Indonesia’s Energy Reserves-a Brief Overview
The population of Indonesia is ranked fourth in the world and it is the most populated country in South East Asia. The economy of Indonesia is growing fast and has achieved the status of third fastest developing economy in the world. Although Indonesia lacks infrastructure and feasible business environment, yet it is amongst top exporters of natural gas.
Coal energy consumption in Indonesia amounts to around one-third of total energy consumption and the overall energy consumption have grown drastically in recent years. The use of renewable energy has also grown tremendously because there is significantly low energy integrated transmission grid networks and pipelines.
Indonesia’s Oil Sector
The oil production in Indonesia is decrease, as newer projects have not replaced the older fields as they deteriorate to an extent with the passage of time.
Indonesia imports both refined products as well as crude oil as its crude oil production has decreased considerably. Earlier Indonesia has remained a member of OPEC between 1962 and 2009, but soon after it became a net oil importing country from 2009, the OPEC membership was suspended. BP, Chevron, Total, and many other international oil companies dominate the overall Indonesian oil sector. The largest single oil producer in Indonesia is Chevron producing more than forty percent of total production of Indonesian crude oil. PT Pertamina is the second main producer that amounts to around fifteen percent of total condensate and crude oil production. It is worthy to note here that PT Pertamina is the national company for integrated energy supply in Indonesia. PT Pertamina controls the supplies, product imports, and crude oil procurement besides managing almost full Indonesians oil capacity. Although its monopoly is no more in the retail market since 2004, it is still the sole distributor of fuels subsidized supply.
There are two mainstream oil authorities in Indonesia. The first one is Ministry of Energy and Mineral Resources that manages PSCs(sharing contracts) and the second authority is BPMigas that regulates these contracts and agreements.
Oil Exploration and Production in Indonesia
Indonesian Oil and Gas reserves are estimated to be nearly four billion barrels of oil reserves with an average total supply of around 1 million barrels/day. The main part consists of crude and lease condensate oil that is estimated to be around 950,000 bbl per day. The decline is observed at a rate around four percent in condensate and crude oil production within 2000 and 2010.
Duri Oil fields and Minas are two biggest oil-producing fields in Indonesia. They are located in Sumatra’s eastern coast. The Rokan Oil production sharing agreement implies the hundred percent working interest and operational authority of these oil fields on Chevron. Though the enhanced techniques for oil recovery have been used, yet the decline in production cannot be reversed.
Cepu Block oil reserves are a good omen for an increased production level of oil in Indonesia. Exxon and PT Pertamina are operating these oil reserves in a joint venture agreement both having forty five percent of working interest each and the rest ten percent rests with 4 local government COYs. Currently Banyu Urip is the one oil field that operates in Cepu region and its estimated oil production level in January 2010 was found to have reached near eighteen thousand bbl per day. Earlier, the project has faced many delays in its implementation for various reasons. The government of Indonesia has taken measures to increase upstream investment by giving incentives and making PSC bidding procedural up gradation. The recovery PSC caps and parliament debate on cost recovery caps for PSCs have not supported the upstream investment activities in Indonesia particularly in oil and gas sector.
Oil Refining Process and Consumption in Indonesia
The oil refining capacity of Indonesia is around 1million bbl per day, the major production coming from Java Samutra refineries that are mostly owned by PT Pertamina. West Java has three major refineries namely Bolongan, Balikpapan and Cilacap producing 125,000 bbl/d, 260000 and 348,000 bbl per day respectively. Indonesia is looking forward to meet its energy and oil needs from its own oil reserves and by finding new ones. In this regard, Pertamina has planned to end the imports of Oil to Indonesia by 2017. The political and industrial environment is not supporting these plans largely. There have been delays in meeting industrial sector financial and strategic needs and incentives. This has also kept multinational industries away from inducing the capital in the oil market.
The Kuwait Petroleum and Pertamina also signed a contract in 2010 for up gradation study and research on Bologan refinery located in Java. Some more discussions and meetings have been held between Aramco and Pertamina to build an approximate 300000 bbl/day refinery in Eastern Java. The Saudi Aramco is looking forward to get more incentives from Indonesian Government in order to proceed with the plans. Besides these plans, Pertamina has also planned to build a 300000 bbl per day refinery with Banten Bay. Iran’s Oil Refining Development Coy and Petrofield Refining Company of Malaysia manage Banten Bays administration. This project is recently termed as infeasible on economic grounds by Pertamina management.
Since there is a continuous decline in Indonesians crude oil production, therefore it has been decided that all the above stated projects should be provided with supporting crude oil supply by National Oil Refinery, Aramco and Kuwait Petroleum Corp. The ground realities and continuous delays and hurdles in these projects suggest that the implementations of these projects are at stake at least in near future or by 2015. The upgrades to refineries like Cilicap is moving ahead and there are chances that the current 62000 bbl per day catalytic cracking will continue smoothly in 2014 until its completion.
The annual consumption rate has exceeded fairly and its increase is estimated to be around 4.7percent before 2005 but a little decrease in this trend was observed later around 2007 because of a substantial increase in subsidized fuel prices. Consumption further increased after 2008 and in 2009, its increase was estimated around 1.3 million bbl per day. President Yudhoyono’s policy was to eliminate the fuel subsidies for industrial consumers. In 2010, the fuel subsidies were removed by Indonesian Parliament on all vehicles other than motorcycles and public transport. This policy was initially intended for Jakarta and was supposed to be practiced nationwide by the end on 2013 but its implementation process was delayed for obvious rise in the inflation level.
Natural Gas in Indonesia
Indonesia’s proven Gas reserves are estimated around 106trillion cubic ft. according to Oil & Gas Journal. It is ranked fourteenth among the highest reserve holders of natural gas, and ranked third in Asian Pacific region. Indonesia is a net exporter of Natural gas. Recently the consumption level has increased many fold but it remained to be an exporting country despite this domestic increase in consumption. Its major exports are through pipe lines and LNG.
Same authorities that regulate and produce oil in Indonesia are involved in exploration of natural gas. BPMigas is the sole regulator of Natural gas and Pertamina is not involved in regulation process of Natural gas. The Pertamina Company only carries on exploration and production of natural gas in Indonesia. It accounts for around fifteen percent of total Natural gas production in Indonesia. Perusahaan Gas Negara that is a state owned Indonesian entity is responsible for natural gas distribution to industrial and domestic consumers throughout Indonesia. The multinational companies that hold major stakes in natural gas sector of Indonesia are ExxonMobil, Total and ConocoPhillip.
The production rate of natural gas in Indonesia is increasing at a smooth rate of about 1.5percent. The 2009 analysis shows that Indonesia’s natural gas production was the 11th highest in world natural gas production ranking. The offshore fields are responsible for more than half of the total production. While comparing the non-associated gas fields with associated ones, a study shows that near twenty percent of the gross production comes from associated gas fields.
The geographical locations of major natural gas reserves poses a challenge towards resource development as they are mainly located very far from the demand markets. Currently the natural gas production is significantly available from these offshore fields: East Kalimantan’s offshore fields, South Sumatra, Aceh, North Sumatra and South Natuna Offshore block.
Mahakam PSCs of East Kalimantan’s oil fields are operated by Total, whereas Conoco Philips operates onshore corridor PSC of South Sumatra. According to 2009 estimates, the major production that accounts to about one third of total production comes from East Kalimantan’s PSCs.
Several other projects are under development phase to be implemented in coming decade. A project for the development of Natuna D-alpha field in association with Total, Petrona, ExxonMobil & Pertamina is expected to be started by 2021. East Natuna where this project is about to start, is expected to hold 46Tcf of gas. The site contains around 70% of CO2 that is significant for production margins to be tightened for this project developers. Gendalo Gehem deep water project is lead by Chevron with partners including Eni and Sinopec a. It is expected to produce around 400 Bcf/per year at full production capacity with its 4 PSC-blocks. Coalbed methane reserves also exist in Indonesia. An approximate 453 Tcf. Methane is the primary natural gas component that is extractable from coalbeds. Coal bed methane-gas reserves are found near Kalimantan and South Sumatra. Further exploration of the reserves is in progress even after the government has awarded PSC’s in 2008. Production was planned to start around 2012. Multinational COY like Eni, BP and Dart Energy also have shares in these CPM blocks but majority of CBM PSCs are held by local consortiums.
Indonesia Natural Gas Exports
Indonesia is ranked sixth in 2009 amongst the net exporters of natural gas. Indonesia mainly transports gas as LNG, but it also exports gas through pipelines. One Fourth of its total is exported to Singapore through these pipelines. The pipelines are connected from Offshore fields in the West Natuna-Sea and Sumatra’s Grissik gas-processing plant. These pipelines are supplying gas to Singapore and that contract is quite a long one that is going to expire somewhere near 2020. There is a chance that these supplies may be reduced as Indonesian Government is looking forward to ensure its own domestic supplies. Indonesia’s remaining three-forth exports go to Malaysia, Japan, South Korea and Taiwan. This is transferred as LNG. Japan imports around sixty-five percent of this total LNG exports.
Indonesia Gas Consumption and Distribution
Recently Indonesia has seen a declining trend in its oil production that has affected a lot on its net exports. Indonesian government is now focusing to fulfill its domestic consumption requirements at first priority. Most of the consumption requirements are coming from Indonesian power sector rather than its industrial sector. Perusahaan Gas Negara that is Indonesian Natural gas distribution authority is in charge of facilitating and operating the 3500 miles of transmission and distribution pipelines throughout Indonesia.
The 2009 estimates by Perusahaan Gas Negara shows that the unmet gas demands for domestic power and industrial sector was above 400 Bcf. South Sumatra and West Java are interlinked by PGN in 2008 through pipeline. Chevrons Duri receives gas through Grissik Duri pipeline for power generation and steam flooding activities.
Indonesia also exports LNG and is considered as the 3rd largest exporter of liquefied natural gas behind Qatar & Malaysia. The production capacity from its three liquefaction operational terminals is estimated to be about 1.6 Tcf (32 MMT/year). LNG exports surpassed 950Bcf in 2009. One of the largest LNG terminal is located in East Kalimantan and is known as Bontang LNG-terminal. Arun Fields are second big production units of gas in Indonesia but the production rate are declining gradually due to the shortage of reserves. In Tangguh two trains are already operational and the plans for third one is delayed for time being, BP is managing the Tangguh whose exports reached a level of 330 Bcf in the year 2010.
Indonesian government is giving first priority to its domestic needs while finalizing all the latest contracts with extraction companies. Recently it allowed Donggi Senoro plan implementations only when they mutually agreed upon allocating the 30% output for consuming domestically. Masela floating terminal will also designate one third of LNG liquefaction to the Indonesian domestic market. Bontang LNG reserves will totally be used for domestic use by 2020 after restricting the current exports from this field. Pertamina along with PGN has undertaken a joint venture project for a regasification terminal (143 Bcf/y (3.0 MMT/y), the first of its kind in Indonesia, to start supplying LNG to Jakarta by 2012. Indonesia is striving to balance the domestic needs and exports of its energy resources. Pertamina has also announced along with PLN to establish eight LNG mini-terminals(67 Bcf/year) by 2015. This will ensure supply for electricity plants. These terminals will be built throughout eastern region for this purpose.
In order to have more flexibility to secure supplies of both domestic and foreign LNG, plans for several LNG receiving terminals are underway in Indonesia. The first regasification terminal, a 143 Bcf/y (3.0 MMT/y) joint-venture between Pertamina and PGN, will supply the Jakarta market starting in the first quarter of 2012. Pertamina also plans to invite bids for an additional receiving terminal of similar size to serve East Java. In addition, Pertamina and PLN (Indonesia’s state electricity firm) have announced plans to develop eight LNG receiving “mini terminals” by 2015, with a total capacity of 67 Bcf/y (1.4 MMT/y). These terminals will be scattered throughout the eastern region of the island nation, and are intended to guarantee supply of natural gas for electricity plants.
Coal Reserves In Indonesia
A research study conducted by EIA shows that around 4.8billion ton of recoverable-coal are found in Indonesia and these reserves mostly exist in South and East Kalimantan and Sumatra. The coal resources are mostly bituminous and sub-bituminous and their production has almost increased four times. In 2009 it reached a level of 333MMst whereas the consumption was only 77MMst, which was not even one fourth of the total production. Coal fired electricity generation capacity is enhanced that in turn in estimated demands to get doubled in 2014. Most of the additional productions are allocated for exports with an obligation by Indonesian government to maintain a 24 percent supplies for domestic consumption. After Australia, Indonesia is ranked second in exporting coal to the international market. It stands first in supplying thermal coal for power plants internationally. These coal exports are mostly made to Asian market in countries including China, Taiwan, Japan and others. China was the leading importer of coal from Indonesia in 2009. Coal electricity production almost serves half of the total Indonesian electricity generations. In 2008, the country generated near 120 billion KWH of electricity that was produced from coal, natural gas and oil.
Perusahaan Listrik Negara is the state owned major electric company in Indonesia, operating above 85% of subsidiaries electricity generating-capacity. This company also controls the regulation of distribution of electricity throughout Indonesia.
Indonesia has increased its electricity generation capacity in several years but less than 70% of the total Indonesian population has access to electricity. The main reasons for this are the lack of development and infrastructure activities, regulatory situations, and issues in tariff subsidies.
Indonesian government is addressing this issue and has launched a fast track plan that could add 20 more GWatts to the national grid by the end of 2014. This plan estimates an addition of 10 gigawatts by coal based electricity generations. Although it was planned to be completed by 2010 but delays in implementations have resulted in the revised plans for completing it by 2013. Other 10 GigaWatts are intended to by produced by cleaner energy resources such as natural gas and other renewable. The policy of Indonesian government is to support the coal generation activities as much as possible as its domestic demands have increased considerable in recent years and the fuel oil and diesel are getting expensive day by day.