Indonesia Opens its Doors to New O&G Investments
Indonesia is undergoing significant structural changes as rural-urban migration continues unabated, with rising incomes set to propel an additional 90 million Indonesian middle-class consumers into the world by 2030.
Against this backdrop of socio-economic changes, the country's National Energy Council (NEC) forecasted that energy demand in Indonesia will rise threefold by 2030 from its current annual consumption of 150 million tonnes of oil equivalent, according to an Aug. published statement. In addition, a report published by McKinsey Global Institute in September stated that the Indonesian energy market could be worth around $270 billion in 2030, including both the opportunity in new sources of energy such as geothermal and biofuels.
The NEC said in its statement that Indonesia's energy challenge has been heightened by a geographical demand-supply mismatch, with energy consumption heavily focused in densely populated Java, but fossil fuel resources more abundant in Sumatra and Kalimantan.
The Indonesian government has publicly agreed that in order to quickly scale up on its annual oil production target, it needs to seriously look at options such as using technologies to increase the production of its matured fields, as well as be more aggressive in offering oil exploration and development acreage to capable and willing investors.
The Indonesian government also realized that it needs to set clearer targets - coupled with appropriate incentives - for the energy industry so that the country will be able to ensure the security of its long term energy supply.
In early November, the Indonesia government stated that it is aiming to boost the country's oil production volume to one million barrels of oil per day (bopd) by 2014, and targeting to maintain the volume until 2025. This figure was publicly acknowledged by state-backed energy firm Pertamina in an Oct. 29 private press conference (attended by Rigzone) in Singapore.
Indonesia's Petroleum Landscape
Indonesia has been active in the oil and gas sector for more than 125 years after its first oil discovery in North Sumatra in 1885, and remains a significant player in the global oil and gas industry.
BP's Statistical Review of World Energy published in June this year states that Indonesia holds proven oil reserves of 4 billion barrels and ranks twenty-first among oil producers, accounting for around 1.2 percent of global oil production.
Declining oil production and increasing consumption resulted in turning the tables when Indonesia switched its role from being an oil exporter to an importer in 2004. This reason, along with high oil prices during the 2004 to 2008 period led the Indonesian government to decide to substantially scale back on domestic fuel subsidies and temporarily withdraw from the Organization of Petroleum Exporting Countries (OPEC) in 2008. OPEC is an organization representing 45 percent of global oil production.
As the only Asian member of OPEC since 1962, the Indonesian government has indicated that it will consider re-joining OPEC if the country's oil production can be increased and it can become a net exporter again.
Most of the country's oil production is currently carried out in the basins of western Indonesia and the Borneo region; the bulk of Indonesia's oil reserves being located onshore and offshore of central Sumatra and East Kalimantan. Indonesia's crude oil production declined over the last decade due to the natural maturation of producing oil fields combined with a slower reserve replacement rate and decreased exploration and investment. During 2011, Indonesia's total oil production was 0.9 million bopd, a drop of 34 percent since 2000.
Production Ramp-up Moves into High Gear
Before the Indonesian government had officially announced its oil production targets moving ahead into 2014, several Indonesian oil companies had already started making plans to quickly increase production from their oil fields beginning 2013.
An example is Pertamina Hulu Energi (PHE), the operator of the West Madura Offshore block off East Java. When the firm first took over the block, production was only 13,000 bopd, half of its peak production. But Pertamina is looking to turn things around - aiming to increase output from the block to 16,000 bopd by the end of this year - as it ploughs investment dollars into developing the block.
Speaking about the company's ambitions, Pertamina's Director of Upstream operations Muhamad Husen told reporters at the Oct. 29 jackup KS Java Star (300' ILC) launch in Singapore that the block will see some 60 wells being drilled over the next two years.
In addition, PHE is installing four new wellhead platforms - PHE-40, PHE-38B, PHE-39 and PHE-54 - which will kick off production from late December this year, PHE's Executive Vice President and General Manager for West Madura operations Imron Asjhar confirmed.
The four new wellhead platforms are an addition to three existing platforms that are at placed at three oil exploration wells - PHE KE 38 B, PHE KE 39, PHE KE 54 - also slated to start production this year, Imron added. Moving into 2013, PHE is planning to tender for four additional well head platforms. Imron said that the plan is for Pertamina's to release tenders in early 2013.
But it is not just the state-owned companies that are responding to the government's call. Private enterprises are also quickly scaling up their oil exploration activities in the country.
Indonesian-focused Ramba Energy has exploration and development plans for all of its onshore blocks, including the West Jambi KSO and Lemang PSC in Sumatra, and the Jatirarangon TAC in Java.
Detailing the company's plans for 2013, Ramba's Commercial Director and Executive Director Daniel Jol told Rigzone Nov. 9 that the Lemang PSC has the potential to significantly contribute to Indonesia's production target once the block's structures are successfully explored, appraised and developed.
Ramba spud the Selong-1 exploration well on the Lemang PSC Oct 30. The well - being drilled to a depth of 6,350 feet - is targeting the Intra Gumai Sand Formation, Upper Talangakar Formation, Lower Talangakar Formation and the Crystalline Basement. The company is expecting to disclose its testing and analysis results in early December. DeGolyer & MacNaughton, a petroleum consultancy, estimates the Lemang block to hold gross recoverable prospective resources of 511 million barrels of oil and 468 billion cubic feet of gas.
Natural Gas Development Plans Also Gain Attention
As Indonesia grapples with decreasing oil production in the last decade, the country's focus has turned increasingly to natural gas as an alternative fuel source, especially for power generation.
Focusing on natural gas comes as a natural hedge for its fuel security. The country is ranked eighth in world gas production, with proven reserves of 108 trillion cubic feet, data from BP Statistical Review of World Energy for the period 2000 to 2010 showed.
Like its petroleum segment, Indonesia's natural gas industry is also being closely watched by industry players amid several high-profile investments that have received the go-ahead from the country's regulatory authorities.
The most recent of which was the regulatory nod given to BP for its expansion plans - worth $12.1 billion - for its Tangguh liquefied natural gas (LNG) project in the Papua Barat province in eastern Indonesia. The expansion will add a third 3.8 million tonnes per annum (mtpa) LNG train to the existing project, bringing Tangguh's total capacity to 11.4 mtpa. BP said in a Nov. 2 statement that a final investment decision on the plan, subject to further regulatory and partner approvals, is expected in 2014. If taken, the new train will start operations in 2018. BP and its partners in the Tangguh project have started tendering for the front-end engineering and design (FEED) services for the proposed Train 3 development.
Meanwhile, Indonesia is also looking at the unconventional gas route to bolster its long-term supply needs. Pertamina is taking the lead in this initiative through the drilling of exploration and development wells across the 14 coal bed methane (CBM) PSCs that it owns in Sumatra and Kalimantan. Husen disclosed that at present, Indonesia sees CBM as a much more attractive developmental prospect than shale gas due to the country's geographical nature.
Pertamina is looking to secure around 30 'fit-for-purpose' drilling rigs for its CBM strategy. Pertamina is set to spud its first CBM exploration well in Sumatra towards the end of November.
Barring bureaucratic largesse and corruption, Indonesia's drive towards become a net oil exporter within the decade seems cautiously optimistic. Moreover, its natural gas play will continue to pick up stride as demand for the commodity ramps up worldwide. The O&G industry has had a long and successful history in Indonesia and will remain a mainstay of its economy for the foreseeable future.
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