Oil Years Give Way to Era of Indonesian Natural Gas

Kamis, 01 Maret 2012 | 12:38

When Indonesia lost its status as an OPEC member in 2008, some industry executives lamented the downgrade, given the country’s longstanding membership.Natural gas production, though, has since 2002 overtaken crude oil output, so government officials aren’t too fussed about rejoining the powerful oil cartel.

“We cannot deny that Indonesia is no longer in the era of oil. The facts say that. We have to change our paradigm from oil to gas,” said Raden Priyono, chairman of BPMigas, the state regulator that oversees oil and gas exploration and production.

Indonesia’s natural gas boom aligns with a global trend toward the resource and away from refined oil products. Thailand has been pushing for vehicles to use compressed natural gas rather than gasoline to fuel engines, and the archipelago is embarking on a similar project.

Natural riches

Indonesia has 335 trillion cubic feet of estimated gas resources, according to the Ministry of Energy and Mineral Resources, and that is equivalent to 59.6 billion barrels of oil.

Proven natural gas reserves amount to 109 trillion cubic feet, the most in the Asia-Pacific region, based on a 2011 report from British oil giant BP. Australia is a close second with 103 trillion cubic feet, and Russia has the most at 1,581 trillion cubic feet.

With crude oil prices exceeding $100 a barrel and high national demand for electricity and cooking fuel, the shift to natural gas makes sense. Indonesia’s economy last year expanded 6.5 percent, the fastest rate since 1996, and it is expected to grow at the same pace this year.

Gas demand is estimated to increase by 5.7 percent each year on the assumption of 7 percent annual growth, according to the Agency for Assessment and Application of Technology (BPPT).

Last year, companies operating in Indonesia produced 8.8 billion cubic feet per day, or 1.5 million barrels of oil equivalent, from 11 gas blocks, according to BPMigas. Output was two-thirds more than oil production, which was 903,441 bpd. Sixty percent of the gas came from offshore sites such as the Donggi Senoro project, east of Sulawesi island; it has 2.3 trillion cubic feet of potential reserve.

Here and there

About half of the gas extracted was used to help fuel state-owned electricity producer Perusahaan Listrik Negara, fertilizer producers and manufacturing companies.

The other half was shipped abroad, mainly to Japan, South Korea, China and the United States. The high ratio for exports, though, has left Indonesia unable to meet national demand.

To make up the deficit, electricity producers are switching to more costly diesel. Whenever PLN uses diesel fuel, though, it charges customers Rp 1,500 (17 cents) per kilowatt-hour, compared to Rp 1,000 per kilowatt-hour for gas.

Last year, exports declined as lower overseas demand kept more gas in the country. Indonesia reduced shipments to 1.1 billion cubic feet per day to Japan, China, Taiwan, South Korea and the United States, from 1.2 billion cubic feet per day in 2010.

Still, selling gas has been profitable and shipments abroad have made Indonesia the second-biggest exporter of liquefied natural gas in the world, behind only Qatar. Indonesia has facilities that convert natural gas into LNG, which makes shipping the fuel easier. Last year, Indonesia’s revenue from gas exports amounted to $12.96 billion, up 38 percent from 2010.

Aging fields

Indonesia’s biggest reserve and production site is the Mahakam offshore project in the Makassar Strait off East Kalimantan that is operated by Total E&P Indonesia. The company, a local unit of France’s Total, produces 30 percent of Indonesia’s gas production and has 14 trillion cubic feet of reserves.

Indonesia currently has three major sites: Arun LNG in Aceh, Bontang in South Kalimantan and Tangguh in Papua.

Bontang is Indonesia’s biggest LNG producer, at 3 billion cubic feet per day.

However, like crude oil, the combination of a lack of exploration and aging field means reserves are slowly diminishing.

Production at Arun peaked in 1994 at around 2.4 billion cubic feet per day, but now output is 30 percent of that.

Two sites — the Aceh block and North Sumatra Offshore, both operated by Exxon Mobil — are only producing 225 million cubic feet per day.

“As aging gas fields are dwindling and the demand continues to rise, we don’t have any choice but to encourage gas companies to explore for more gas fields in the country,” said Rudi Rubiandini, an official at BPMigas.

The recent gas find in the Makassar Strait by US energy producer Chevron could further boost output. Chevron Indonesia, a local unit, discovered a pocket of 2.3 trillion cubic feet in natural gas off the eastern coast of Kalimantan. The site is expected to produce 1 billion cubic feet per day, though because it is an offshore field, development of the block is expensive, estimated at up to $7 billion, BPMigas said.

The government is also encouraging the development of several projects with large potential pockets of gas.

That includes the Masela project, located in waters bordering Australia and managed by Japan’s Inpex, with estimated output at 2.3 trillion cubic feet.

The most complex project so far has been the site in the Natuna islands, in the South China Sea near Singapore and Malaysia. The East Natuna block is estimated to contain 200 trillion cubic feet of gas, but only 46 trillion cubic feet can be extracted because high levels of carbon that make it difficult to process as fuel.

Currently, state-owned oil and gas producer Pertamina is leading a consortium that includes Exxon Mobil and Total to secure a market for gas from the East Natuna field as well as working out a package of incentives from the Indonesian government to fully develop the area.

“The government should realize that the East Natuna block is such a great yet difficult asset, so it has to approve an incentives package,” said Karen Agustiawan, Pertamina’s president director.

New technology

Evita Legowo, the director of oil and gas at the Energy Ministry responsible for managing natural gas flow, said the ministry must find a way to reduce supply shortages, including reduction of shipments and finding other alternatives to gas.

“The government of Indonesia is shifting from gas exports to domestic gas need. To support this, we are working hard to increase our production from existing gas fields,” she said.

One state initiative was extracting gas from coalbed methane fields, which was started in earnest four years ago. CBM is gas that is trapped in seams of coal, and extracting it involves injecting water into the seams and collecting the methane.

According to estimates from the Energy Ministry, Indonesia could potentially gain 453 trillion cubic feet of gas from CBM. The government has signed 42 contracts for extracting gas from CBM in Kalimantan and Sumatra, which are abundant in coal.

One of the pioneers in CBM production is Energi Pasir Hitam Indonesia (Ephindo), a local energy company owned by Sammy Hamzah, vice president of the Indonesian Petroleum Association (API) and a founder of the Coal Bed Methane Advisory Board.

Ephindo operates the Sangatta block in East Kalimantan and is working with a unit of US conglomerate General Electric to operate a 1.5 megawatt power plant that supplies electricity to approximately 680 households in East Kalimantan.

To attract investors to develop unconventional gas fields, the government is giving operators a bigger revenue share, at 40 percent of production, the Energy Ministry’s Evita said. That is higher than the share for conventional gas development, which is 30 percent.

Aside from CBM, the government is tempted by the United States’ success in producing gas from shale.

The Indonesian government has asked for assistance from US gas shale experts to share their knowledge.

“We often hold discussions, seminars and conferences in a bid to attract more investors to develop unconventional gas in Indonesia,” Evita said. Still, Indonesia has yet to calculate the potential from shale gas.

Kurtubi, director at the Center for Petroleum and Energy Economic Studies, is optimistic about the future of gas’ role in Indonesia. “I fully support BPMigas’s idea to boost gas production instead of oil,” Kurtubi said. “I think the current resource can meet local demand for around 40 years.”

Finding new gas reserves from exploration activities is a bonus, too, he said.

“Those will make the gas price cheaper, as we have seen in the United States, where there is an oversupply,” Kurtubi said.

By Ririn Radiawati Kusuma
Source http://www.thejakartaglobe.com