.

There has been no official report so far relating to oil companies that have given back their exploration rights to the government.

However, Kodeco is one company that has stopped its operations in West Madura due to uncertainties in obtaining a contract agreement extension.

The decrease in oil production in recent years was due to what has been described as an “unplanned shutdown” which resulted in a 63.7 percent decrease annually.

The “unplanned shutdown” is unavoidable because of the age of engine sensors in drilling equipment, say contractors.

Others say the data is not really complete or accurate. Pessimism regarding further oil production seems to have been evinced by the government although the government had expected between 950,000 and 954,000 bpd in 2011. The key is firm regulation. Why not try offshore operations?

The chance for exploration activities in Indonesia is still wide
open, especially in 22 basins that have not been explored, mostly located in deep waters, such as those in eastern Indonesia.

Compared to onshore exploration, offshore oil and gas exploration costs are much higher and riskier as the operators have to use the most developed technology and it is capital intensive.

They need more vessels — a drilling rig which is like a mini-city where food, water and electricity must be provided for daily maintenance.

That does not include strong winds and heavy seas that often threaten the operations.

The present skyrocketing drive for oil in Indonesia has led to increased pressure for drilling in the ocean beds as the oil in the onshore areas has been mostly lifted and is not economical to pursue.

Surprisingly, the environment can benefit from deep-water drilling, if there are no accidents. Offshore rigs are massive structures in the ocean that attract a wide variety of marine life. Fish, birds and other sea creatures come to the rig and make it their home.

The rig acts as an artificial reef that helps life flourish as many animals use it for breeding.

However, offshore drilling has a number of detrimental effects on the environment, which have caused much recent controversy over the practice.

As the US has recently experienced, offshore drilling can occasionally lead to a devastating oil spill. The effects devastate ecosystems and last for many years. BP’s 2010 oil spill in the Gulf of Mexico will wreak havoc on the ocean and coastal ecosystems for years, says an article in The Guardian.

Routine drilling produces dangerous waste as well. When drilling, harmful substances like mercury and lead enter the ocean waters, says the Natural Resources Defense Council (NRDC) in the US.

These materials are used in lubrication of drills and for related purposes, according to the NRDC. Furthermore, water containing toxic substances emerges from the oil and gas well.

Drilling does not just affect one particular spot on an ocean floor. Along with the drilling rig, miles of pipeline and other infrastructure, like roads, buildings and canals, degrade the natural environment on the land as well as the sea.

This infrastructure transports the oil to a refinery. These changes transform a natural environment, forcing out wildlife that normally lives in the area, and cannot be quickly reversed.

When deciding where to drill, oil companies conduct underwater land surveys using explosives that harm sea life directly or indirectly.

These explosives often kill fish eggs with their high-decibel sounds, for example, or disrupt the migration patterns of whales, causing them to become beached, the NRDC says. One environmentally friendly system is using types of airgun for surveys below the sea, as suggested by an oil expert.

When habitat becomes degraded, tourism inevitably suffers. Tourists who came to the area to bask in the natural scenery find somewhere else to go. Like wildlife, they may not come back for many years even if people halt drilling and begin to restore a site. Once people associate an area with drilling, that image will stay in the public mind for a long time.

In Indonesia, the US giant oil company, Conoco Phillips, finally started drilling in an offshore area of 3,559 square kilometers, the Kuma Block, in the Makassar Strait, South Sulawesi.

Conoco Phillips which has abundant experience in offshore drilling over more than 40 years signed a production sharing contract (PSC) in 2007. Other work areas explored by Conoco Phillips include the Warim Block, Amborip IV Block in Papua, and one in the Arafura Sea in Eastern Indonesia.

In spite of such risks in offshore drilling, other big foreign companies such as Exxon, Transocean, British Petroleum and Schlumberger are expected to lay out their investments in Indonesia to optimize oil production.

At the same time they will also transfer the latest technology to Indonesian engineers, bringing more jobs as well as other business opportunities.

The writer, former head of the bilateral division of the Energy and Mineral Resources Ministry is a lecturer at the faculty of economics, Atma Jaya University, Jakarta

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