Reaping the benefits


According to a BP report, there were 2.5 billion barrels of proven oil reserves in Indonesia at the end of 2019, putting the nation at #22 among world oil producers


Rhonita Patnaik

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Published: Tue 17 Aug 2021, 12:00 AM

The oil and gas industry, both in Indonesia and globally, has experienced significant volatility in the last decade. Global geopolitical and economic considerations play a significant role in driving the sensitivity of oil prices.

However, over the past decade Indonesia has enjoyed steady economic growth, though less than needed to pull the country solidly into the upper middle-income status. Sound macroeconomic policies, combined with growing domestic demand and high commodity prices, propelled economic expansion in recent years.

The development of shale technology has reduced the oil and gas import dependency of the United States, which was traditionally the biggest net-oil importer. This has led to oil oversupply, and has been a key factor in falling oil prices in recent years, despite the continued intervention of the Organisation of the Petroleum Exporting Countries (OPEC) in an attempt to stabilise supply and bring some moderation to global oil prices. Oil prices saw some recovery in 2018, supported by Venezuela’s decline in oil production, and concerns about spare capacity in OPEC countries, combined with robust demand from non-OECD (Organisation for Economic Cooperation and Development) countries, particularly China.

Meanwhile, gas consumption also rose due to its increasing share in electricity generation throughout 2018. Some softening of prices has been seen in the first half of 2019, with West Texas Intermediate (WTI) below US$ 60/barrel at the end of July.

Indonesia has been active in the oil and gas sector for more than 130 years, after the first oil discovery in North Sumatra in 1885. A member of OPEC from 1961, Indonesia suspended its membership in 2009 after years of declining production, rejoined in January 2016, but suspended its membership again in November 2016. State-owned Pertamina controls 86 blocks in the country.

According to the BP Statistical Review of World Energy 2019, Indonesia holds proved oil reserves of 3.2 billion barrels at the end of 2018.

Following President Jokowi’s reelection in April 2019 and the subsequent changes in key leadership positions within his cabinet, policy changes have begun to be implemented that indicate Indonesia will become more welcoming to foreign investment. In early 2020 the Government of Indonesia began to develop several Omnibus Laws that will make significant changes to Indonesia’s labour laws, restrictions on foreign investment and tax policies. Indications are that the business climate will improve in the coming years as Jokowi pursues a less protectionist path forward.

Indonesia has a diversity of geological basins that continue to offer sizeable potential for oil and gas exploitation. Indonesia has 60 sedimentary basins, including 36 in Western Indonesia that have already been thoroughly explored. Fourteen of these are producing oil and gas. In under-explored areas of Eastern Indonesia, 39 tertiary and pre-tertiary basins show rich promise in hydrocarbons.

About 75 per cent of exploration and production is located in Western Indonesia. The four oilproducing regions are Sumatra, the Java Sea, East Kalimantan and Natuna. The three main gas-producing regions are East Kalimantan, South Sumatra and Natuna.

In June 2021, the government of Indonesia put on offer six oil and gas working areas in the first round of Indonesia Petroleum Bid Round 2021.

There are six working areas on offer, consisting of four working areas in Direct Proposal Tender mechanism and two working areas in Regular Tender mechanism.

The four working areas offered in Direct Proposal Tender are: the 5.446.39-sq km South CPP onshore Riau, the 1,751.04 sq km Sumbagsel onshore South Sumatera, the 3,969.8-sq km Rangkas onshore Banten & West Java, and the 3,135-sq km Liman onshore and offshore East Java.

The two working areas offered in Regular Tender are: the 1,488.84-sq km Merangin III onshore South Sumatera and Jambi and the 4,679.33-sq-km North Kangean offshore East Java.

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