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Govt told to act fast as crisis looms
Major oil and gas producers have called on the government to introduce a more flexible regulatory framework in order to prevent an energy crisis that could occur in the next five years if no serious efforts are made to prop up the countryâs declining oil production
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Major oil and gas producers have called on the government to introduce a more flexible regulatory framework in order to prevent an energy crisis that could occur in the next five years if no serious efforts are made to prop up the country's declining oil production.
Indonesian Petroleum Association (IPA) president Lukman Mahfoedz said the production sharing contract (PSC) scheme applied to oil and gas exploration and production was among regulations that should be reviewed, as it was no longer attractive to new investors.
The current PSC made the world's major oil and gas companies think twice before entering the country's oil and gas sector, he argued.
'The current production share given to investors makes projects uneconomic. We need to prove that projects can be profitable, all the more so given that oil prices are falling,,' Lukman said during a discussion with editorial staff at The Jakarta Post on Tuesday.
According to the current PSC, the government owns all oil and gas fields while companies act as contractors to work on the blocks. Under this scheme, the government receives 85 percent of oil production and the contractors the remaining 15 percent. Meanwhile, for gas production, the government receives 65 percent and the contractors 35 percent. Contractors' spending is reimbursed under the under the so-called cost-recovery system.
The government's high production share has become a concern among industry players, because they have to bear the risk of losing large amounts of money if explorations fail.
'We hope that the new government is not afraid to look at and review, in particular, PSC terms for new blocks in frontier areas,' he said, adding that regulations on the development of gas fields with high CO2 and the implementation of enhanced oil recovery (EOR) technology in old wells, which are both very costly, were also ripe for review.
Indonesia, a former member of the Organization of Petroleum Exporting Countries (OPEC), has been suffering from declining oil production as its fields are old and depleted. The government has been calling on contractors to step up exploration and secure more reserves.
- Production sharing contract (PSC) schemeis no longer attractive
- Today, the country spends US$130 million per day to import fuel and its products
However, exploring the country's potential is increasingly difficult, particularly because a large proportion of untapped resources lie in the eastern part of the country, where geological conditions are more challenging. The cost of drilling an offshore well in a deep-water project can cost a company up to US$200 million, with only a 10 percent chance of success.
Moreover, complicated and unfriendly regulations have hindered exploration projects.
IPA vice president Roberto Lorato said Indonesia was estimated to still have a significant amount of oil and gas, but the potential was useless if the country failed to tap it.
'Indonesia is in grave need of increasing its supply, as it has to provide energy to a growing population. Even if it's able to combine all its oil, gas and coal resources, it's still in risk of a crisis,' Lorato warned.
The IPA has estimated that the country will become a net energy importer in 2019, when the government of Joko 'Jokowi' Widodo will end its term. The country's total energy demand is estimated to reach 6.1 million barrel of oil equivalent per day (boepd), while supply from oil, gas and coal will only be enough to support up to 6.04 million boepd. The gap between supply and demand will increase to 2.4 million boepd by 2025.
Today, the country spends $130 million per day to import fuel and its products, as domestic oil production can no longer support demand. Oil output was only 789,000 barrels of oil per day (bopd) as of the end of October, which is around half the level the country reached in 1977. Imports, moreover, have tainted the country's trade balance. A crisis, experts warn, could come even sooner if the government rests on its laurels.
Faisal Basri, an economist at the University of Indonesia who is also the head of the newly established Oil and Gas Management Reform Team, said the country was now the biggest importer of fuel in the world.
'I've seen research stating that Indonesia will become the biggest gasoline importer in 2018. However, if we combine the import of diesel with fuel which is equivalent to premium [gasoline], we are currently the biggest in the world,' Faisal said in a recent interview.
