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Interview

with Evita Legowo, Director General of Oil and Gas, Ministry of Energy & Mineral Resources Indonesia

08.03.2012 / Energyboardroom

In 2011 investment in Indonesia’s oil and gas industry was up 7% and you have predicted that it will reach over $18 billion in 2012. What do you see as the major opportunities drawing investment into Indonesia’s oil and gas industry?

The main investment opportunities are connected with the upstream side of the oil and gas sector and the government is now very keen to sign new PSCs with industry. In fact, my target for 2012 is to sign a further 30 upstream contracts for oil and gas and a minimum of 15 for unconventional gas, especially coal bed methane (CBM). It is an exciting time for the CBM industry in Indonesia and since 2008 Indonesia has already secured 39 CBM contracts with 19 of these being signed in 2011.

By signing these contracts, companies are making a commitment to invest in exploration studies in Indonesia. The government hopes that within 3 years these exploration activities should bear fruit, revealing new highly prospective reserves. A further 3-4 years will then be required to develop these reserves. Given such timeframes, the government is aiming to attract a lot of upstream investment in Indonesia this year.

Oil and gas companies should note that there are currently three major paradigm shifts occurring in Indonesia’s oil and gas industry which present new opportunities. The first is the movement of production from the West, where most of Indonesia’s traditional oil and gas deposits lie, to the East, which is a highly prospective region for future production. The second paradigm shift is the movement of production from onshore to offshore deposits and even deep-water E&P operations. The third paradigm is the shift from oil production to gas production.

Regarding the first shift, a lot of exploration is needed in the Eastern parts of Indonesia to prove the region’s potential, especially with regard to gas deposits. Already, in West Papua there has been one major discovery of gas which is very promising.

Our initial seismic analysis has revealed many conventional gas deposits in the East of Indonesia. However, Indonesia is also developing unconventional resources, especially CBM and there has just been a ministerial decree establishing the legal framework for shale gas production. Shale gas has even more potential than CBM and CBM reserves are already larger than those of conventional gas. Therefore the potential to develop gas in Indonesia is huge.

What will these unconventional resources end up representing within Indonesia’s overall energy matrix?

Shale gas is still at an early stage of development and will require a few more years. However, it is currently a very good time for the development of CBM. In 2011 CBM already started producing electricity for Indonesia and we aim to expand this in the future. The gas pressure for CBM is less than that of conventional gas but this means that it can produce over a longer stretch of time. CBM is therefore the best gas for Indonesia’s future power supplies and it tallies with Indonesia’s present political strategy of using energy in an efficient and sustainable way. We hope that when shale gas is developed, it can continue along the same lines.

With these new gas developments taking centre-stage, what potential is left in Indonesia’s oil reserves?

Although Indonesia is shifting its production paradigms, there are still very large oil deposits in the Western part of Indonesia. The technology used up until now has only produced around 40% of the oil reserves. So far Chevron in central Sumatra has used enhanced oil recovery (EOR) technologies to their full extent and Pertamina just started to use this technology also. With the oil price standing at over $90 per barrel the potential to apply these technologies to all the remaining fields is huge – 60% of Indonesia’s oil is still in the ground. All that is required now is investment in EOR technology. The government is pushing Pertamina to produce oil using these methods in view of its large mature onshore field portfolio.

How do you create a good investment climate for the use of these technologies?

The first step in creating a good investment climate is providing adequate data about potential deposits. This is especially true in the case of regular tenders because the oil industry has 3 important characteristics: high-cost, high-risk, high-tech. These three factors all mean that oil companies are cautious by nature when investing in projects and this hesitancy can be alleviated if good data is already provided.

Another factor which we need to work on is a better regulatory environment. My contacts in the industry affirm that the most important thing to maintain in Indonesia is stable regulation and the sanctity of contracts. There should also be a good relationship between central and regional government with the latter understanding and supporting the oil and gas industry and national policy. The government is aiming to tackle these issues in 2012.

Indonesia’s profile was historically connected with energy exports. What is the future of energy in Indonesia?

There are three different perspectives: short-term, mid-term and long-term. In the short term Indonesia must guarantee its energy security and provide for its own needs. The fastest way to achieve this is to switch the domestic market from oil to gas consumption.

The government’s mid-term objective is that by 2025 the domestic market will have security of supply for oil, gas and oil products. The greatest challenge is to overcome Indonesia’s dependence on oil products which currently constitute 1/3 of domestic consumption. Importing crude oil is not so problematic especially in cases where Indonesia does not have the required crude type. For example, the lubricating oil produced in the Cilacap refinery requires crude with high sulfur content and most of Indonesia’s crude oil is sweet crude with limited levels of sulfur. In this instance it is acceptable to import crude oil. The main concern is therefore overcoming the deficit in oil products and Indonesia must build new refineries so that we can fulfill our domestic needs.

The long-term objective is a completely new attitude towards alternative energies within the population. Currently the population is even resistant to using gas and therefore the mind-set of the Indonesian population needs to change. The government needs to prepare the population to adopt other energy resources including unconventional gas. Ultimately, it is about creating a sustainable energy culture.

One aspect which still concerns me is that Indonesians do not yet utilize energy in an efficient fashion. Indonesia’s energy intensity is still above 1 and the target by 2025 is that this figure falls to less than 1. The government is trying to implement a program of converting from kerosene to LPG use in the household and we also started to supply gas to households, especially for villages situated near gas sources. However, the main change must come in the mind-set of the population.

What is your final message to the readers of Oil and Gas Financial Journal?

I invite investors to come to Indonesia as there is still a very large potential in the country’s energy reserves, especially regarding unconventional gas deposits.

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