Nusantara Gas Axis

Indonesia has proven and potential gas reserves of around 100 trillion cubic feet, still the largest in Southeast Asia (ASEAN). If optimized, gas reserves can become a new axis of economic power. Domestically, it can stimulate industrial growth and economic activity. In regional areas, gas can be an alternative route for ASEAN energy supply.

By Eddy Suprapto,
Indonesian Presidium of the Professional Society for Democracy (MPD)

JAKARTA: The world has been shocked by the Russia-Ukraine war which has been going on for almost three years since it was launched on February 24 2022 with no sign of stopping. It was even marked by the cutting off of the gas supply route from Russia to Europe via Ukraine. Meanwhile in the Middle East, war seems to be in the husks exploding every moment. The war between Israel and Hamas has been going on for 27 months and there has been no sign of peace since Hamas’ attack on Israel on October 9 2023. Hamas’ war has widened to involve Iran and Lebanon. This condition causes commodity prices to rise uncontrollably, especially the oil and gas energy sector. Oil prices rose to $83 per barrel and gas prices, especially LNG, soared to $12.53 per million British thermal units (MMBTU). This increase hit gas supplies to Europe. Western European countries such as Germany, England, the Netherlands, France, Belgium and others are very dependent on Russian gas. Gas supplies from Russia reach 40% of Western Europe’s needs. With the cessation of gas from Russia western Europe suffered greatly. They never expected that Russian gas would be the main weapon.

Russia is the second largest natural gas producer in the world with a contribution reaching 16.6% of natural gas production in 2020 with a total of 638.5 billion cubic meters. Its reserves reach 1,320.5 billion cubic meters, equivalent to 19.9% of world reserves. A lot of Russian gas flowed to Europe with an amount of 167.7 billion cubic meters in 2020. This amount is equivalent to 40% of Europe’s total natural gas imports. Meanwhile, Russian oil production reached 10.7 million bpd or the equivalent of 12.1% of world production. This number places Russia in the 3rd largest crude oil producer in the world. Meanwhile, Russia’s crude oil reserves reached 107.8 million barrels. Most of Russia’s oil exports are to Europe. The amount is 138.2 million tons in 2020. This amount is equivalent to 29% of Europe’s total oil imports, namely 475.9 million tons a year.

European sanctions against Russia are dilemmatic, pressuring Russia with sanctions but having the impact of stopping Russian oil and gas supplies to Europe. Moreover, Russian oil and gas to Europe is very economical because it flows through pipes. Russia has been able to build gas infrastructure in the last 10 years resulting in the integration of energy supplies to Europe. In 10 years, the completion of Russian gas infrastructure for Europe will be able to boost Russia’s economic growth and economic recovery after the global crisis. Integrating European gas also strengthens Russia’s political bargaining position after the breakup of the Soviet Union.

Russia’s condition is actually a lesson for Indonesia. The vision of a developed Indonesia requires energy as an economic driver and the integration of forces throughout the archipelago, so we must strive for energy sovereignty. However, until now the oil import policy is still large. Based on the Central Statistics Agency (BPS), oil and gas imports throughout 2021 reached US$ 196.20 billion or the equivalent of IDR. 2,943 trillion (exchange rate of IDR. 15,000 per US dollar). This achievement increased by 38.59 percent compared to 2020 with an import value of US$ 141.57 billion or the equivalent of  IDR. 2,123 trillion.

Currently, Indonesia’s oil deficit is very worrying. Because our oil production is only 585 barrels per day, while our fuel consumption reaches 1.6 million barrels per day. On the assumption that the oil price is US $ 83 per barrel with a rupiah exchange rate of 15,000 rupiah/dollar, the value of oil imports reaches IDR 1.2 trillion rupiah per day. If the exchange rate is 16,000 rupiah/dollar it will swell again. Meanwhile, our fuel exports are only 188 billion per day. This means an oil deficit of 1 trillion per year. The deficit will increase every year if it is not resolved.

This article examines the current account deficit contributed by the oil and gas sector. It is hoped that the new government of President-elect Prabowo Subianto-Vice President-elect Gibran Rakabuming Raka will focus on the oil and gas sector which has become a burden on the APBN. Several countries in the Middle East have early anticipation in managing energy. Even experiments to replace dependence on fossils are replaced with renewable energy. So that state income does not fall, they are starting to offer a tourism industry.

Fuel Import Expenses

Before discussing the new strategy for the oil and gas industry, it is better to examine the fuel import burden which reaches 1.6 million barrels per day. This fuel consumption is absorbed by the public, especially 60 to 70 percent for vehicles. The remaining 30 percent is for household and industrial needs. The strategy to reduce fuel needs requires a new breakthrough by using electric vehicles. PLN has an important role in revolutionizing the electricity industry. Because so far PLN consumption occurs at peak load from noon to 23.00 at night. In the morning, PLN experienced a decrease in consumption. For example, in the Java Bali network in 2018, the installed capacity was 34,550 MW (mega watts), there was a peak load of 27,070 MW. Meanwhile, in the morning, PLN consumption decreased to only 17,500 MW. At times outside peak load, PLN experiences losses of up to 5000 MW. If the government begins to implement a strategy to change from fossil energy to electricity, there will be a fundamental change not only in covering losses due to fuel imports but also in optimal use of electricity. The government also needs to carry out integrated supervision of gas demand in the domestic market. PLN, as the largest buyer of gas power plants, is less consistent in absorbing gas needs from the government, making planning the allocation of gas needs confusing.

Arranging Oil and Gas Industry Policy

A new direction is needed for Indonesia’s oil and gas industry policy in the first term of President Prabowo Subianto’s administration in 2024-2029. The new Upstream Oil and Gas Industry Policy for 2024-2029 is to maximize revenue from the sale of the State’s share of gas. Price optimization must be carried out by calculating as early as possible the gas that is not absorbed domestically to make a medium-term contract, a 5-year contract, not by selling gas to the spot market where the price tends to be low. With this pattern, the State will get a more optimal price. With the addition of more optimal foreign exchange reserves, it will be able to support the rupiah exchange rate against the dollar.

For the long term, it is to provide a firm deadline to domestic buyers for the Tangguh Train 3 project in Papua and the Abadi Field project in Maluku so that gas sales negotiations between the Cooperation Contract Contractors (KKKS) and domestic buyers do not drag on which ultimately delays the project. Accelerate Masela gas production and start offering buyers so that production in early 2030 is underway. The deadline for negotiations on the sale and purchase of Tangguh and Masela gas for domestic buyers is set for the first semester of 2025, so if no agreement is reached, the gas will be exported to earn additional foreign exchange for the country.

Increasing oil and gas production is by accelerating the approval of development plans (Plan of Development/POD) through unconventional methods, including implementing Put on Production (PoP), accelerating POD I Revision if additional reserves are found, targeting each POD approval in the Unit Special Work for Upstream Oil and Gas Business Activities (SKK Migas) is decided within 2 months at the latest.

In searching for new oil reserves, the New Direction for Upstream Oil and Gas Policy 2024-2029 emphasizes the need for a Presidential Regulation (Perpres) which regulates the Exploration Fund where in the Presidential Regulation it is stipulated that 5-10 percent of state revenues from the upstream oil and gas industry are immediately allocated and separated as funds for search for new oil reserves. These funds will be used to carry out exploration in 128 basins which so far have high potential but have never been explored.

Meanwhile, to encourage a reduction in domestic oil imports, SKK Migas needs to create a scheme to increase the use of gas that is processed into liquid (gas to liquid) for fuel in the industrial and transportation sectors. In the next 5 to 10 years there will be many new gas projects, and many export gas contracts will not be extended.

To anticipate this, an integrated process is carried out, gas will be carried and converted into liquid in ships and brought to areas that are anchor demand for oil consumption such as Java and Sumatra. With this pattern, gas utilization can be slowly integrated with gas to liquid utilization for transportation which is the sector that absorbs the highest fuel consumption. Thus, oil imports can be reduced so that it can help reduce pressure on the rupiah exchange rate in the long term.

SKK Migas also needs to optimize LNG sales that are not absorbed domestically for 2025. For 2025 – 2029, a study will be carried out on how many LNG cargoes are not absorbed for that period and then short-term contracts will be made for traditional and non-traditional markets so that the price obtained will be better than releasing it to the spot market. The foreign exchange obtained from optimizing LNG sales is expected to be able to support the strengthening of the rupiah exchange rate which has recently become a threat to macroeconomic stability. SKK Migas needs to encourage LNG sales not only to traditional markets such as Japan and South Korea portfolio buyers but also to non-traditional markets such as India and China.

Oil and gas production is targeted to increase from the current 1.9 million barrels of oil equivalent per day to a minimum of 2.5 million barrels of oil equivalent per day by the end of President Prabowo’s term in 2029 as a legacy for the Republic of Indonesia. Additional oil and gas production to achieve this target will be obtained from the Tangguh Traini III project of 700 MMSCFD the Jangkrik field of 600 MMSCFD, the Jambaran Tiung Biru field of 330 MMSCFD and the development of the Genting Oil project in Bintuni of 170 MMSCFD, Indonesia Deepwater Development (IDD) of 80 MMSCFD.

The implementation of the Presidential Regulation on Exploration Fund is targeted for 2024. Exploration activities to conduct exploration in 128 basins can be carried out in 2024 – 2029. Utilization of applied technology to optimize flare gas into gas sales products such as LNG. The World Bank noted that in 2024 there were 5 million cubic meters of flare gas burned in Indonesia. If utilized and processed, it will become an economical product value and reduce air pollution and soil pollution. Several oil and gas contractor companies do not process flare gas into usable gas products but dispose of it using reservoir technology to be disposed of into the ground instead of being processed into sales products. SKK Migas should sanction contractor companies that process flare gas into the ground.

Finally, by optimizing gas products in all oil and gas basins and fields throughout Indonesia, President Prabowo’s new government will be able to overcome the APBN deficit from oil and gas imports while stabilizing the rupiah exchange rate against the dollar. And make Indonesia independent in national energy and start building energy supplies for the ASEAN regional area. The power of gas not only strengthens the national economy but will be a power in the ASEAN regional area. If improvements occur, President Prabowo will be remembered as the father of modern national energy and leave a legacy of re-strengthening the regional economy through optimizing gas production.