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Plunging oil price poses risk to RI income, output
The plunge in the global oil price presents risks to the countryâs state budget as income from the sector could fall further and oil output might also drop on cost-cutting strategies especially by small producers
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he plunge in the global oil price presents risks to the country's state budget as income from the sector could fall further and oil output might also drop on cost-cutting strategies especially by small producers.
The decline in the oil price, which has halved from June last year to a five-year low level of below US$50 a barrel, has halved the country's expected revenue from the oil and gas sector this year compared to 2014.
With the assumption of an oil price of $70 per barrel on average for the full year, the Upstream Oil and Gas Regulatory Task Force (SKKMigas) projected that the oil and gas sector's contribution to state income would be at $14.91 billion, versus $28.33 billion last year.
But many analysts predict that the price of oil will stay low this year. The worst-case scenario for SKKMigas, whereby the oil price averages at $40 a barrel this year, would cause state revenue from the oil and gas sector to drop further to $6.59 billion.
In addition, several oil and gas contractors are considering halting some of their projects because the low oil prices have hurt their profit margins, according to Energy and Mineral Resources Minister Sudirman Said.
This could pose more risks for the oil and gas production targets of 849,000 barrels of oil per day (bopd) and 6,592 million standard cubic feet per day (mmscfd) of gas, both of which are also assumptions in the state revenue equation.
'There are no decisions yet from them. However, given the current ongoing decline, there are risks of declines in production that will [also] impact state income,' Sudirman said.
Indonesia, a former member of the Organization of Petroleum Exporting Countries (OPEC), has seen failures in meeting its oil output targets in recent years, particularly because the country's oil fields have been depleted due to exploitation in the past.
Last year, the country only reported output of 793,570 bopd, lower than a target of 818,000 bopd.
SKKMigas deputy for planning Aussie Gautama said most of the projects that could be halted might be proposed by players running small-sized fields.
'Usually, the small-sized fields are the ones impacted. Big projects will go on as they are long-term investments,' Aussie said.
But big projects, particularly new ones, could also be at risk as contractors renew economic calculations, he added.
The government is currently awaiting the revision of a plan of development for Indonesia Deepwater Development (IDD) projects conducted by Chevron and another deepwater project in the Abadi field at the Masela block by Inpex. Chevron has found new reserves, causing it to revise the IDD development, according to SKKMigas' operational deputy Muliawan. Inpex is also revising its plan as it found bigger reserves that would affect the number of floating trains to be developed on the Arafura Sea which hosts the Masela block, he added.
Global energy think tank Wood Mackenzie said the oil and gas sector would be in full capital discipline amid the pressures and uncertainty surrounding oil prices.
It estimated that oil and gas companies worldwide that it assessed needed to cut costs by a total of $170 billion this year to maintain net debt at 2014 levels if the benchmark Brent crude price stands at $60 a barrel.
