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Jakarta Post

72.5% of oil and gas output at risk from expiring contracts

  • Raras Cahyafitri

    The Jakarta Post

Jakarta   /   Tue, December 16, 2014   /  09:09 am

Contracts for as many as 32 oil and gas blocks are scheduled to expire within the next 10 years, increasing concerns over a potential energy crisis if the government fails to make a quick decision.

A number of the blocks '€” whose combined production accounts for 72.5 percent of the country'€™s current oil and gas output '€” will start to expire next year and the expirations will continue annually until 2024, according to data from the Upstream Oil and Gas Regulatory Special Task Force (SKKMigas).

Oil and gas contractors in the country are allowed to submit extension appeals for their blocks at a maximum of 10 years before their expiry dates. Certainty over the contracts is seen as necessary because contractors need to calculate whether to continue pouring money into their blocks. Failure to address the issue will affect the output of the block, which will in turn hurt the country'€™s total output.

At present, there are seven contractors demanding clarity over their expiring blocks, according to the Energy and Mineral Resources Ministry'€™s head for performance controlling unit, Widhyawan Prawiraatmadja.

They are, namely, the Pase block in Aceh, the Kampar block in Riau, the Gebang block in North Sumatra and the Offshore North West Java (ONWJ) block in West Java '€” which have all been handled by the government. The other three are the Lematang in South Sumatra, the Makassar Strait block in East Kalimantan and the Mahakam in East Kalimantan. The government wants state-owned oil and gas giant PT Pertamina to be the operator of the Mahakam block.

As for the Lematang block, the operator, PT Medco E&P Indonesia, has submitted its appeal for an extension. However, the government is still assessing the appeal and is expected to deliver an order soon, Widhyawan said.

'€œAs for Makassar Strait PSC, which is part of the Indonesia Deepwater Development [IDD], the operator [Chevron] is revising its plan of development. We are still awaiting their proposal on whether it is asking for an extension for the Makassar Strait or will also ask for others,'€ Widhyawan said earlier. With an estimated investment of US$12 billion, the IDD project covers the development of four production sharing contracts (PSCs).

A number of expired PSCs have been operating for years, such as the North Sumatra Offshore (NSO), operated by ExxonMobil that has been operating since 1978. Gas from the NSO used to be sent to the Arun liquefaction plant, but it is now nearly depleted and unable to send enough gas to be processed into liquefied natural gas (LNG).

However, the NSO is still operating and delivering the leftover gas '€” usually known as tail gas '€” to state fertilizer firm PT Pupuk Iskandar Muda and to state-owned gas distributor PT Pertamina Gas (Pertagas), which delivers the gas through its Arun-Belawan pipeline to its clients.

The Indonesian Petroleum Association (IPA) director, Lukman Mahfoedz, said oil and gas contractors in the country expected a better commercialization process, particularly for gas projects.

Indonesia is estimated to have significant gas resources, with a projected 104 trillion standard cubic feet (tscf) proven and 48 tscf in potential gas reserves, making it the 13th-largest owner of proven natural gas reserves in the world and the second-biggest in the Asia-Pacific region after China, according to the International Energy Agency. However, development has mostly been hampered by a slow permit process and unfriendly regulations.

'€œClarity over the process and the timeline of PSC extension is necessary for long-term gas selling agreements,'€ Lukman said earlier.

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