Indonesia Has Gallons of Optimism, but is it Realistic?

By webadmin on 10:02 pm Jun 13, 2012
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Retno Ayuningtyas & Wiyono

The government remains optimistic that the country will hit its production target of 1 million barrels of crude oil per day as soon as three years from now on increases in investment in the sector, energy ministry officials say.

According to data from upstream oil and gas regulator BPMigas, crude oil production since 2007 has fallen to less than 1 million barrels per day due to aging production facilities as well as a natural decline in output. Production dropped to 954,000 bpd in 2007 from 1 million bpd in 2006. It rose slightly in 2008 to 977,000 bpd but fell to 949,000 bpd in 2009, 945,000 bpd in 2010 and 902,000 bpd in 2011.

The decline is predicted to continue in the next two years, with government estimates at 894,000 bpd and 891,000 bpd for this year and 2013, respectively. Production next year might be the smallest in at least 10 years, based on an official’s projection.

“We will ramp it up again back to 1 million bpd level” in 2015 and 2016, Jero Wacik, the energy minister, said in a hearing at the House of Representatives on Monday.

He said the government aimed to reduce the pace of natural oil production decline from 13 percent per year to just 3 percent per year with new technology.

Furthermore, the minister said “there will be some additional production from oil and gas projects.” He did not elaborate.

However, Rudi Rubaindini, BPMigas’s deputy chairman for operational control, said there would be additional crude production from 13 new oil and gas projects, including the development of the Mahakam block by Total E&P Indonesie and North Duri Development Area 13 by Chevron Pacific Indonesia.

There will also be more production from two existing fields — Lapangan Rantau and Talang Jimar — both operated by state oil and gas company Pertamina.

In 2014, Indonesia is targeting crude production to rise to 986,000 bpd. In 2015 and 2016, Indonesia could regain its 1 million bpd crude oil production status with production eyed at 1.017 million bpd and 1.019 million bpd respectively.

There is no specific data on investment in each of these projects. But according to BPMigas data, investment in the upstream oil and gas sector has experienced a rising trend since 2002.

Including the forecast for 2012, which sets a target of investment in the sector at $15 billion, oil and gas producers will have tripled the money they poured into the sector since 2002, when investment in the sector reached $4.7 billion. It gradually increased to $13.7 billion last year.

However, industry analysts warn that despite investment appearing to be on the rise, it is not enough to ramp up production back to the 1 million bpd level.

Oil analyst Kurtubi said Indonesia needed more investment in the sector to boost oil discovery. The government, he said, needs to rearrange its oil and gas policy and regulations in order to make it more friendly to investors.

Kurtubi said current oil reserves stand at 4.2 billion barrels and have never exceeded that. At current rate of production, without discovery of new fields, reserves would be depleted after 12 years, he said.

“Make a better and more simple oil and gas law to make it easier for investors to come in and work on oil and gas reserves,” Kurtubi also advised. He suggested investment procedures in the field should also be simplified and investors should only be taxed after they start production.

Oil and gas director general Evita Legowo said the government was trying to make investing in the sector more attractive to potential investors.

“Production sharing is now at 85:15, but we will provide a better portion,” Evita said. She said the size of the portion for the investor would depend on the degree of difficulty in the mining operation.

The government said it was considering waiving land and building tax for offshore projects.

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