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Indonesia moves to slash energy imports

President Widodo is pushing the upstream and downstream sectors hard to meet domestic demand

Indonesia’s government has overhauled the Pertamina leadership and set ambitious new exploration targets to further reduce the country’s dependence on oil and gas imports, which despite volume falling by nearly 20pc year-on-year, according to Statistics Indonesia (BPS), are still a drag on economic growth.

President Joko Widodo, widely known as Jokowi, reshuffled the leadership of the country’s NOC, Pertamina on 22 November. He appointed Basuki Tjahaja Purnama, known as Ahok, as president commissioner, telling the popular former mayor of Jakarta—who only in January was released three and a half months early release from his two-year blasphemy sentence—to prioritise reducing imports.

Widodo has made reducing the trade deficit a priority since starting his second term in office in October; as imports of crude, oil products and LPG make up the majority of imports they became a key target.

Despite having estimated recoverable reserves of 3.3bn bl oe, crude oil output has sank from a peak of 1.6mn bl/d in 1995 to a new low of 808bl/d in 2018, according to the BP Statistical Review. Crude oil imports had been increasing over the past three decades, rising from below 100,000bl/d in 1989 to above 350,000bl/d almost every year since 2013, according to Opec, as rising demand outstripped declining output from aging offshore fields.

Deficit progress

His efforts to reduce these imports made during his first presidential term are having an impact—the volume of imported oil and gas for January to October 2019 fell 19.1pc year-on-year to 32.9mn t, according to BPS. Since August 2018, the government has required all private energy companies—including IOCs—to sell their entire crude output to Pertamina. As a result, January-October crude exports fell 67.2pc year-on-year.

Widodo, who made increased energy independence a key message of his re-election campaign, wants to drive oil and gas imports down further

Widodo was also behind creating a simplified upstream regulatory regime through the Ministry of Energy and Mineral Resources, leading to the introduction of measures such as, in April 2018, its new production-sharing contracts, termed gross split PSC. Total investment in Indonesia's upstream oil and gas sector has seen a modest rebound since, climbing from $10.1bn in 2017 to $11.9bn in 2018.

However, pro-business Widodo, who made increased energy independence a key message of his re-election campaign, wants to drive oil and gas imports down further. The monthly energy import bill is larger than all other imports combined and Widodo sees this as a major drag on the economy’s ability to hit his target of 7pc annual GDP growth.

Industry-wide problem

The Upstream Oil and Gas Regulatory Special Task Force (SKK Migas) has also set its sights on increasing investment so that production to meet Widodo’s imports challenge. SKK Migas set a national oil and gas production target of 1mn bl/d by 2030 on 25 November, up from 750,000bl/d. It has set a target of 42 oil and gas projects, with a total investment of $43.3bn, to be producing by 2027.  

A discovery in February in the Sakakemang block—operated by Repsol (45pc) with Malaysia’s Petronas (45pc) and Moeco (10pc) owning shares—highlights what could be achieved. With an estimated 2tn ft³, the field is Indonesia’s largest gas discovery in 18 years and among the 10 largest in the world during the last two years.

For its existing mature fields, the government has introduced regulations over the past three years that have made it easier for Pertamina to take over blocks with expiring production-sharing contracts. It has since taken control of the Mahakam block operated by Total before 2018 and is set to take over the Rokan block when Chevron’s operator contract expires in 2021.

“Pertamina is pursuing production growth, having taken ownership of 10 domestic PSCs since 2015,” says Wood Mackenzie’s Asia-Pacific vice chair Gavin Thompson. “But production potential is highly dependent on the company’s ability to select new technical and financial partners, and its project execution.”

Government support will also play an important role in developing domestic refining capacity; in November Widodo demanded that his ministers pay more attention to the sector’s expansion. Refineries are only able to produce up to 800,000bl/d of gasoline and diesel oil while demand stands at 1.3-1.4mn bl/d. Pertamina is set to open six refineries, at a cost of $60bn, as part of a programme to double its capacity to 2mn bl/d by 2026.

Another part of the president’s plan to reduce imports by fulfilling demand with biofuels. Ahok is also tasked with implementing an increase in the mandatory amount of locally produced biofuel in diesel from 20pc to 30pc. A nationwide commercial trial of the new blend was launched in November.

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