Crude oil production: 42.6 Mtoe, -30.6% since 2002 Crude oil net imports: 1.9 Mtoe
Oil products net exports: 28.6 Mtoe
Share of oil: 36.1% of TPES and 16.7% of electricity generation
Consumption: 77.2 Mtoe (transport 50.9%, residential 15.1%, industry 14.4%, power generation 10.7%, commercial and other services 8.8%)
OVERVIEW
BACKGROUND
Oil is Indonesia’s primary source of energy, accounting for about 36% of country’s total primary energy supply (TPES). The country is a mature player in the global oil industry, with a long history of oil exploration and production. However, the oil sector in Indonesia has experienced considerable change in recent decades. The country’s reserves and production have declined continuously since its production peak in the mid-1990s, which led to the country becoming a net oil importer in 2004. Meanwhile, Indonesia’s demand for oil increased significantly in recent years, bolstered by its strong national economic growth. Indonesia is now faced with increasing dependency on imported crude oil and oil products, which places enormous pressure on its government budget, as the government subsidises a number of oil products at prices lower than international levels. As oil reserves are shrinking, the government of Indonesia is now shifting its policy focus away from the oil sector and emphasising development of its considerable gas resources. The country aims to reduce the share of oil in its future energy mix by encouraging the use of other fuels, especially in the transport and power sectors. Yet oil will remain important for national energy supply as well as government revenue. The country still needs to resolve multiple challenges in the oil sector along its entire value chain, to ensure optimal, sustainable development and utilisation of its oil resources.
SUPPLY AND DEMAND
SUPPLY
Production of oil in Indonesia started in 1885 after its first discovery in Sumatra. Today, the bulk of Indonesia’s oil production sites are located in Central Sumatra, Java and Kalimantan, both on and offshore, while Indonesia's two oldest and largest-producing fields, Duri and Minas, are located on the eastern coast of Sumatra. Indonesian crude oil is typically a light sweet grade.
2015
Indonesia’s domestic production was 0.9 million barrels per day (mb/d) in 2012, a figure which has been declining since peak production of 1.67 mb/d in 1994. In the medium and long term, its domestic production is expected to decrease further to 0.75 mb/d in 2018 and 0.67 mb/d in 2035. As such, the prospects for new project development are limited. The Cepu Block, which is located in East and Central Java and contains 600 million barrels (mb) of recoverable liquids, is the only major new development at the moment. ExxonMobil operates the block with a 45% interest, along with Pertamina (45%) and the local government (10%). The Banyu Urip project is the first development in the Cepu Block, and is expected to ramp up to more than 150 thousand barrels per day (kb/d) in 2014/15, following delays. These projects will help mitigate Indonesia’s medium-term rate of decline in average production, but not the long-term trend.
The government of Indonesia aims to increase domestic oil production through the use of enhanced oil recovery (EOR) and new investments in deep offshore waters.
Presidential Instruction No. 2 of 2012 set an oil production target of 1.01 mb/d by 2014 and instructed the relevant government bodies to take necessary actions to achieve it.
This has not, however, resulted in an increase in domestic production. Recently, the government lowered its production target to between 830 kb/d and 870 kb/d for 2015, a decline from the original 2015 target which was between 900 kb/d and 920 kb/d (Jakarta Post, 2014).
Figure 4.1 Crude oil production, imports and exports, 1973-2012
Notes: Mtoe = million tonnes of oil-equivalent.
Source: IEA (2014a), Oil Information, OECD/IEA, Paris.
DEMAND
Indonesia’s oil demand reached 1.62 mb/d in 2012, an increase of over 35% from 1.19 mb/d in 2002. The main source of increased demand has been the transport sector, which accounted for 56% of oil used in Indonesia in 2012, in comparison to 40% in 2002;
this represents an annual average growth rate of over 6%. The trend of increasing oil demand from Indonesia’s transport sector is expected to continue in the coming years, considering that the country’s rate of passenger car ownership stood at 39 per 1 000 capita in 2011, compared to the world average of 123 per 1 000 capita, and an average of 447 per 1 000 capita in Organisation for Economic Co-operation and Development (OECD) member countries. The power sector is another major oil consumer, accounting for 12% of oil consumption in 2012. Oil, mostly in the form of diesel, was used to produce 17% of generated electricity in 2012. Although this share has decreased from 0
1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Mtoe
Production Exports Imports
2015
nearly one-quarter of generated electricity in 2002, oil remains the third-largest source of power generation following coal and natural gas. Looking ahead, Indonesia’s total oil demand is projected to grow at an average annual rate of 1.1%, reaching 2.1 mb/d in 2035.
Figure 4.2 TPES of oil by consuming sector, 1973-2012
* Other transformations include refining and energy sector consumption.
** Industry includes non-energy use.
*** Commercial includes commercial, public services, agriculture/forestry, fishing and other final consumption.
Source: IEA (2014b), Energy Balances of Non-OECD Countries 2014, OECD/IEA, Paris.
TRADE
Indonesia has been a net importer of oil since 2004. The country, which represented 5%
of global crude oil exports in 1983, suspended its membership in the Organization of the Petroleum Exporting Countries (OPEC) in 2009. Indonesia’s share of global crude exports has since decreased to less than 1%. Meanwhile, the country’s oil import dependency reached nearly one-third of its domestic demand in 2012, and this is expected to rise to 40% in 2018. Indonesia mostly imports crude oil from Nigeria, Saudi Arabia, Iraq and Azerbaijan. Although it is a net importer, Indonesia also exported 275 kb/d of crude and natural gas liquids to Asia-Pacific countries, including Japan, in 2012.
Due to a shortage of domestic refining capacity, Indonesia imports a considerable amount of petroleum products from overseas, including Korea, Singapore, Malaysia and Kuwait, leading to an import dependency rate for petroleum products of 35%. In 2013, the largest imports were premium gasoline (57% in volume terms) mostly imported from Singapore, followed by diesel (21%) and liquefied petroleum gas (LPG) (17%) (JODI Oil, 2014). In particular, Indonesia shows greater dependency on imports of light distillate products: it imported nearly 60% of its gasoline demand and 45% of its LPG demand in 2012.
RESERVES
Indonesia faces the challenges associated with declining domestic crude oil reserves. At the end of 2012, the country’s proven oil reserves were 2.7 billion barrels (bbl), with remaining recoverable resources of 37.1 bbl. Its share of the global proven oil reserve of 1 702 bbl is 0.15%. Much of its reserves are located in the Sumatra and Java basins, while the focus of recent investment has shifted to deepwater reserves in the Kutei basins off the coast of Kalimantan, West Papua and the Arafura Sea (Figure 4.3).
0
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Mtoe
Figure 4.3 Indonesian oil reserves, 2012
Note: Mmstb = million stock tank barrels.
Source: Directorate-General of Oil and Gas (2013), Indonesian Oil Reserves, Ministry of Energy and Mineral Resources, Jakarta.
GOVERNMENT POLICIES
The 2001 Oil and Gas Law (Law No. 22/2001) introduced significant changes to the oil and gas sectors, aiming to ensure effective and sustainable management of hydrocarbon resources in the country. Its centrepiece was the transfer of regulatory responsibilities from Pertamina to two new regulatory bodies, BP Migas and BPH Migas.
In addition, the government introduced a number of new regulations and laws over recent years covering the oil and gas sectors. One of the most significant is the Government Regulation No. 79 of 2010 (GR 79/2010), which provided an overarching framework for financial and tax provisions covering the use of production sharing contracts (PSCs). It included more stringent conditions for cost recovery, which potentially, which retrospectively affect the financial performance of existing PSCs.
Against the backdrop of the dissolution of BP Migas in November 2012, oil and gas law is being revised to provide a legal and institutional setting for a new upstream regulatory body. The details of this law remain unknown at the time of writing.