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lobal oil and gas prices are today barely half what they were one year ago. Brent crude oil prices, which averaged US$100 per barrel in 2014, are projected at less than $50 per barrel in 2015.

Iran and the five permanent members of the UN Security Council plus Germany (P5+1) have reached a framework agreement that could result in the lifting of oil-related sanctions against Iran. This will add supply and keep oil prices low.

Speculation about when these prices might significantly increase again and what new level they might rise to is pointless.

We should instead focus on mitigation measures to reduce the inevitable negative impacts that today'€™s lower prices will have on the appetite of oil and gas companies to continue investing in exploration and production, at the same rate as when prices were much higher.

Lower oil and gas prices have discouraged much upstream investment worldwide, and the effects are more pronounced in places perceived as high risk and/or high cost.

Our country unfortunately fits both categories with its punitive fiscal policies regarding upstream activities and the absence of a dynamic service industry that could collaborate with production companies to cut costs, as is occurring elsewhere in the oil world. This makes upstream investment unattractive.

Even one year ago, when prices were almost twice current levels, the industry was seeing a crunch, characterized by a steady rate of decline in domestic oil production and in natural gas production, with gas output now below 2009 levels.

We saw an unexpectedly poor response from industry to new blocks being offered for exploration, with a marked tendency for industry players to invest primarily in more established, low-risk areas where in recent years the results have been disappointing.

Most of the constraints on the upstream industry have existed for a number of years. The government has issued new regulations after little, if any, consultation with the industry to identify their likely impact, contributing to further uncertainty.
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More friendly fiscal terms for unconventional oil and gas must be initiated ...

Other regulations, which are urgently needed, such as the regulation on the process for managing production-sharing contract (PSC) extensions, drag on for years before implementation.

The government is guilty of micro-managing the oil and gas industry, of being slow in decision-making and in issuing permits and approvals.

Disputes involving local governments and local communities are on the rise, and often involve disputes over land access, with local groups creating blockages and disturbances to push for their demands to be met.

These unhealthy trends either started or accelerated while international prices for oil hovered around the $100 per barrel, and landed LNG prices in Northeast Asia exceeded $15/MMBTU.

Lower prices of world crude oil are certainly a factor in crippling investment in our upstream industry. Oil and gas companies will lower their risk profiles in upstream activities and be forced to cut back on their development expenditure budgets, leading to a delay or cancellation in the commissioning of new projects or the expansion of existing projects.

With lower prices and unchanged fiscal terms, firms are unwilling to take the risk to explore new oil and gas reserves in high-risk areas, and will restrict themselves to spending their reduced budgets on established low-risk areas.

They are unlikely to take on more upstream risk in unexplored deep water, such as full-scale Indonesia deep water development or the East Natuna projects, or explore projects in the eastern part of Indonesia.

All of which will naturally accelerate the rate of decline in oil production at a national level and probably prompt a decline in gas production. The domestic oil and gas supply is therefore at risk.

To encourage upstream investment in the current conditions, we need to be brave enough to modify our fiscal incentives so that our oil and gas companies will be more willing to risk their capital in exploration by rewarding successful efforts more highly.

Some of the PSC terms during the production phase should be reviewed. If success is better rewarded, then production should rise above the level that current fiscal programs warrant.

Our revenues might rise or fall, but in the current environment the macroeconomic effects of ever-rising energy imports weigh more heavily than the domestic fiscal impacts of the current PSC structure.

More friendly fiscal terms for unconventional oil and gas must be initiated, specifically CBM and shale that recognize the economic value of production of these hydrocarbons.

For these resources, the terms may move to more of a royalty and tax approach than a PSC approach for these resources. The terms on existing or renewal PSCs should be changed, so as to encourage the use of enhanced oil recovery (EOR) at older producing fields.

At present the incentives to produce more oil or gas using EOR are slim if the resulting additional production overwhelmingly benefits the government, rather than the investor.

We should promote sharing between oil and gas companies in ways to reduce the current difficulties in obtaining local government approvals.

We must encourage PSCs to share experience on issues such as CSR expenditure, i.e., how to make it more effective and dealing with local community issues and land acquisition challenges.

Of course, we have to streamline and reduce the number of permits for the industry under the umbrella of a one-stop service at the BKPM, with oil and gas experts on hand to resolve technical questions and issues.

We should also improve the consultation process with industry. We need to make a concerted effort to engage in detailed discussions with PSCs at the early stage of formulating new policies, laws, regulations and decrees.

Those companies whose current activities or planned investments will be significantly affected by proposed changes should make their views known.

There is a considerable risk to our country if we maintain the status quo while expecting prices to recover and encourage upstream investment.

Indonesia'€™s transformation from a net exporter to net importer and its steadily declining fiscal revenues from oil and gas production place a higher value on economically efficient production increases than was the case in the past.
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The writer is deputy coordinating minister for energy management, natural resources and the environment at the Office of the Coordinating Economic Minister. This is a personal view.