- Indonesia’s oil production has declined in recent years. According to Oil & Gas Journal (OGJ), Indonesia had 4.3 billion barrels of proven oil reserves as of January 2007. Oil production in Indonesia has decreased steadily during the last decade, owing to disappointing exploration efforts and declining production at Indonesia’s large, mature oil fields.
- In October 2001, Indonesia’s oil sector experienced significant reforms with the passage of the new Oil and Gas Law No. 22/2001. The law forced state-owned oil company Pertamina to relinquish its role in granting new oil development licenses and limited the company’s monopoly in upstream activities. Pertamina’s regulatory and administrative functions were transferred to the new regulatory body, Badan Perlaksanaan Minyak Gas, or BP Migas. BP Migas role is to Supervise and control the Production Sharing Contracts’ implementation through partnerships in order to ensure the effectiveness and efficiency of upstream oil and gas business activities for the greatest welfare of the Nation.
- Pertamina was formed into the limited liability company PT Pertamina (Persero) by presidential decree in 2003, although it remains a state-owned entity. PT Pertamina is laying the groundwork for full privatization to take place at some point in the future.
- Indonesia’s oil sector is dominated by several international oil companies (IOCs). The single largest oil producer is Chevron, which controls Caltex Pacific and Unocal’s former Indonesian assets. BP, ConocoPhillips, ExxonMobil, and Total are also significant oil producers in the country, with China’s state-owned companies PetroChina and China National Offshore Oil Corporation (CNOOC) also having a considerable presence.
- The liberalization of Indonesia's downstream oil and gas sector has been under discussion for several years. Pertamina maintained its retail and distribution monopoly for petroleum products until July 2004, when the first licenses for retail sale of petroleum products were granted to BP and Petronas of Malaysia. However, Pertamina maintains a dominant position in Indonesia’s downstream sector, operating all eight of the country’s refineries. The government is still promising to open the sector to full competition, although progress has been slow to date.
- Indonesia historically has maintained consumption subsidies for domestic retail fuel consumers, with products being sold at a discount from world market prices. After a series of modest increases in petroleum prices over the past few years, President Yudhoyono announced a sharp rollback of subsidies in September 2005. Prices of retail gasoline and diesel rose by an average of 125 percent as a result. Despite this one-time move, fuel consumption subsidies still take up a sizeable portion of government expenditures.
Exploration and Production
- Indonesia’s largest oil producing fields are mature and declining in output. During 2006, Indonesian oil production averaged 1.1 million barrels per day (bbl/d), of which 81 percent, or 894,000 bbl/d, was crude oil. Indonesia’s total oil production has dropped by 32 percent since 1996, as many of the country’s largest oil fields continue to decline in output. Indonesia’s current OPEC crude oil output quota is set at 1.45 million bbl/d, well above the country’s production capacity. During 2006, Indonesia’s oil consumption reached 1.2 million bbl/d, making it a slight net importer of oil for the year.
- In 2010, Indonesia's combined oil and gas production reached 2.461 million barrels of oil equivalent per day.
- Indonesia’s two largest oil fields are Minas and Duri, which are operated by Chevron and located along the eastern coast in Sumatra. However, the Minas and Duri fields are mature and production at these locations has been on the decline. Various oil exploration projects are underway in Indonesia. However, to date, these projects have not brought sufficient new oil resources onstream to offset the declining production levels at older fields.
- One of Indonesia’s last undeveloped oil fields is the Cepu block, located in East and Central Java. ExxonMobil’s local subsidiary discovered 250 million barrels of proven oil reserves in the Cepu Contract Area in 2001, and today the company estimates the area could hold up to 600 million barrels of recoverable oil reserves. ExxonMobil hesitated to develop the promising oil resource, however, because the company’s contract for the area was set to expire in 2010. After several years of negotiations, in March 2006 ExxonMobil and PT Pertamina signed a joint operation agreement (JOA) for the Cepu field. Each company will have a 45 percent stake in the project, with the remaining 10 percent held by provincial governments in East and Central Java. The project is scheduled to begin production in 2008, with peak production expected to reach 180,000 bbl/d.
- BP Migas and the Indonesian government have introduced policies aimed at increasing investment in the country’s upstream sector. BP Migas set up various incentive programs for firms to develop marginal oil resources throughout the country that would not otherwise be attractive to international companies. In October 2006, the government waived import taxes on capital goods for oil and natural gas exploration and production. BP Migas has also held several competitive bidding rounds for new upstream projects throughout Indonesia. During 2006, BP Migas concluded its fifth round of acreage offerings in which it awarded dozens of new exploration and production licenses to companies. During the fifth bidding round, a handful of exploration blocks were awarded to international oil majors, such as ExxonMobil and ConocoPhillips, although the majority of tenders were won by smaller Indonesian firms.
- For a full list of Indonesia Exploration And Production Blocks
- Indonesia produces a number of types of crude and condensate including Badak Crude Oil, Bekapai Crude Oil, Bontang Return Condensate, Handil Mix Crude Oil, Minas Crude Oil and Senipah Condensate.
- According to OGJ, as of January 2007, Indonesia had 992,745 bbl/d of refining capacity at 8 facilities, all of which are operated by PT Pertamina. The largest refineries are the 348,000-bbl/d Cilacap Refinery in Central Java, the 241,000-bbl/d Balikpapan Refinery in Kalimantan, and the 125,000-bbl/d Balongan Refinery in West Java.
- PT Pertamina announced in August 2006 that it plans to spend $10 to $11 billion on boosting Indonesia’s downstream sector over the next 5 years. As part of this effort, there have been various proposals to upgrade existing refineries or build new facilities, as well as to expand the country’s transmission, distribution, and marketing network. However, of the numerous proposals that have been offered, the only project that has moved forward significantly is the planned refinery at Pare-Pare.
- The West Java Refinery Project, is a proposed 150,000 bbl/day refinery to be built with NIORDC of Iran and Petrofield from Malaysia. The project is still at the planning stage.
- Various other refinery projects have also been proposed. In December 2006, PT Pertamina and China’s Sinopec completed a feasibility study of a proposed 200,000-bbl/d refinery in Tuban, East Java. While a Memorandum of Understanding (MOU) was reached between the two companies in 2005, there are no firm plans to begin construction on the proposed project. PT Elnusa, a subsidiary of PT Pertamina, has studied the possibility of building a 300,000-bbl/d refinery in a consortium with Venezuela’s Petroleos de Venezuela SA (PdVSA), Iran’s National Iranian Oil Refinery and Distribution Company (NIORDC), and Japanese investors.
- Natural gas production has increased in recent years in Indonesia, although the country is facing a declining global LNG market share. According to OGJ, Indonesia had 97.8 trillion cubic feet (Tcf) of proven natural gas reserves as of January 2007. Indonesia is the tenth largest holder of proven natural gas reserves in the world and the single largest in the Asia-Pacific region. According to the Indonesian government, more than 70 percent of the country’s natural gas reserves are located offshore, with the largest reserves found off Natuna Island, East Kalimantan, South Sumatra, and West Papua (also known as Irian Jaya).
- As with the oil sector, Indonesia’s natural gas sector underwent reforms with the passage of the Oil and Gas Law No. 22/2001. State-owned Pertamina was forced to relinquish its monopoly status in upstream natural gas projects, and BP Migas now holds primary regulatory authority in the sector. PT Pertamina, the limited liability corporation that was formed from its predecessor, remains an important player in Indonesia’s natural gas exploration and production activities. PT Pertamina and six major international companies dominate Indonesia’s natural gas industry, accounting for more than 90 percent of the country’s production. The six companies are: Total (estimated market share in 2004, 30 percent), ExxonMobil (17 percent), Vico (a BP-Eni joint venture, 11 percent), ConocoPhillips (11 percent), BP (6 percent), and Chevron (4 percent). Natural gas transmission and distribution activities are carried out by the state-owned utility Perusahaan Gas Negara (PGN).
Exploration and Production
- In 2004, Indonesia produced 2.6 Tcf of natural gas while consuming 1.3 Tcf. Also in 2004, Indonesia exported about 1.2 Tcf of liquefied natural gas (LNG) to Japan, South Korea, and Taiwan. Historically, Indonesian natural gas production has been geared toward export markets, but the country has made an effort to shift natural gas toward domestic uses in recent years as a substitute for the country’s declining oil output. However, Indonesia’s limited natural gas transmission and distribution network remains an obstacle to further domestic consumption.
- Two of Indonesia’s major LNG production plants, Arun and Bontang have experienced declining production in recent years. To help make up for this shortfall, Indonesia has vigorously engaged in natural gas exploration activities, as it strives to meet its long-term LNG contract obligations and also to satisfy increasing domestic demand. In 2009, the Tangguh LNG Terminal in West Papua began operations. Several new projects are under development, includıng Masela LNG Terminal, Donggi Sulawesi LNG Terminal and Abadi LNG Terminal,
- PGN operates more than 3,100 miles of natural gas distribution and transmission lines, comprising nine regional networks. The networks have limited interconnectivity, which has restrained further growth of domestic natural gas consumption. PGN has plans to build four additional domestic natural gas pipelines to improve the country’s natural gas network connectivity, known as the Integrated Gas Transportation System (IGTS). The IGTS is designed to eventually link the islands of Sumatra, Java, and Kalimantan via a 2,600-mile pipeline. The World Bank, Asian Development Bank, and PGN are jointly financing the project. So far, the planned interconnection is partially complete, and is scheduled to be fully operational in 2010 with a capacity to transport 2.2 Bcf/d of natural gas.
- Indonesia began exporting natural gas via pipeline in 2001, with the opening of the 400-mile, 325-million cubic feet per day (MMcf/d) subsea pipeline from West Natuna to Singapore. In August 2002, Indonesia began delivering 250 MMcf/d of piped natural gas to Malaysia’s Duyong platform. And in August 2003, a second natural gas connection to Singapore was opened when the South Sumatra-Singapore pipeline was completed. This line reached 350-MMcf/d maximum capacity during 2006 and will deliver natural gas to Singapore over a 20-year contract (see the Singapore Country Analysis Brief for more information).
- Indonesia has played a leading role in discussions of the proposed “Trans-ASEAN Gas Pipeline” (TAGP), which envisions the establishment of a transnational pipeline network linking the major natural gas producers and consumers in Southeast Asia. The TAGP concept was initially proposed in 1997 as part of ASEAN’s “Vision 2020” initiative. In July 2002, energy ministers from the ASEAN countries signed a memorandum of understanding to study the viability of the project, although much work remains to be completed to fully realize the project’s goals (for more information, see ASEAN’s Plan of Action for Energy Cooperation, 2004-2009).
Liquefied Natural Gas
- Indonesia is a leading LNG exporter. Indonesia was the world’s largest exporter of LNG in 2005, although some reports suggest that the country was surpassed by Qatar sometime in 2006. During 2005, Indonesia exported 23 million tons (MMt, or 1,123 Bcf) of LNG, or about 16 percent of the world total.
- Indonesia produces LNG from three terminals: the Bontang facility in Badak, East Kalimantan,the Arun plant in North Sumatra and the Tangguh LNG plant in West Papua.
- The Bontang LNG terminal was Indonesia’s first to begin commercial operations, shipping its first LNG exports in 1977. The eight-train Bontang plant is the largest LNG facility in the world, with a capacity to produce 21.6 MMt/y (1.1 Tcf/y). However, production has stood below full capacity in recent years, with 2004 output estimated at 19.6 MMt (955 Bcf) of LNG. The Bontang terminal is operated by PT Badak NGL Company, 55 percent owned by PT Pertamina, 20 percent by Vico (a BP-Eni joint venture), 10 percent by Total, and 15 percent by the Japan Indonesia LNG Company (JILCO). Recently, the Bontang plant has faced underproduction for a variety of reasons, which forced the Indonesian government to divert some natural gas supplies to domestic fertilizer companies. In 2005, Bontang LNG supply contracts were renegotiated so that more of the project’s output could supply domestic customers.
- The Arun LNG facility is operated by PT Arun Natural Gas Liquefaction Company, which is 55 percent owned by PT Pertamina, 30 percent by ExxonMobil, and 15 percent by JILCO. Arun is a six-train facility with a total capacity to produce more than 10 MMt/y (487 Bcf/y) of LNG, although in 2004 production stood at 6.4 MMt (312 Bcf). ExxonMobil supplies LNG for the Arun plant from its nearby Aceh fields, although the company estimates that it has depleted 90 percent of the recoverable reserves. This shortfall also contributed to the government’s effort to redirect some natural gas production designated for export to domestic users. In 2005, this forced the Indonesian government to turn to spot LNG markets to meet its contractual obligations to foreign buyers.
- The Tangguh LNG plant which is owned by BP began operations in 2009.
- Several new LNG projects are under development, includıng Masela LNG Terminal, Donggi Senoro Lng Terminal and the Abadi LNG Terminal
- In addition, a number of LNG Import terminals are planned to serve those islands without their own natural gas sources. The projects under conosideration are the East Java LNG Terminal, the Medan Floating LNG Terminal and the West Java LNG Terminal
- BP INDONESIA
- BOB PT. BUMI SIAK PUSAKO - PERTAMINA HULU
- CAMAR RESOURCES CANADA, INC.
- CONOCOPHILLIPS INDONESIA
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- ENERGY EQUITY EPIC ( SENGKANG ) PTY. LTD.
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- PT. MEDCO E & P INDONESIA
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- PREMIER OIL NATUNA SEA LTD.
- PETROCHINA INTERNATIONAL COMPANIES IN INDONESIA
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- SANTOS ( SAMPANG ) LTD. / SANTOS ( MADURA OFFSHORE ) LTD.
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- TOTAL E & P INDONESIE
- VICO INDONESIA