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Indonesia fails to oil the
pumps
By Bill Guerin
JAKARTA - Indonesia, the fourth-most
populous country in the world, has been a net oil
importer since 2004. After years of exploitation,
crude oil output has steadily declined to current
production levels of around 1 million barrels per
day (bpd) and the country is currently unable to
meet its OPEC (Organization of Petroleum Exporting
Countries) output quota of 1.425 million bpd.
Oil and gas brought in US$11.8 billion in
2004, accounting for 26% of total export earnings.
This was up 15% on 2003 figures mainly because of
soaring global oil prices. On the other hand,
imports of oil and gas have grown substantially.
Indonesia imports some 400,000 bpd of fuel to meet
domestic demand. This sustained boom in oil
consumption coupled with a lack of new exploration
and dwindling reserves has left the government
with little option but to intensify exploration
and press ahead with viable alternative energy
policies designed to encourage switching to gas
and coal.
While domestic demand for oil is
increasing by around 7% every year, more than
three quarters of the country's oil production is
pumped from depleting resources that are decades
old. The country's proven reserves are around 5
billion barrels. If annual production continues at
around a million bpd, annual output is just over
350 million barrels, meaning the reserves have a
lifespan of little more than 15 years.
Problems besetting the oil sector include
regulatory hurdles still to be addressed by the
new administration, the decline in output due
mainly to the natural fall off of the aging oilfields,
and a lack of new investment in exploration. The
Indonesian Petroleum Association says spending on
new oil exploration last year amounted to a paltry
$500 million at best, the lowest since 1981.
Contradictory regulations have hampered new
exploration in the oil and gas sector.
Incentives are
being offered to multinationals such as Caltex, Medco,
China National Offshore Oil Corp (CNOOC) and Unocal -
who own more than half the 50 aging oilfields
nationwide, mostly in onshore areas, that produce
between 5,000 and 7,000 barrels a day at best.
Incentives have been granted to boost production in
marginal oilfields and in these older fields. Minister of
Energy and Mineral Resources Purnomo Yusgiantoro
says such measures could help increase oil
production by as much as 50,000 bpd and has
pledged to boost oil output by a total of 300,000
bpd by 2008-2009.
The Cepu
dispute
The resolution of a dispute over
profit sharing and development of the country's
biggest known untapped oil deposits, the Cepu
field in Java, is reported to be imminent. The
field holds an estimated 2 billion barrels of oil
and 11 trillion cubic feet of gas, and could boost
the country's current oil output by as much as
18%.
ExxonMobil Oil Indonesia has been
at odds with state-owned oil and gas utility
Pertamina over its rights to further develop the
block. New oilfields require a production-sharing
contract (PSC). The Ministry of Mines and Energy
is to eventually take over Pertamina's function of
awarding and supervising PSCs with foreign oil
companies but in the case of the Cepu field,
Pertamina has been calling the shots and demanding
a bigger cut of the action in return for renewal
of the necessary project license.
The two
have been unable to reach an agreement, with
Pertamina demanding half the field's output and
ExxonMobil demanding that Pertamina cover half the
field's production costs. In August 1990,
Pertamina granted a 20-year concession to operate
the Cepu oil block field to Humpuss Patragas
(HPG), owned by Tommy Suharto, son of former
president Suharto, in cooperation with Australian
Ampolex, which owned a 49% stake in the field.
The contract, known as a Technical
Assistance Contract (TAC), contained a clause
forbidding it to be transferred to a foreign
party. The deal was that HPG would get 35% of its
production costs rebated after production.
Pertamina and the contractor, HPG, would split the
revenue from any excess oil produced over the
agreed limits in the contract on a 65:35 basis.
Humpuss Patragas ran into severe debt and
cash problems as the 1997-98 financial crisis took
its toll, and was forced to sell its 51% holding
in the Cepu block to restructure its debts with
the Indonesian Bank Restructuring Agency (IBRA).
ExxonMobil Oil Indonesia acquired a 100% stake in
the Cepu oil block through its subsidiary, Mobil
Cepu Ltd, by buying the stakes of both Humpuss and
Ampolex. Production was planned to begin in 2003
and the contract scheduled to finish in 2010, only
seven years later.
This contract
gave ExxonMobil the right to 20% of any oil
produced from Cepu. Exxon sought a 20-year extension of
the right from the Megawati
Sukarnoputri administration in 2003 but this was
refused. Megawati's government last August changed
the Pertamina board of directors. The new
team promptly withdrew an offer by their
predecessors for Exxon to give up its rights to two oilfields
close to Cepu and hand over $85 million in
exchange for the Cepu block extension. Pertamina's
chief commissioner, Martiono Hadianto, was quoted
as saying recently that several terms still needed
to be negotiated, including the production revenue
split, before a "final, win-win solution" is
reached.
Pertamina: Pulling a rabbit
out of the hat
There is an even more
immediate problem facing the government - that of
securing the domestic fuel supply. The November
2001 Oil and Gas Law decreed that Pertamina's
monopoly on upstream oil development (which
required it to be included in all PSCs) would be
phased out by the end of 2003. Pertamina's
regulatory role was spun off to a new body, the
Oil and Gas Upstream Regulatory Agency (BP Migas).
Pertamina was to maintain its retail and
distribution monopoly for petroleum products until
July 2004. The government is still promising to
open the sector to full competition although
progress has been very slow to date. Almost four
years after the law was passed, several
regulations have still not been finalized.
Pertamina is still, however, responsible for fuel
distribution, on behalf of the government, until
the end of this year, when it will have to compete
with other companies. The 2005 state budget, which
the Megawati administration drafted on an oil
price assumption of $24 per barrel, set aside only
Rp19 trillion (US$2 billion) in fuel subsidy funds
for the whole year. But oil prices averaged about
$50 a barrel from January to April.
The new government raised fuel prices by an average
of 29% in March and at the same time proposed an
oil price assumption of $35 per barrel in a
budget revision that slashed the fuel subsidy
allocation from Rp60.1 trillion to Rp39.7 trillion. The
House of Representatives is deliberating the
revised 2005 state budget. Coordinating Minister for
the Economy Aburizal Bakrie has already ruled
out the possibility of further fuel price hikes
this year. The budget debate may take several
weeks, but in the interim, Pertamina will only get
around Rp3.3 trillion - a third of its monthly oil
import needs - from government emergency reserve
funds. This could leave Pertamina in a
precarious situation and threaten the nation's fuel
supplies. Energy and Mineral Resources Minister
Yusgiantoro concedes that Pertamina has about Rp10 trillion
in cash, roughly enough to cover fuel imports for
a month. The company earns around Rp5.5 trillion
in revenues from fuel sales each month but needs
about $1 billion a month to pay for the imported
fuel, even on the revised state budget assumption
of oil prices at $36 per barrel.
Pertamina
announced last month that it was in difficulties
over payments for oil imports as certain banks had
refused to issue letters of credit (LCs) needed to
guarantee payments, because Pertamina still has
outstanding debts to other banks to the tune of
Rp9 trillion. Saudi Aramco and Kuwait Petroleum
Corp have both reportedly refused to unload cargos
of fuel without LCs.
A presidential decree
stipulated that Pertamina would be able to collect
almost 95% of the fuel subsidy cash by sending a
monthly verification letter from the Ministry of
Finance. The Supreme Audit Agency (BPK) would pay
the remainder after an audit. Yet Purnomo has
confirmed that subsidies due from January to March
had not been disbursed and there were also
"several months from last year for which the audit
has not yet been completed".
Place in
OPEC
Indonesia is the only Southeast Asian
member of OPEC and the organization's
second-smallest producer. Analysts predict
consumption will moderate over the next five
years, as the use of alternative energy kicks in
because of continuing higher fuel prices, but the
country may be a net oil importer until at least
2008. Yet its status in OPEC is not under threat.
Although the OPEC statute states that only
countries that export more than they import are
eligible for membership in the organization, there
is no time limit defining how long the net
importer status may prevail before the country is
no longer eligible to be an OPEC member. In OPEC's
history, only two countries have withdrawn -
Ecuador and Gabon - and these for reasons not
related to a deficiency in export levels. Minister
Yusgiantoro says the only important point is that
Indonesia was a net exporter when it became a
member. "Once you're inside, you continue to be a
member. OPEC has no problem with that," he said
recently. A team tasked with reviewing the OPEC
membership rolls has recommended the government
reduce Indonesia's status from member to
"observer", thus releasing it from the obligation
to pay $1 million a year in fees.
Looking ahead
Exxon officials
have indicated that the 1,670-square-kilometer
Cepu concession could be operational by 2006, if
agreement with Pertamina is reached now. The field
could sustain up to 180,000 barrels of oil a day
as well as bring in more than $1 billion in annual
tax revenue. Exxon's Banyu Urip field, also in
Java, is also expected to come onstream in 2006,
and reach its peak production capacity of 100,000
bpd soon after.
Australia's Santos
Ltd operates the Jeruk block in Sampang off the
coast of East Java. Chairman Stephen Gerlach
told shareholders last week that potentially the
most significant result of the company's
2004 exploration success rate of 44% was the Jeruk
oil discovery in Sampang off the coast of East
Java. Yet, even with new fields coming onstream,
total oil production is not likely to rise markedly
due to the continuing decline of the mature
fields that account for 70% of production. Most of
these are located onshore in central and
western regions. Around half are in Central Sumatra,
home to the big Duri and Minas oilfields, and the
country's largest oil producing region. Other
substantial fields are in offshore northwestern
Java, East Kalimantan, and the Natuna Sea, all
easily accessible.
The focus of new
exploration will need to be on frontier regions,
particularly in eastern Indonesia. These regions
are much more remote and the terrain more
difficult to explore, so the cost of exploration
is thus substantially higher. Substantial
incentives, reflected in the split of the
production-sharing contract, are needed to
encourage serious investment by major players.
Given the time lag between investment and
the eventual production of oil - it can take four
to five years to commence operations - the need
for diversification and conservation of energy
sources is paramount. The country has oil, gas,
coal, and hydropower and the government has been
encouraging domestic power plant operators to use
more gas. Demand for electrical power is expected
to grow by approximately 10% per year for the next
10 years. The majority of power generation is
fueled by oil, but efforts are under way to shift
generation to lower-cost coal and gas-powered
facilities. The potential for greater usage of
geothermal energy and hydropower is also being
investigated.
Bill Guerin, a
Jakarta correspondent for Asia Times Online since
2000, has worked in Indonesia for 19 years as a
journalist. He has been published by the BBC on
East Timor and specializes in business/economic
and political analysis in Indonesia.
(Copyright 2005 Asia Times Online Ltd. All
rights reserved. Please contact us for information
on sales, syndication and republishing.) |
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