with Rovicky Dwi Putrohari, President, IAGI Indonesia
Given your experience as a geological advisor for companies from Lasmo, Shell, Total to Hess and in your present capacity as President of IAGI, would you begin by explaining to our readers the particularities and challenges presented by Indonesia’s geological profile?
Most Indonesian geologists divide Indonesia into two parts: East and West. There has been a lot of exploration in Western Indonesia and little in Eastern Indonesia and the challenges between these regions are quite different.
Due to a long history of exploration in the region, the challenges of exploration in Western Indonesia lie mainly in the exploration of deeper horizons and reservoirs. The geology is simpler in the West of Indonesia than in the East however, there is also a higher population density in this region which presents a social challenge. In terms of future production, the potential of the region is still high. Although the last major discovery was the Cepu field back in 2001 by ExxonMobil, it was on a field considered major discovery at the time and has since become Indonesia’s largest oil field discovered for the last 10 years.
The greatest potential for future exploration lies in the East of the country because this is a relatively unexplored region. Knowledge of the proven reserves in the pre-tertiary reservoirs is still sparse meaning that this is a considered frontier region. The Eastern region is also more complex in terms of reservoir structure and the challenges of exploration in Eastern Indonesia derive from the topography which contains mountainous terrain and many deep water reservoirs.
Another greater future carbon energy potential are unconventional resources. Lack of research in Indonesian region hindered the potential unconventional resources, including coal bed methane, shale gas and tight gas.
Indonesia faces continuing decline in its carbon reserves with total oil reserves now standing at 3.92 billion barrels. How can this situation be reversed and who do you see as the key stakeholders responsible for expanding Indonesia’s proven reserves?
Over the last decade, there have only been small discoveries in Indonesia. Indeed, discovery has only revealed 50 MMBoe over the last ten years whilst production has reached 2.5 MMBoe/day which equates to 700 MMBoe per year. The lack of new discoveries is therefore the greatest challenge for Indonesia’s upstream industry.
This is made worse by the fact that the time between discovery and production in Indonesia is around 10 years. Therefore with no discovery over the last decade, Indonesia is looking at another decade before it can see a serious boost in production.
Consequently, Indonesia is now exploring its unconventional resources, especially coal bed methane (CBM). Taking into account the dewatering process, which is long considering the high precipitation levels in Indonesia, the country will need another 5-10 years before these resources becomes a large energy supply for the country. Indonesia’s future production will therefore hinge on gas from Eastern Indonesia and the growth in unconventional production.
The government would like local companies to take 50% of production by 2025. What is your assessment of the ability of local companies to take over exploration?
In terms of technology, local companies like Pertamina and Medco are ready to carry out E&P projects by themselves. However, most of the national companies concentrate on the low risk projects. Pertamina is now heading towards more high-risk projects in deep water such as in Western Papua. Pertamina is a long way ahead of other local companies in conducting advanced E&P projects.
However, production growth can also come from mature fields. Pertamina is the operator for most of the old oil fields and has potential for applying enhanced oil recovery (EOR) on these fields. Production from these fields was never optimized, but if oil prices continue to increase and gas cannot meet the demands of the Indonesian population then there will be sufficient incentives to increase production from these fields. There are also many undeveloped fields particularly in Sumatra with the potential to produce only around 1,000 barrels/day. These fields are currently not economically viable, but given increasing demand the economics are improving.
What would you say were the main barriers to developing gas assets in the East of Indonesia?
In the East of Indonesia the challenge is mostly that the fields are located in deep water regions. The barrier is simply the complexity of the projects and the amount of time required for their implementation. For example, the recently discovered Masela block will require over ten years in development even though the offshore technology is already proved for such a project.
However, the industry is also waiting on a strong statement by the Indonesian government regarding the use of gas in Indonesia. There needs to be government guidelines indicating the purpose of the gas production: domestic market consumption or export. Currently there are no terminals for degassing the LNG produced and therefore the majority of LNG is exported. Once the terminals are in place then LNG can be diverted to supply the domestic market. There is huge demand for increasing gas supply especially in Java where the population density is high. One question for the gas industry is whether Indonesia can provide more gas conversion terminals.
2011 saw major offshore gas discoveries and in December major offshore contracts in East Indonesia including Inpex’s Masela block. Why is this region generating so much interest from international companies all of a sudden?
The current interest is mostly because of the lack of other big discoveries over the last ten years and the potential of this region. IAGI has worked over the last 7 years promoting East Indonesia.
The new MIGAS (directorate general) arrangement: the joint study arrangement (JSA) asking oil companies to join them in seismic work, in exchange for becoming the first operator of the block is a good incentive to develop data. The government is therefore not opening the blocks through open tender but through direct applications. The government has therefore joined with companies to acquire data. This is a good step for the exploration industry to further knowledge of Eastern Indonesia. The government has realized that the lack of data concerning Eastern Indonesia worked as a barrier to new projects in the region.
What are the challenges of data acquisition in this relatively unexplored region?
Geographically the deep water in the East of Indonesia connects two oceans: Pacific and Indian. This creates a large challenge for acquiring data because of the currents. The current can flip round one year to the next. Local companies currently do not have the capabilities to perform the acquisitions by themselves, except through the joint study agreements. Local companies are therefore beginning to be involved.
I should also mention that the lack of “soft infrastructure” (previously acquired data assets) is also a challenge for East Indonesian exploration. This type of data should be provided by government which must concentrate more on exploration than production. Many of the international companies want to increase production but they do not necessarily want to explore. The government should increase the information available to promote their exploration activity.
IAGI is always asking the government to develop this information. The government income from the oil and gas sector is probably more than 30% and if the government wants to maintain this income then it has to spend some money on exploration. They cannot simply ask for production without exploration. 5% of whatever Indonesia receives through production should be reinvested in exploration. This investment could be channeled through BP MIGAS, Pertamina or another government research centre inclcuding Geological Survey.
IAGI represents Indonesian geological expertise, how is the organization working to improve the country’s level of expertise?
The Indonesian geological is very well regarded internationally. More than 200 geoscientist and engineers in Malaysia, including many in Petronas, are from Indonesia. Indonesia has a lot of experience in the oil and gas industry and the country produces 500 graduates each year. Around 5-10% joins the oil and gas industry.
However, the challenge for Indonesia lies in retaining this talent within Indonesia. More and more expertise is going overseas. Indonesia trains these young specialists but the lack of opportunity for good remuneration means that many of them move abroad. This was even the case for me, having spent over 7 years in Malaysia. IAGI is therefore creating the young geoscientist forum which is the equivalent of the young engineers in SPE.
What is the future role of IAGI in assisting Indonesia’s oil and gas industry?
The main project for the future lies in exploring Indonesia’s unconventional resources such as shale gas and CBM. The potential is huge with 574 Tcf of shale gas and 453 tcf of CBM. There needs to be more research by universities, Badan Geologi, LIPI, Lemigas and other research centers in this field.
Bakken Shale in the USA was discovered in 1950s but was only produced in 2000. There was therefore a 50 years delay where time was needed for research. Indonesia now has the technology so it will only require 50% of the time – around 20-25 years – for research. IAGI is therefore challenging the government to begin conducting research into unconventional resources now.
What would you say was the project that you are most passionate about as the President of IAGI?
IAGI already has 4,000 recorded geologists as members but my most important project is in cultivating the next generations. The younger generations have traditionally lacked mentors and IAGI is trying to connect the older and younger generations to provide mentorship.
In addition, IAGI is no longer just a technical consultant for the government but also for the regional administrations. Indonesia is now the largest new democratic country following years of autocracy and because of the policy of devolving power to create regional autonomy local administrations are now asking for advice on the geology of their regions. IAGI assists these local administrations. It is a new era for the country and IAGI.
What would be your final message to the international oil and gas community about Indonesia?
My message is that Indonesia requires exploration, exploration, and exploration. Production decline is due to the lack of exploration. This is therefore the only way towards energy independence. Demand is around 2 MMBoe but within 5 years the country may need to import not just oil but other energy to meet demand. The key to breaking this production cycle decline is exploration.
Indonesia must also transform into a fuel exporting country or electricity exporting country. Indonesia should not export raw energy material such as coal but electricity. The country should not produce crude but fuel oil and not gas but industrial products.