Oil and Gas Sector in Indonesia

As one of the biggest maritime in the world, Indonesia has potential as a source of crude oil and gas.

  • Indonesia holds proven oil reserves of 4.2 billion barrels and is the 21st largest oil producer. This accounting for approximately 1.2% of world oil production.
  • Country with 13th largest proven reserve of gas of at 3.001 trillion quadratic metres.
  • Ranked 4th among LNG exporters in 2013, following Qatar, Malaysia and Australia.
  • It was the world’s 8th largest natural gas producer in 2013.
  • Indonesia Upstream Oil and Gas business activities are performed based on Production Sharing Contract (PSC).

 

With its high level of consumption in gasoline, Indonesia holds a huge market share in the oil and gas industry. Revenue from the oil and gas industry in 2011 contributed more than 20% of domestic revenue.

Indonesia was one of the biggest oil exporters in the world and even become a member of OPEC (Organization of Petroleum Exporting Countries). However, oil reserves in Indonesia start to shrink. According to a report from BPS, with its current production capacity of 840,000 barrel per day. And only 3.7 million barrels for reserve, they will only last to 10-11 years. With the constant increase in oil usage and demand in the domestic market, Indonesia had to officially suspend its OPEC membership in September 2008 when it became a net importer of oil. Many efforts are underway to search for more sources of oil.

 

Oil and Gas Investment

Indonesia holds proven oil reserves of 4.2 billion barrels (30th largest proven reserves in the world). According to Oil and Gas in Indonesia Investment and Taxation Guide PwC, and also as  the 21st largest oil producer, accounting for approximately 1.2% of world oil production.

Indonesia has the 13th largest proven reserve of gas at 3.001 trillion quadratic meters and is now globally the 8th top natural gas producer. Currently, Indonesia is one of the biggest gas exporters in the world. Although it has good reserves and domestic usage is growing, the lack of infrastructure in Indonesia is creating issues for the country.

Gas production cannot keep up with the rapid growth in demand because of the shift from oil usage to gas usage. This Condition forces the government to export production. According to the Ministry of Energy and Mineral Resources, in 2012, only 45.5% of total production was used for domestic needs. Exports still account for 47.8%. Indonesia’s total consumption of refined petroleum products, accounting for about 1.322 million barrels per day. According to the Central Intelligence Agency, in 2010 Indonesia consumed 39.56 billion cubic meters of natural gas, making its rank 24th globally.

Indonesia as Exporter Oil and Gas

Indonesia was also the fourth largest LNG exporter in 2013, after Qatar, Malaysia, and Australia. There are three base existing LNG facilities in Arun in Aceh, Bontang in East Kalimantan, and Tangguh in West Papua. To increase production, a number of new LNG projects are at various stages of development. In 2014 three additional LNG refineries were being built. Another project plan is for 2015 where PT. PGN will build a 34km gas pipeline in Semarang, Central Java. These projects will help broaden Indonesia’s LNG customer base to China and the west coast of the United States.

Indonesia Upstream Oil and Gas Business Activities (exploration and production activities) are performed based on a Production Sharing Contract (PSC) which been adopted  by many sovereign countries around the world, including oil exporters as well as some oil producers. Exploration is a series of activities to seeking new oil and gas reserves. If exploration discovers oil and gas reserves sufficiently profitable to be developed, this activity will be continued with production. For example, a series of activities to “lift” the discovered oil and gas reserve and transport it to the point of sale.

This model applies the mechanism that an oil and gas oil company that is awarded a production sharing contract or cooperation contract (KKS Contractor). And this model shall bear all initial expenditures of upstream oil and gas business activities. Those expenditures recovery will happen if their working areas enter the production stage. If business activities are unsuccessful, then all expenditures incurred will be fully the contractors’ account. In 2009, the government signed 18 PSCs for exploratory blocks and one new PSC for a production block.

 

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