Threat of energy crisis in Indonesia

The further erosion of Indonesia’s oil production is a real threat and it cannot be denied that it is a burden on state finance. The government must provide Rp.1 trillion per day to import oil so that Indonesia’s daily oil needs are met. Until now the country’s oil production meets only 48.75% of the one million barrels of oil needed per day. Without a breakthrough, such needs will continue to burden the country and hamper other government programs.

Jakarta: Indonesia was once among the top 11 largest oil-producing countries in the world following the discovery of oil in the Minas and Duri fields, which were then managed by Chevron. Indonesia recorded then the production of 1.68 million barrels per day that could meet the country’s oil needs. However, the golden age has passed. Now, Indonesia’s petroleum production from 2000 to 2018 was only 700,000-800,000 barrels per day. Indonesia is ranked 23rd among oil-producing countries. Will the government’s oil production target of 1 million barrels per day in 2022 be fulfilled?

Indonesia is no longer an oil producer and is an oil importer. The oil and gas industry no longer contributes to state revenues but is a burden on the state budget. Now Indonesia’s oil deficit is very worrying since the oil production is only 780 barrels per day, while fuel consumption reaching 1.6 million barrels per day. In the assumption of an oil price of US $ 65 / barrel with an exchange rate of Rp.14,250 / dollar, the import value of oil reached Rp.994 billion / day. However, the value of fuel exports is only Rp.188 billion / day. That is, the oil deficit is Rp. 296 trillion / year. Under such conditions, if there is no new breakthrough in the oil and gas industry, it is estimated that the deficit will increase to Rp.477 trillion / year by 2024.

Need Big and Real Steps

Based on such facts, petroleum imports will continue to increase and will burden the government and community budget. On the other hand, national energy security will have a very bad impact because we have a greater dependence on foreign countries. The Indonesian people believe in President Jokowi’s government, even during this second term. If in the first term President Jokowi was able to cut fuel subsidies by hundreds of trillions, in the second term it would be appropriate for him to revolutionize the energy sector. The goal is that the president and his government can leave a legacy of independence in the energy sector, but big and real steps are needed for the government to revolutionize the oil and gas industry.

The initial steps need to convert from fuel oil to natural gas and other energy sources such as coal, geothermal, wind, water, and others. Some have already been taken, but the usage is not maximal. For example, with large natural gas reserves in Indonesia, there are 128 gas basins that have not been explored. There should have been plans about how to produce it efficiently and use the product productively. Indeed, initially, the government must invest in infrastructure development from upstream to downstream and manage natural gas reserves reaching 98 trillion feet (cu ft), in order to become the 11th largest country that has natural gas reserves. The hope is that with the new direction in the policy of the 2019-2024 upstream oil and gas industry, there is a maximizing of revenues from gas sales in the State. Optimization of prices must also be done by calculating as early as possible the gas that is not absorbed domestically for medium-term contracts. By not by selling gas to the spot market, the price tends to below. With this pattern, the country will get a more optimal price and the addition of more optimal foreign exchange reserves will be able to sustain the rupiah exchange rate against the dollar. On the other hand, oil and gas production can be increased by accelerating approval of the Plan of Development (POD) through unconventional means including implementing Put on Production (PoP), Revised POD. If additional reserves are found, targeting any POD approval in The maximum Special Task Force For Upstream Oil and Gas Bussiness  (SKK Migas) (at least) is decided within two months.

In seeking new oil reserves, the New Direction for Upstream Oil and Gas Policy 2019 – 2024 emphasizes the need for a Presidential Regulation (Perpres) governing the Exploration Fund where in the Presidential Regulation it is stipulated that 5% – 10% of state revenues from the upstream oil and gas industry are directly allocated and separated as funds to search for new oil reserves. This fund will be used to carry out exploration in 128 basins which have high potential but have never been explored. The application of the Perpres Exploation Fund is targeted to be implemented in 2019 so that exploration activities in 128 natural gas reserve basins can be carried out in 2020-2024. While it encourages a reduction in domestic oil imports, SKK Migas will make a scheme to increase the use of gas processed into liquid (gas to liquid) to fuel the industrial and transportation sectors. In the next five to 10 years there will be many new gas projects and many export gas contracts will not be extended.

Anticipating that this integrated process is carried out, the gas will be brought and converted into vessels to become liquid and brought to regions that become anchor oil consumption demands such as in Java and Sumatra. With this pattern, gas utilization can slowly be integrated with gas to liquid utilization for transportation, which is the highest absorbent sector for fuel consumption. Thus, oil imports can be reduced so that they can help with the rupiah’s exchange rate in the long run. SKK Migas optimizes the sale of LNG that is not absorbed domestically for 2018. Based on a study of how much LNG cargo is not absorbed for the period, short-term contracts for traditional and non-traditional markets will be carried out so that the prices obtained will be better than releasing to the spot market. The foreign exchange earned from optimizing LNG sales is expected to be able to sustain the strengthening of the rupiah exchange rate which later became a threat to macroeconomic stability. SKK Migas encourages LNG sales not only to traditional markets and buyer portfolios but also to non-traditional markets, such as India. The Tangguh Train III LNG project which is planned with a capacity of 3.8 MTPA should be accelerated by giving a deadline for negotiating domestic buyers. The Masela Block Eternal Field project in Maluku should be accelerated from the previous target of 2027/2028 onstream with a capacity of 9.5 mtpa and 150 mmscfd of gas being the first drop by the end of 2024. Oil and gas production is targeted to increase from the current around 1.9 million barrels per day equivalent to oil needs per day to a minimum of 2.5 million barrels per day.

Additional oil and gas production to pursue the target will be obtained from the Tangguh Traini III project of 700 mmscfd, 600 mmscfd Jambaran Tiung Biru field and the development of the Genting Oil project in Bintuni at 170 mmscfd, 80 Indonesia Deepwater Development (IDD) mmscfd. All this will mean that the Jokowi-Amin Government, by the end of the term of office in 2024, will leave a legacy of oil production that meets domestic needs.

Utilization of 35,000 MW Electricity Project

The construction of 35,000 Mega Watt (MW) infrastructure carried out by President Jokowi’s government must be optimally utilized. From the demand side, especially for electricity, it is assumed that the economic growth rate is 6% -7%. Based on these assumptions, an increase in LNG demand to support 35,000 MW electricity projects is 2% -3%. However, the fact shows that economic growth is not as optimistic as that projection. As a result, the gas allocated to electricity is still macro in nature with no detailed volume and definite absorption schedule. The annual absorption of domestic LNG for electricity in the past five years has averaged only 77%.

This unabsorbed LNG can disrupt the reservoir, storage facilities or become a stress cargo that must be sold at retail locations urgently. This untreated LNG can disrupt the reservoir, cargo storage facilities, both directly to PLN (State Electric corporation) and through Pertamina (State Oil and Gas Corporation). To keep gas production and demand uninterrupted, it is necessary to optimize the use of electricity in both industry and households. Currently, the need for fuel reaches 1.6 million barrels per day. The fuel consumption is absorbed by the public from 60 to 70 percent for vehicles, while the rest is for household and industrial needs. The government through PLN has an important role in carrying out the electricity industry revolution. Why is that? So far, PLN consumption has occurred at peak loads from daytime to 11:00 pm, while in the morning PLN has decreased consumption. For example, the Java Bali network in 2018 installed capacity of 34,550 MW has a peak load of 27,070 MW, while in the morning the PLN consumption is only 17,500 MW.

At times outside the peak load, PLN experiences losses of up to 5,000 MW. If the government starts a strategy to change from fossil energy to electricity, there will be a fundamental change, not only to cover losses due to fuel imports but also to optimize electricity utilization. At night, households that use electric vehicles fill the battery so that the PLN’s losses are closed. With the new direction of the oil and gas industry, it is expected that by 2024 oil production will reach 2.5 million barrels per day, there will be a transition from petroleum needs to natural gas, the industrial growth will be sustained by cheap gas needs and optimal electricity utilization.